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, ~~2018~~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)~~ (562) 435-3666

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value	MOH	New York Stock Exchange

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. Yesý☒ 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). Yesý☒ 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☒Accelerated Filer ☐Non-Accelerated Filer ☐Smaller reporting company ☐



~~Large accelerated filer~~	ý	~~Accelerated filer~~	¨
~~Non-accelerated filer~~	¨ ~~(Do not check if a smaller reporting company)~~	~~Smaller reporting company~~	¨
		~~Emerging growth 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.☐



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 ~~26, 2018,~~25, 2019, was approximately ~~62,389,000.~~62,700,000.

MOLINA HEALTHCARE, INC. FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~September~~SEPTEMBER 30, ~~2018~~2019

TABLE OF CONTENTS


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	28

3.	Quantitative and Qualitative Disclosures About Market Risk	55	Quantitative and Qualitative Disclosures About Market Risk	47

4.	Controls and Procedures	59	Controls and Procedures	48

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

1.	Legal Proceedings	60	Legal Proceedings	48

1A.	Risk Factors	60	Risk Factors	48

2.	Unregistered Sales of Equity Securities and Use of Proceeds	60	Unregistered Sales of Equity Securities and Use of Proceeds	49

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	61	Exhibits	50

	Signatures	62	Signatures	51

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017			2018		2017			2019		2018		2019			2018
	(In millions, except per-share data) (Unaudited)										(In millions, except per-share amounts) (Unaudited)
Revenue:
Premium revenue	$	4,337	$	4,777		$	13,174	$	14,165		$	4,084	$	4,337	$	12,085		$	13,174
Service revenue	130		130			391		390
Premium tax revenue	110		106			320		331			119		110		367			320
Health insurer fees reimbursed	83		—			248		—			—		83		—			248
Service revenue											—		130		—			391
Investment income and other revenue	37		18			93		48			40		37		103			93
Total revenue	4,697		5,031			14,226		14,934			4,243		4,697		12,555			14,226
Operating expenses:
Medical care costs	3,790		4,220			11,362		12,822			3,523		3,790		10,360			11,362
Cost of service revenue	111		123			349		369
General and administrative expenses	311		383			998		1,227			323		311		953			998
Premium tax expenses	110		106			320		331			119		110		367			320
Health insurer fees	87		—			261		—			—		87		—			261
Depreciation and amortization	25		33			76		109			21		25		68			76
Restructuring and separation costs	5		118			38		161
Impairment losses	—		129			—		201
Restructuring costs											—		5		5			38
Cost of service revenue											—		111		—			349
Total operating expenses	4,439		5,112			13,404		15,220			3,986		4,439		11,753			13,404
Gain on sale of subsidiary	37		—			37		—			—		37		—			37
Operating income (loss)	295		(81		)	859		(286		)
Operating income											257		295		802			859
Other expenses, net:
Interest expense	26		32			91		85			22		26		67			91
Other expenses (income), net	10		—			25		(75		)	2		10		(15		)	25
Total other expenses, net	36		32			116		10			24		36		52			116
Income (loss) before income tax expense (benefit)	259		(113		)	743		(296		)
Income tax expense (benefit)	62		(16		)	237		(46		)
Net income (loss)	$	197	$	(97	)	$	506	$	(250	)
Income before income tax expense											233		259		750			743
Income tax expense											58		62		181			237
Net income											$	175	$	197	$	569		$	506

Net income (loss) per share:
Net income per share:
Basic	$	3.22	$	(1.70	)	$	8.32	$	(4.44	)	$	2.81	$	3.22	$	9.15		$	8.32
Diluted	$	2.90	$	(1.70	)	$	7.60	$	(4.44	)	$	2.75	$	2.90	$	8.80		$	7.60

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


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017			2018			2017			2019		2018		2019		2018
	(In millions) (Unaudited)											(In millions) (Unaudited)
Net income (loss)	$	197	$	(97	)	$	506		$	(250	)
Net income												$	175	$	197	$	569	$	506
Other comprehensive income (loss):
Unrealized investment gain (loss)	1		1			(5		)	2
Unrealized investment income (loss)												—		1		17		(5		)
Less: effect of income taxes	—		1			(1		)	1			—		—		4		(1		)
Other comprehensive income (loss), net of tax	1		—			(4		)	1			—		1		13		(4		)
Comprehensive income (loss)	$	198	$	(97	)	$	502		$	(249	)
Comprehensive income												$	175	$	198	$	582	$	502

See accompanying notes.

CONSOLIDATED BALANCE SHEETS

September 30,
2018 December 31,
2017

(In millions,
except per-share data)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,814
$ 3,186
Investments 1,812
2,524
Restricted investments —
169
Receivables 1,346
871
Prepaid expenses and other current assets 486
239
Derivative asset 843
522
Total current assets 7,301
7,511
Property, equipment, and capitalized software, net 264
342
Goodwill and intangible assets, net 195
255
Restricted investments 118
119
Deferred income taxes 143
103
Other assets 30
141
$ 8,051
$ 8,471

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable $ 2,042
$ 2,192
Amounts due government agencies 1,030
1,542
Accounts payable and accrued liabilities 824
366
Deferred revenue 178
282
Current portion of long-term debt 296
653
Derivative liability 843
522
Total current liabilities 5,213
5,557
Long-term debt 1,019
1,318
Lease financing obligations 198
198
Other long-term liabilities 60
61
Total liabilities 6,490
7,134

Stockholders’ equity:
Common stock, $0.001 par value, 150 shares authorized; outstanding: 62 shares at September 30, 2018 and 60 shares at December 31, 2017 —
—
Preferred stock, $0.001 par value; 20 shares authorized, no shares issued and outstanding —
—
Additional paid-in capital 760
1,044
Accumulated other comprehensive loss (10 ) (5 )
Retained earnings 811
298
Total stockholders’ equity 1,561
1,337
$ 8,051
$ 8,471



	September 30, 2019		December 31, 2018
	(Dollars in millions, except per-share amounts)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,679	$	2,826
Investments	1,757		1,681
Receivables	1,280		1,330
Prepaid expenses and other current assets	140		149
Derivative asset	21		476
Total current assets	5,877		6,462
Property, equipment, and capitalized software, net	379		241
Goodwill and intangible assets, net	176		190
Restricted investments	79		120
Deferred income taxes	82		117
Other assets	108		24
	$	6,701	$	7,154

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	1,975	$	1,961
Amounts due government agencies	612		967
Accounts payable and accrued liabilities	478		390
Deferred revenue	207		211
Current portion of long-term debt	15		241
Derivative liability	21		476
Total current liabilities	3,308		4,246
Long-term debt	1,239		1,020
Finance lease liabilities	233		197
Other long-term liabilities	90		44
Total liabilities	4,870		5,507
Stockholders’ equity:
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 63 million shares at September 30, 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	160		643
Accumulated other comprehensive income (loss)	5		(8		)
Retained earnings	1,666		1,012
Total stockholders’ equity	1,831		1,647
	$	6,701	$	7,154

See accompanying notes.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Retained Earnings				Total			Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total
	Outstanding	Amount					Outstanding				Retained Earnings			Amount							Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total
	(In millions)																	(In millions)
	(Unaudited)																	(Unaudited)
Balance at January 1, 2018	60	$	—	Additional Paid-in Capital			$	Accumulated Other Comprehensive Loss	1,044		$	(5	)		Total		$	298	$	1,337
Balance at December 31, 2018																		62	$	—	$	643		$	(8	)	$	1,012	$	1,647
Net income	—	—		—				—			107				107			—	—		—			—			198		198
Adoption of Topic 606	—	—		—				—			6				6
Adoption of ASU 2018-02	—	—		—				(1		)	1				—
Exchange of 1.625% Notes	2	—		108				—			—				108
Other comprehensive loss, net	—	—		—				(6		)	—				(6		)
Adoption of new accounting standard																		—	—		—			—			85		85
Partial termination of 1.125% Warrants																		—	—		(103		)	—			—		(103		)
Other comprehensive income, net																		—	—		—			5			—		5
Share-based compensation	—	—		1				—			—				1			1	—		3			—			—		3
Balance at March 31, 2018	62	—		1,153				(12		)	412				1,553
Balance at March 31, 2019																		63	—		543			(3		)	1,295		1,835
Net income	—	—		—				—			202				202			—	—		—			—			196		196
Partial termination of 1.125% Warrants	—	—		(113		)		—			—				(113		)	—	—		(321		)	—			—		(321		)
Other comprehensive income, net	—	—		—				1			—				1			—	—		—			8			—		8
Share-based compensation	—	—		15				—			—				15			—	—		18			—			—		18
Balance at June 30, 2018	62	—		1,055				(11		)	614				1,658
Balance at June 30, 2019																		63	—		240			5			1,491		1,736
Net income	—	—		—				—			197				197			—	—		—			—			175		175
Partial termination of 1.125% Warrants	—	—		(306		)		—			—				(306		)	—	—		(90		)	—			—		(90		)
Conversion of 1.625% Notes	—	—		4				—			—				4
Other comprehensive income, net	—	—		—				1			—				1
Share-based compensation	—			7				—			—				7			—	—		10			—			—		10
Balance at September 30, 2018	62	$	—	$	760			$	(10	)	$	811			$	1,561
Balance at September 30, 2019																		63	$	—	$	160		$	5		$	1,666	$	1,831

Common Stock
Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings
Total
Outstanding Amount
(In millions)
(Unaudited)
Balance at January 1, 2017 57
$ —
$ 841
$ (2 ) $ 810
$ 1,649
Net income —
—
—
—
77
77
Other comprehensive income, net —
—
—
1
—
1
Balance at March 31, 2017 57
—
841
(1 ) 887
1,727
Net loss —
—
—
—
(230 ) (230 )
Share-based compensation —
—
24
—
—
24
Balance at June 30, 2017 57
—
865
(1 ) 657
1,521
Net loss —
—
—
—
(97 ) (97 )
Share-based compensation —
—
5
—
—
5
Balance at September 30, 2017 57
$ —
$ 870
$ (1 ) $ 560
$ 1,429



	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
Net income	—	—		—			—			202		202
Partial termination of 1.125% Warrants	—	—		(113		)	—			—		(113		)
Other comprehensive income, net	—	—		—			1			—		1
Share-based compensation	—	—		15			—			—		15
Balance at June 30, 2018	62	—		1,055			(11		)	614		1,658
Net income	—	—		—			—			197		197
Partial termination of 1.125% Warrants	—	—		(306		)	—			—		(306		)
Conversion of 1.625% Convertible Notes	—	—		4			—			—		4
Other comprehensive income, net	—	—		—			1			—		1
Share-based compensation	—	—		7			—			—		7
Balance at September 30, 2018	62	$	—	$	760		$	(10	)	$	811	$	1,561

See accompanying notes.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
	(In millions) (Unaudited)						(In millions) (Unaudited)
Operating activities:
Net income (loss)	$	506		$	(250	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Net income							$	569		$	506
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	104			139			68			104
Deferred income taxes	(32		)	(68		)	7			(32		)
Share-based compensation	20			38			29			20
Amortization of convertible senior notes and finance lease liabilities							5			18
(Gain) loss on debt extinguishment							(15		)	25
Non-cash restructuring costs	17			49			—			17
Amortization of convertible senior notes and lease financing obligations	18			24
Gain on sale of subsidiary	(37		)	—			—			(37		)
Loss on debt extinguishment	25			—
Impairment losses	—			201
Other, net	6			13			(5		)	6
Changes in operating assets and liabilities:
Receivables	(507		)	(28		)	50			(507		)
Prepaid expenses and other current assets	(117		)	(53		)	(6		)	(117		)
Medical claims and benefits payable	(144		)	549			14			(144		)
Amounts due government agencies	(511		)	122			(355		)	(511		)
Accounts payable and accrued liabilities	398			90			37			398
Deferred revenue	(55		)	153			(4		)	(55		)
Income taxes	118			(22		)	4			118
Net cash (used in) provided by operating activities	(191		)	957
Net cash provided by (used in) operating activities							398			(191		)
Investing activities:
Purchases of investments	(1,202		)	(1,894		)	(1,938		)	(1,202		)
Proceeds from sales and maturities of investments	2,070			1,536			1,890			2,070
Purchases of property, equipment and capitalized software	(24		)	(85		)	(30		)	(24		)
Other, net	(23		)	(33		)	(2		)	(23		)
Net cash provided by (used in) investing activities	821			(476		)
Net cash (used in) provided by investing activities							(80		)	821
Financing activities:
Repayment of credit facility	(300		)	—
Repayment of principal amount of 1.125% Notes	(236		)	—
Repayment of principal amount of 1.125% Convertible Notes							(240		)	(236		)
Cash paid for partial settlement of 1.125% Conversion Option	(477		)	—			(578		)	(477		)
Cash received for partial termination of 1.125% Call Option	477			—			578			477
Cash paid for partial termination of 1.125% Warrants	(419		)	—			(514		)	(419		)
Repayment of principal amount of 1.625% Notes	(64		)	—
Proceeds from senior notes offerings, net of issuance costs	—			325
Proceeds from borrowings under credit facility	—			300
Proceeds from borrowings under Term Loan Facility							220			—
Repayment of Credit Facility							—			(300		)
Repayment of 1.625% Convertible Notes							—			(64		)
Other, net	7			7			24			7
Net cash (used in) provided by financing activities	(1,012		)	632
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents	(382		)	1,113
Net cash used in financing activities							(510		)	(1,012		)
Net decrease in cash, cash equivalents, and restricted cash and cash equivalents							(192		)	(382		)
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period	3,290			2,912			2,926			3,290
Cash, cash equivalents, and restricted cash and cash equivalents at end of period	$	2,908		$	4,025		$	2,734		$	2,908

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
	(In millions) (Unaudited)						(In millions) (Unaudited)
Supplemental cash flow information:

Schedule of non-cash investing and financing activities:
Common stock used for share-based compensation	$	(6	)	$	(21	)	$	(7	)	$	(6	)

Details of sale of subsidiary:
Decrease in carrying amount of assets	$	(243	)	$	—		$	—		$	(243	)
Decrease in carrying amount of liabilities	59			—			—			59
Transaction costs	(12		)	—			—			(12		)
Receivable from buyer - recorded in prepaid expenses and other current assets	233			—			—			233
Gain on sale of subsidiary	$	37		$	—		$	—		$	37

Details of change in fair value of derivatives, net:
Gain on 1.125% Call Option	$	321		$	158		$	124		$	321
Loss on 1.125% Conversion Option	(321		)	(158		)	(124		)	(321		)
Change in fair value of derivatives, net	$	—		$	—		$	—		$	—

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

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2018~~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 ofhealthcare services under the Medicaid ~~program.~~and Medicare programs and through the state insurance marketplaces (the “Marketplace”). We currently have ~~three~~2 reportable ~~segments, consisting 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 we sold in late 2018, as well as certain corporate amounts not allocated to the Health Plans segment.

The Health Plans segment consists of health plans operating in 1314 states and the Commonwealth of Puerto Rico. As of September 30, ~~2018,~~2019, these health plans served approximately ~~4.0~~3.3 million members eligible for Medicaid, Medicare, and other government-sponsored ~~health care~~healthcare 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 five years. These contracts typically contain renewal options exercisable by the state Medicaid agency, and allow either the state or the health plan to terminate the contract with or without cause. Such contracts are subject to risk of loss in states that issue requests for proposal ~~(RFP)~~(“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 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’ administration of their Medicaid programs, including business processing, information technology development and administrative services. The Other segment includes primarily our behavioral health and social services provider subsidiary (Pathways), and corporate amounts not allocated to other reportable segments.Subsequent Events

~~Recent Developments – Health Plans Segment~~

~~New Mexico~~Texas Health Plan. InOn October 29, 2019, the Texas Health and Human Services Commission (HHSC) notified our ~~Annual Report on Form 10-K~~Texas health plan, Molina Healthcare of Texas, Inc., that HHSC intends to award contracts to Molina Healthcare of Texas, Inc. for ~~2017, we reported that we were notified by~~ the ~~New Mexico Medicaid agency that we had not been selected for a tentative award of a 2019 Medicaid contract. A hearing was held on our judicial protest on October 17, 2018, with a decision expected~~STAR+PLUS program in the ~~fourth quarter~~Hidalgo and North East service areas. The awards will be for an initial contract term of ~~2018. Regardless of the court’s decision on our protest, we would~~3 years, and anticipated to have ~~further rights of appeal. We are continuing to manage the business in run-off until such time as a different outcome is determined. As~~an operational effective date of September ~~30, 2018, we served~~1, 2020. STAR+PLUS is a Texas Medicaid Managed Care program integrating the delivery of Acute Care services and Long-Term Services and Supports (LTSS) for people who are age 65 or older, blind, or disabled. Currently, our Texas health plan services the Bexar, Dallas, El Paso, Harris, Hidalgo, and Jefferson service areas, with total membership of approximately ~~206,000 Medicaid members in New Mexico, which represented~~86,000 enrollees. Under the existing STAR+PLUS contract, the premium revenue ~~of $891 million~~for this program amounted to approximately $1.2 billion for the nine months ended September 30, ~~2018.~~2019.

~~Puerto Rico~~New York Health Plan. ~~In July 2018, our Puerto Rico health plan was selected by~~On October 10, 2019, we entered into a definitive agreement to acquire certain assets of YourCare Health Plan, Inc. Upon the ~~Puerto Rico Health Insurance Administration~~closing of this transaction, expected to ~~be one of the organizations to administer the Commonwealth’s new Medicaid Managed Care contract. We expect to~~occur in early 2020, we will serve approximately ~~290,000 members under the new contract. The base contract runs for a period of three years with an optional one-year extension. As of September 30, 2018, we served approximately 320,000~~46,000 Medicaid members in ~~the East and Southwest regions~~7 counties in Western New York. The purchase price of ~~Puerto Rico, which represented premium revenue of $549 million for the nine months ended September 30, 2018.~~

~~Florida Health Plan.~~ In June 2018, our Florida health plan was awarded comprehensive Medicaid Managed Care contracts by the Florida Agency for Health Care Administration (AHCA) in Regions 8 and 11 of the Florida Statewide Medicaid Managed Care Invitation to Negotiate. As of September 30, 2018, we served approximately 96,000 Medicaid members in those regions, which represented premium revenue of approximately $346 million for the nine months ended September 30, 2018. Services under the new contract are expected to begin on January 1, 2019. We will be serving both the Medicaid and long-term care populations in the two regions.

~~Washington Health Plan.~~ In May 2018, our Washington health plan was selected by the Washington State Health Care Authority (HCA) to enter into a managed care contract for the eight remaining regions of the state’s Apple Health Integrated Managed Care program, in addition to the two regions previously awarded to us. We were

selected by HCA for the following regions: Greater Columbia, King, North Sound, Pierce, and Spokane beginning January 1, 2019; and Salish, Thurston-Mason, and Great Rivers beginning January 1, 2020. As of September 30, 2018, we served approximately 738,000 Medicaid members in Washington, which represented premium revenue of $1,558 million for the nine months ended September 30, 2018.

~~Recent Developments – Molina Medicaid Solutions Segment~~

We closed on the sale of Molina Medicaid Solutions (MMS) to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million, which we received on October 1, 2018. As a result of this transaction, we recognized a pretax gain, net of transaction costs, of $37 million. Refer to Note 11, “Segments,” for further information.

~~Subsequent Event – Other Segment~~

~~On October 19, 2018, we sold our Pathways subsidiary to Pyramid Health Holdings, LLC for a nominal purchase price. We expect to record a loss on sale of subsidiary amounting to~~ approximately $40 million ~~net of income tax benefits.~~

~~Presentation and Reclassification~~

~~We have reclassified certain amounts in the 2017 consolidated statement of cash flows to conform to the 2018 presentation, relating to the presentation of restricted~~will be funded with available cash, and ~~cash equivalents. The reclassification~~the closing is ~~a result of our adoption of Accounting Standards Update (ASU) 2016-18,~~ ~~Restricted Cash~~ ~~effective January 1, 2018. See Note~~ 2~~, “Significant Accounting Policies,” for further information, including the amount reclassified.~~

~~We have combined certain line items in the accompanying consolidated balance sheets. For all periods presented, we have combined the presentation of:~~

~~Income taxes refundable with “Prepaid expenses and other current assets;”~~

~~Income taxes payable with “Accounts payable and accrued liabilities;”~~

~~Goodwill, and intangible assets, net~~subject to ~~a single line; and~~customary closing conditions.

~~Deferred contract costs with “Other assets.”~~

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 nine months ended September 30, ~~2018~~2019, are not necessarily indicative of the results for the entire year ending December 31, ~~2018.~~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, ~~2017.~~2018. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, ~~2017~~2018, audited consolidated financial statements have been omitted.

These unaudited consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended December 31, ~~2017.~~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

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term, highly liquid investments that are both readily convertible into known amounts of cash and have a maturity of three months or less on the date of purchase. The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated statements of cash flows. The restricted cash and cash equivalents presented below are included in non-current “Restricted investments” in the accompanying consolidated balance sheets.



	September 30,
	2019		2018
	(In millions)
Cash and cash equivalents	$	2,679	$	2,814
Restricted cash and cash equivalents	55		94
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the statements of cash flows	$	2,734	$	2,908

Nine Months Ended September 30,
2018 2017
(In millions)
Cash and cash equivalents $ 2,814
$ 3,934
Restricted cash and cash equivalents 94
91
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the statements of cash flows $ 2,908
$ 4,025

Premium Revenue ~~Recognition~~

~~We adopted ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ effective January 1, 2018, using the modified retrospective approach. The insurance contracts of our Health Plans segment, which segment constitutes the vast majority of our operations, are excluded from the scope of Topic 606 because the recognition of revenue under these contracts is dictated by other accounting standards governing insurance contracts. The cumulative effect of initially applying the guidance, relating entirely to our Molina Medicaid Solutions segment contracts, resulted in an immaterial impact to beginning retained earnings, as presented in the accompanying consolidated statement of stockholders’ equity. Topic 606 was only applied to service contracts that were not completed as of December 31, 2017. Refer to “Other segment” below for further information.

~~Health Plans segment~~

Premium revenue is fixed in advance of the periods covered and, except as described below, is not generally subject to significant accounting estimates. Premium revenues are recognized in the month that members are entitled to receive ~~health care~~healthcare 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~~the following categories:

Contractual Provisions That May Adjust or Limit Revenue or ~~Profit;” and 2) “Quality Incentives.” Liabilities recorded for such provisions are included in “Amounts due government agencies” in the accompanying consolidated balance sheets.~~Profit


1)	~~Contractual Provisions That May Adjust or Limit Revenue or Profit:~~

Medicaid Program

Medical Cost Floors (Minimums), and Medical Cost ~~Corridors:~~ ~~Pursuant to certain contract provisions, a~~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~~liabilities under the terms of such contract provisions of ~~$198~~$95 million and ~~$135~~$103 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Approximately ~~$144~~$78 million and ~~$96~~$87 million of ~~this liability~~the liabilities accrued at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, ~~relates~~relate to our participation in Medicaid Expansion programs. ~~Refer~~

In certain circumstances, the health plans may receive additional premiums if amounts spent on medical care costs exceed a defined maximum threshold. Receivables relating to ~~Note 12, “Commitments~~such provisions were insignificant at September 30, 2019 and ~~Contingencies~~,”December 31, 2018.

Profit Sharing and Profit 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 ~~further information regarding~~profits in excess of the ~~California Medicaid Expansion program.~~

amount we are allowed to retain under these provisions were insignificant at September 30, 2019 and December 31, 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~~based on our best estimate of the ~~months~~ultimate premium we expect to realize for the period being adjusted.

Medicare Program

Risk Adjusted Premiums. Our Medicare premiums are subject to retroactive increase or decrease based on the health status of ~~service~~our Medicare members (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 Centers for Medicare and Medicaid Services (“CMS”) practices. Consolidated balance sheet amounts related to ~~which the retroactive adjustment applies.~~

anticipated Medicare risk adjusted premiums and Medicare Part D settlements were insignificant at September 30, 2019 and December 31, 2018.

~~Medicare~~

Minimum ~~MLR:~~MLR. The Affordable Care Act ~~(ACA)~~(“ACA”) has established a minimum annual medical loss ratio ~~(Minimum MLR)~~(“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~~were not significant at September 30, ~~2018~~2019 and December 31, ~~2017.~~

2018.

Marketplace Program

Risk ~~adjustment:~~Adjustment. Under this program, our health plans’ composite risk scores are compared with the overall average risk score for the relevant state and market pool. Generally, our health plans will make a risk adjustment payment into the pool if their composite risk scores are below the average risk score (risk adjustment payable), and will receive a risk 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.~~income. As of September 30, ~~2018, and December 31, 2017, the~~2019, Marketplace risk adjustment ~~payable~~payables amounted to ~~$390~~$285 million and ~~$912~~related receivables amounted to $76 million, ~~respectively.~~for a net payable of $209 million. As of December 31, 2018, Marketplace risk adjustment payables amounted to $466 million and related receivables amounted to $34 million, for a net payable of $432 million.

Minimum ~~MLR:~~MLR. The ACA has established a Minimum MLR of 80% for the Marketplace. If the Minimum MLR is not met, we may be required to pay rebates to our Marketplace policyholders. The Marketplace risk adjustment program is taken into consideration when computing the Minimum MLR. We recognize estimated rebates under the Minimum MLR as an adjustment to premium revenue in our consolidated statements of ~~operations. The payable for~~income. Aggregate balance sheet amounts related to the ~~Marketplace~~ Minimum MLR ~~was not significant~~were insignificant at September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

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


2)	~~Quality Incentives:~~



	September 30, 2019		December 31, 2018
	(In millions)
Medicaid program:
Medical cost floors and corridors	$	95	$	103
Other amounts due to states	69		81
Marketplace program:
Risk adjustment	285		466
Cost sharing reduction (“CSR”)	—		183
Other	163		134
Total amounts due government agencies	$	612	$	967

Quality Incentives

At 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. Such performance measures are generally found in our Medicaid and MMP contracts. As described in Note 1, “Organization and Basis of Presentation–Use of Estimates,” recognition of quality incentive premium revenue is subject to the use of estimates.

We believe that the adjustments to prior years noted below are generally indicative of the potential future changes in our estimates as of September 30, 2019. 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, 2018 are not known, we have no reason to believe that the adjustments to prior years noted below are not indicative of the potential future changes in our estimates as of September 30, 2018.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In millions)
Maximum available quality incentive premium - current period	$	47		$	48		$	138		$	135

Quality incentive premium revenue recognized in current period:
Earned current period	$	46		$	39		$	109		$	97
Earned prior periods	5			9			35			32
Total	$	51		$	48		$	144		129

Quality incentive premium revenue recognized as a percentage of total premium revenue	1.2		%	1.1		%	1.2		%	1.0		%

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(Dollars in millions)
Maximum available quality incentive premium - current period $ 48
$ 36
$ 135
$ 113
Quality incentive premium revenue recognized in current period:
Earned current period $ 39
$ 24
$ 97
$ 72
Earned prior periods 9
3
32
9
Total $ 48
$ 27
$ 129
81

Quality incentive premium revenue recognized as a percentage of total premium revenue 1.1 % 0.6 % 1.0 % 0.6 %

~~Other segment~~

Our Pathways subsidiary’s revenue is all variable, and generally invoiced after services are rendered; customer payment follows invoicing. We concluded that there is no change to revenue recognition under Topic 606 for Pathways, and therefore no impact to retained earnings effective January 1, 2018. As discussed in Note 1~~, “Organization and Basis of Presentation,” we sold Pathways on October 19, 2018.~~

Medical Care Costs -

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

In the nine months ended September 30, 2018, we recognized a benefit of approximately $81 million in reduced medical ~~expense~~care costs related to 2017 dates of service, including $5 million in the third quarter of 2018, as a result of the federal government’s confirmation that the reconciliation of 2017 Marketplace CSR subsidies would be performed on an annual basis. In the fourth quarter of 2017, we had assumed 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 for 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. If applicable, we account for lease and non-lease components within a lease as a single lease component.

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.

The significant majority of our operating leases consist of long-term operating leases for office space. Short-term leases (those with terms of 12 months or less) are not recorded as ROU assets or liabilities in the consolidated balance sheets. 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 the related liabilities individually. 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, including the amount and location of the ROU assets and lease liabilities recognized in the accompanying consolidated balance sheet, see Note 13, “Leases.” For further information regarding our adoption and implementation 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, ~~and an~~or 10 years average ~~duration of three years or less.~~life for structured securities. Restricted investments are invested principally in ~~certificates of deposit~~cash, cash equivalents, and U.S. ~~treasury~~Treasury securities. Concentration of credit risk with respect to accounts receivable is generally limited because our payors consist principally of the federal government, and governments of each state or commonwealth 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 foreign and state taxes, nondeductible expenses such as the Health Insurer Fee ~~(HIF)~~(“HIF”), 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 as new information is obtained. Such information may affect the assumptions used to estimate the annual effective tax rate, including projected pretax earnings, the mix of pretax earnings in the various tax jurisdictions in which we operate, valuation allowances against deferred tax assets, the recognition or the reversal of the recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities, along with net operating loss and tax credit carryovers.

The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. The TCJA, in part, reduced the U.S. federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018. Accounting guidance allows filers a measurement period of one year from the enactment date to finalize the provisional valuation of deferred tax assets and liabilities. During the third quarter of 2018, we recognized approximately $4 million in adjustments to our provisional valuation of our deferred tax assets and liabilities recorded at December 31, 2017, and included these adjustments as a component of income tax expense from continuing operations, which decreased our effective tax rate by 150 basis points in the quarter. At September 30, 2018, we had not completed our accounting for the tax effects resulting from enactment of TCJA with respect to valuation of our deferred tax assets and liabilities. We will continue to refine our calculations as additional analysis is completed. In addition, our estimates may also be affected by expected future guidance on the tax law from the Internal Revenue Service and U.S. Treasury.

Recent Accounting Pronouncements Adopted

~~Revenue Recognition (Topic 606).~~ ~~See discussion above, in “Revenue Recognition.”~~

~~Comprehensive Income.~~ Leases. In February ~~2018,~~2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued ~~ASU 2018-02,~~ ~~Reclassification~~Topic 842, which was subsequently modified by several ASUs issued in 2017 and 2018. Topic 842 was issued to increase transparency and comparability among organizations by requiring the recognition of ~~Certain Tax Effects~~ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in Topic 842 is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. In addition, Topic 842’s disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from ~~Accumulated Other Comprehensive Income, which allows~~leases. Topic 842’s transition provisions are applied using a ~~reclassification from accumulated other comprehensive income~~modified retrospective approach; entities may elect whether to ~~retained earnings for stranded tax effects resulting from~~apply the ~~TCJA. ASU 2018-02 is effective~~transition provisions, including disclosure requirements, at the beginning ~~January 1, 2019; we early~~of the earliest comparative period presented or on the adoption date.

We adopted ~~this ASU~~Topic 842 effective January 1, ~~2018. The~~2019, and elected to apply the transition provisions as of that date. Accordingly, we recognized the cumulative effect of initially applying the ~~guidance resulted in~~standard as an ~~immaterial impact~~adjustment to ~~beginning~~the opening balance of retained earnings ~~as presented~~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 ~~statement~~statements of stockholders’ ~~equity.~~

~~Restricted Cash.~~ ~~In November 2016,~~equity, the ~~FASB issued ASU 2016-18,~~ ~~Restricted Cash,~~ ~~which requires us~~cumulative effect adjustment was an increase of $85 million to ~~include~~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 statements of cash flows the changes in the balances of cash, cash equivalents, restricted cash and restricted cash equivalents. We adopted ASU 2016-18 on January 1, 2018. We have applied the guidance retrospectively to all periods presented. Such retrospective adoption resulted in a $91 million reclassification of restricted cash and cash equivalents from “Investing activities,” to the beginning and ending balances of cash and cash equivalents in our consolidated statements of cash flows for the nine months ended September 30, 2017. There was no impact to our consolidated statementsresults of operations ~~balance sheets, or stockholders’ equity. The reconciliation~~over the terms of ~~cash and cash equivalents to cash, cash equivalents, and restricted cash and cash equivalents is presented at~~ the ~~beginning of this note.~~leases.

~~Recent Accounting Pronouncements Not Yet Adopted~~

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 is effective beginning January 1, 2020, and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption; early adoption is permitted. We are evaluating the effect of this guidance.

~~Callable Debt Securities.~~ ~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Premium Amortization on Purchased Callable Debt Securities~~, which shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. ASU 2017-08 is effective beginning January 1, 2019, ~~and must be adopted as a cumulative effect adjustment~~using the prospective method, with no material impact to ~~retained earnings; early adoption is permitted. We are evaluating the effect~~our financial condition,

results of operations or cash flows. Adoption of this ~~guidance.~~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, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~. Rather than generally recognizing~~, as modified by:


•	ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses;


•	ASU 2019-04,Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; and


•	ASU 2019-05, Financial Instruments - Credit Losses (Topic 326), Targeted Transition Relief.

This standard introduces a new current expected credit loss (“CECL”) model for measuring expected credit losses ~~when it is probable that~~for certain types of financial instruments and replaces the incurred loss ~~has been incurred, the~~

~~revised guidance~~model. The CECL model requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount ~~of amortized cost that the company expects~~companies expect to collect over the instrument’s contractual ~~life.~~life after consideration of historical experience, current conditions, and reasonable and supportable forecasts. This standard also introduces targeted changes to the available-for-sale (“AFS”) debt securities impairment model. ASU 2016-13 is effective beginning January 1, 2020, and must be adopted as a cumulative effect adjustment to retained earnings; early adoption is permitted.

The most significant type of financial instrument reported in our consolidated balance sheets, subject to the CECL model, is Receivables. As of September 30, 2019, over 70%, or approximately $970 million of the Receivables balance constitutes receivables from state and federal government agencies. Based on our preliminary analysis, we believe that the credit risk associated with such receivables is nominal due to a very low risk of default.

The AFS debt securities impairment model will apply to “Investments” reported in our consolidated balance sheets. We believe that the credit risk associated with our non-government issued Investments is nominal due to the high quality of such investments.

We are currently evaluating the ~~effect of this guidance.~~

~~Leases.~~ ~~In February 2016,~~processes and controls necessary to adopt and implement ASU 2016-13, along with the ~~FASB issued ASU 2016-02,~~ ~~Leases (Topic 842),~~ ~~as modified by:~~

~~ASU 2017-03,~~ ~~Transition and Open Effective Date Information;~~

~~ASU 2018-01,~~ ~~Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842;~~

~~ASU 2018-10,~~ ~~Codification Improvements to Topic 842, Leases; and~~

~~ASU 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements.~~

Under Topic 842, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both financing and operating leases. Topic 842 also requires new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. We will adopt Topic 842 effective January 1, 2019, using the modified retrospective method. Under this method, we will recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings on January 1, 2019. In addition, we have elected the transition option provided under ASU 2018-11, which 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.~~

Under Topic 842, we will record right-of-use assets and liabilities relating primarily to our long-term office operating leases. We have substantially completed the configuration of our lease database management system foreffects the adoption ~~of Topic 842. We do not currently expect the adoption of this guidance to~~will have ~~a material effect~~ on our consolidated results of operations and financial ~~condition~~condition.

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”) did not have, nor does management expect such pronouncements to have, a significant impact on our present or ~~cash flows.~~future consolidated financial statements.

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

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


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017			2018		2017			2019		2018		2019		2018
	(In millions, except net income per share)										(In millions, except net income per share)
Numerator:
Net income (loss)	$	197	$	(97	)	$	506	$	(250	)
Net income											$	175	$	197	$	569	$	506
Denominator:
Shares outstanding at the beginning of the period	61.3		56.5			59.3		55.8			62.2		61.3		62.1		59.3
Weighted-average number of shares issued:
Exchange of 1.625% Notes ⁽¹⁾	—		—			1.3		—
Exchange of 1.625% Convertible Notes											—		—		—		1.3
Stock-based compensation	—		—			0.2		0.4			—		—		0.1		0.2
Denominator for basic net income per share	61.3		56.5			60.8		56.2
Denominator for net income per share, basic											62.2		61.3		62.2		60.8
Effect of dilutive securities:
1.125% Warrants ⁽¹⁾	5.6		—			5.0		—			0.8		5.6		1.8		5.0
1.625% Notes ⁽¹⁾	0.6		—			0.5		—
1.625% Convertible Notes											—		0.6		—		0.5
Stock-based compensation	0.4		—			0.3		—			0.6		0.4		0.6		0.3
Denominator for diluted net income per share	67.9		56.5			66.6		56.2
Denominator for net income per share, diluted											63.6		67.9		64.6		66.6

Net income (loss) per share: ⁽²⁾
Net income per share: ⁽²⁾
Basic	$	3.22	$	(1.70	)	$	8.32	$	(4.44	)	$	2.81	$	3.22	$	9.15	$	8.32
Diluted	$	2.90	$	(1.70	)	$	7.60	$	(4.44	)	$	2.75	$	2.90	$	8.80	$	7.60

Potentially dilutive common shares excluded from calculations:
1.125% Warrants ⁽¹⁾	—		2.3			—		1.3
1.625% Notes ⁽¹⁾	—		0.6			—		0.3
Stock-based compensation	—		0.2			—		0.3

______________________________

(1)

For more information and definitions regarding the ~~1.625% Notes, refer to Note 7, “Debt.” For more information and definitions regarding the~~ 1.125% Warrants, including partial termination transactions, refer to Note 9, “Stockholders' Equity.” The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method. ~~Certain potentially dilutive common shares issuable are not included in the computation of diluted net income (loss) per share because to do so would be anti-dilutive.~~


(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 4, ~~“Fair~~“Fair Value Measurements,” in our ~~2017~~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 (see Note 8 ~~“Derivatives,~~“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, ~~2018,~~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. 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 for the nine months ended September 30, ~~2018.~~2019.

Our financial instruments measured at fair value on a recurring basis at September 30, ~~2018,~~2019, were as follows:



	Total		Observable Inputs (Level 1)		Directly or Indirectly Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Corporate debt securities	$	1,129	$	—	$	1,129	$	—
Mortgage-backed securities	303		—		303		—
Asset-backed securities	110		—		110		—
Government-sponsored enterprise securities (“GSEs”)	97		—		97		—
Municipal securities	68		—		68		—
U.S. Treasury notes	40		—		40		—
Foreign securities	7		—		7		—
Certificates of deposit	3		—		3		—
Subtotal - current investments	1,757		—		1,757		—
1.125% Call Option derivative asset	21		—		—		21
Total assets	$	1,778	$	—	$	1,757	$	21

1.125% Conversion Option derivative liability	$	21	$	—	$	—	$	21
Total liabilities	$	21	$	—	$	—	$	21

Total Quoted Market Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(In millions)
Corporate debt securities $ 1,191
$ —
$ 1,191
$ —
U.S. treasury notes 221
221
—
—
Government-sponsored enterprise securities (GSEs) 170
170
—
—
Municipal securities 119
—
119
—
Asset-backed securities 92
—
92
—
Certificate of deposit 15
—
15
—
Other 4
—
4
—
Subtotal - current investments 1,812
391
1,421
—
1.125% Call Option derivative asset 843
—
—
843
Total assets $ 2,655
$ 391
$ 1,421
$ 843

1.125% Conversion Option derivative liability $ 843
$ —
$ —
$ 843
Total liabilities $ 843
$ —
$ —
$ 843

Our financial instruments measured at fair value on a recurring basis at December 31, ~~2017,~~2018, were as follows:



	Total		Observable Inputs (Level 1)		Directly or Indirectly Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Corporate debt securities	$	1,123	$	—	$	1,123	$	—
Asset-backed securities	82		—		82		—
GSEs	163		—		163		—
Municipal securities	114		—		114		—
U.S. Treasury notes	181		—		181		—
Foreign securities	4		—		4		—
Certificates of deposit	14		—		14		—
Subtotal	1,681		—		1,681		—
1.125% Call Option derivative asset	476		—		—		476
Total assets	$	2,157	$	—	$	1,681	$	476

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

Total Quoted Market Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(In millions)
Corporate debt securities $ 1,588
$ —
$ 1,588
$ —
U.S. treasury notes 388
388
—
—
GSEs 253
253
—
—
Municipal securities 141
—
141
—
Asset-backed securities 117
—
117
—
Certificates of deposit 37
—
37
—
Subtotal - current investments 2,524
641
1,883
—
Corporate debt securities 101
—
101
—
U.S. treasury notes 68
68
—
—
Subtotal - current restricted investments 169
68
101
—
1.125% Call Option derivative asset 522
—
—
522
Total assets $ 3,215
$ 709
$ 1,984
$ 522

1.125% Conversion Option derivative liability $ 522
$ —
$ —
$ 522
Total liabilities $ 522
$ —
$ —
$ 522

Fair Value Measurements – Disclosure Only

The carrying amounts and estimated fair values of our ~~senior~~ notes 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 Term Loan Facility is classified as a Level 3 financial instrument, because certain inputs used to determine its fair value are not observable. As of September 30, 2019, the carrying amount of the Term Loan Facility approximated fair value because its interest rate is a variable rate that approximates rates currently available to us.



	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
5.375% Notes	$	695	$	744	$	694	$	674
4.875% Notes	327		334		326		301
Term Loan Facility	220		220		—		—
1.125% Convertible Notes ^(1),(2)	12		34		240		732
Totals	$	1,254	$	1,332	$	1,260	$	1,707

September 30, 2018 December 31, 2017

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value
(In millions)
5.375% Notes $ 693
$ 711
$ 692
$ 730
1.125% Notes ⁽¹⁾
295
1,142
496
1,052
4.875% Notes 326
325
325
329
1.625% Notes ⁽²⁾
—
—
157
220
Credit Facility⁽²⁾
—
—
300
300
$ 1,314
$ 2,178
$ 1,970
$ 2,631

______________________


(1)	The fair value of the 1.125% Conversion Option (the embedded cash conversion option), which is ~~included~~reflected in the fair value amounts presented above, amounted to ~~$843~~$21 million and ~~$522~~$476 million as of September 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, respectively. See further discussion at Note 7, “Debt,” and Note 8, “Derivatives.”


(2)	For more information on debt repayments in ~~the nine months ended September 30, 2018,~~2019, refer to Note 7, “Debt.”

5. Investments

Available-for-Sale Investments

We consider all of our investments classified as current assets to be available-for-sale. The following tables summarize our investments as of the dates indicated:



	September 30, 2019
	Amortized		Gross Unrealized				Estimated Fair
	Cost		Gains		Losses		Value
	(In millions)
Corporate debt securities	$	1,125	$	5	$	1	$	1,129
Mortgage-backed securities	302		1		—		303
Asset-backed securities	109		1		—		110
GSEs	97		—		—		97
Municipal securities	68		—		—		68
U.S. Treasury notes	40		—		—		40
Foreign securities	7		—		—		7
Certificates of deposit	3		—		—		3
Totals	$	1,751	$	7	$	1	$	1,757

September 30, 2018
Amortized
Gross
Unrealized

Estimated
Fair
Cost Gains Losses Value
(In millions)
Corporate debt securities $ 1,197
$ 1
$ 7
$ 1,191
U.S. treasury notes 222
—
1
221
GSEs 172
—
2
170
Municipal securities 121
—
2
119
Asset backed securities 93
—
1
92
Certificates of deposit 15
—
—
15
Other 4
—
—
4
$ 1,824
$ 1
$ 13
$ 1,812



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

December 31, 2017
Amortized
Gross
Unrealized

Estimated
Fair
Cost Gains Losses Value
(In millions)
Corporate debt securities $ 1,591
$ 1
$ 4
$ 1,588
U.S. treasury notes 389
—
1
388
GSEs 255
—
2
253
Municipal securities 142
—
1
141
Asset-backed securities 117
—
—
117
Certificates of deposit 37
—
—
37
Subtotal - current investments 2,531
1
8
2,524
Corporate debt securities 101
—
—
101
U.S. treasury notes 68
—
—
68
Subtotal - current restricted investments 169
—
—
169
$ 2,700
$ 1
$ 8
$ 2,693

The contractual maturities of our available-for-sale investments as of September 30, ~~2018~~2019 are summarized below:



	Amortized Cost		Estimated Fair Value
	(In millions)
Due in one year or less	$	498	$	498
Due after one year through five years	875		878
Due after five years through ten years	107		108
Due after ten years	271		273
Totals	$	1,751	$	1,757

Amortized Cost
Estimated
Fair Value
(In millions)
Due in one year or less $ 1,025
$ 1,023
Due after one year through five years 799
789
$ 1,824
$ 1,812

As discussed further in Note 7, “Debt,” the 4.875% Notes’ indenture required us to hold a portion of the net proceeds from their issuance in a segregated account to be used to settle the conversion of the 1.625% Notes. Prior to September 30, 2018, this account was reported as a current asset, entitled “Restricted investments,” in the accompanying consolidated balance sheets. Because this account was used to settle the conversion of the 1.625% Notes in the third quarter of 2018, current restricted investments, as of September 30, 2018, was reduced to zero.

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~~amounted to $11 million in the ~~three~~third quarter of 2019 and nine months ended September 30, 2019. Gross realized investment losses were insignificant in the third quarter of 2019 and nine months ended September 30, 2019. Gross realized investment gains and losses were insignificant in the third quarter of 2018 and ~~2017 were insignificant.~~nine months ended September 30, 2018.

We have determined that unrealized losses at September 30, ~~2018~~2019, and December 31, ~~2017,~~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, ~~2018:~~2019:

In a Continuous Loss Position
for Less than 12 Months

In a Continuous Loss Position
for 12 Months or More

Estimated
Fair
Value

Unrealized
Losses

Total
Number of
Positions

Estimated
Fair
Value

Unrealized
Losses

Total
Number of
Positions
(Dollars in millions)
Corporate debt securities $ 727
$ 4
460
$ 186
$ 3
127
U.S. Treasury notes —
—
—
94
1
31
GSEs —
—
—
127
2
68
Municipal securities 63
1

63

55

1

57
Asset backed securities 72
1
41
—
—
—
$ 862
$ 6
564
$ 462
$ 7
283



	In a Continuous Loss Position for Less than 12 Months					In a Continuous Loss Position for 12 Months or More
	Estimated Fair Value		Unrealized Losses		Total Number of Positions	Estimated Fair Value		Unrealized Losses		Total Number of Positions
	(Dollars in millions)
Corporate debt securities	$	151	$	1	90	$	—	$	—	—
Totals	$	151	$	1	90	$	—	$	—	—



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

In a Continuous Loss Position
for Less than 12 Months

In a Continuous Loss Position
for 12 Months or More

Estimated
Fair
Value

Unrealized
Losses

Total
Number of
Positions

Estimated
Fair
Value

Unrealized
Losses

Total
Number of
Positions
(Dollars in millions)
Corporate debt securities $ 1,297
$ 3
561
$ 94
$ 1
69
U.S. Treasury Notes 470
1
89
—
—
—
GSEs 173
1
69
95
1
47
Municipal securities —
—
—
38
1
48
$ 1,940
$ 5
719
$ 227
$ 3
164

Held-to-Maturity Investments

Pursuant to the regulations governing our Health Plans segment subsidiaries, we maintain statutory deposits and deposits required by government authorities primarily in ~~certificates of deposit~~cash, cash equivalents, 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 regulations in the various states in which we operate, or as needed in the event of insolvency of capitated providers. Therefore, such investments are reported as non-current “Restricted investments” in the accompanying consolidated balance sheets. We have the ability to hold these restricted investments until maturity, and as a result, we would not expect the value of these investments to decline significantly due to a sudden change in market interest rates.

Our held-to-maturity restricted investments are carried at amortized cost, which approximates fair value. ~~Held-to-maturity restricted~~Such investments ~~as of~~amounted to $79 million at September 30, ~~2018, are summarized below:~~2019, and mature in one year or less.

Amortized
Cost

Estimated
Fair Value
(In millions)
Due in one year or less $ 111
$ 111
Due after one year through five years 7
7
$ 118
$ 118

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, 2019		December 31, 2018
	(In millions)
Fee-for-service claims incurred but not paid (“IBNP”)	$	1,424	$	1,562
Pharmacy payable	128		115
Capitation payable	57		52
Other	366		232
	$	1,975	$	1,961

September 30,
2018 December 31,
2017
(In millions)
Fee-for-service claims incurred but not paid (IBNP) $ 1,609
$ 1,717
Pharmacy payable 121
112
Capitation payable 48
67
Other 264
296
$ 2,042
$ 2,192

“Other” medical claims and benefits payable includes ~~amounts payable to certain providers for which~~non-risk provider payables, where we act as an intermediary on behalf of various government agencies, for certain providers, without assuming financial risk. Such receipts from government agencies and payments to providers do not impact our consolidated statements of ~~operations.~~income. Non-risk provider payables amounted to ~~$158~~$239 million and ~~$122~~$107 million as of September 30, ~~2018~~2019, and December 31, ~~2017,~~2018, respectively.

The following table presents the components of the change in our medical claims and benefits payable for the periods indicated. The amounts presented for “Components of medical care costs related to: Prior periods” represent the amounts by which our original estimate of medical claims and benefits payable at the beginning of the

period were ~~(more) less~~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,
2018 2017
(In millions)
Medical claims and benefits payable, beginning balance $ 2,192
$ 1,929
Components of medical care costs related to:
Current period 11,589
12,813
Prior periods (227 ) 9
Total medical care costs 11,362
12,822

Change in non-risk provider payables 60
172

Payments for medical care costs related to:
Current period 9,866
10,944
Prior periods 1,706
1,501
Total paid 11,572
12,445
Medical claims and benefits payable, ending balance $ 2,042
$ 2,478

The differences between our original estimates and the amounts ultimately paid out for the most part relate to IBNP. Assuming that our initial estimate of IBNP is accurate, we believe that amounts ultimately paid would generally be between 8% and 10% less than the IBNP liability recorded at the end of the period as a result of the inclusion in that liability of the provision for adverse claims deviation and the accrued cost of settling those claims. Because we establish the provision for adverse claims deviation and the accrued cost of settling claims on a consistent basis every quarter, the lower cost recognized in a subsequent period if such a provision proved unnecessary would be offset by the establishment of a similar provision during that same period.

Because the amount of our initial liability is an estimate, we will always experience variability in that estimate as new information becomes available with the passage of time. Therefore, there can be no assurance that amounts ultimately paid out will fall within the range of 8% to 10% lower than the liability that was initially recorded.

Further, because our initial estimate of IBNP is derived from many factors, some of which are qualitative in nature rather than quantitative, we are seldom able to assign specific values to the reasons for a change in estimate—we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.

~~We believe that the most significant uncertainties surrounding our IBNP estimates at September 30, 2018 are as follows:~~

Across all of our health plans, the inventory of unpaid claims increased significantly during the first half of 2017, then decreased in the last half of 2017 and into 2018. Changes in claims inventories impact the timing between date of service and the date of claim payment, increasing the volatility of our liability estimates.

In June 2018, our Puerto Rico health plan implemented state prescribed claim billing requirements to ensure more accurate claims submissions. The billing requirements were more stringent and caused a significant number of claim denials. Although we expect providers to ultimately submit updated claims with the required information, the impact of the new billing requirements creates more uncertainty in our liability estimates.

At our Florida health plan, a new clinical service system was implemented in the first quarter of 2018. This system impacted the reporting of inpatient authorizations used in our development of claims liabilities, which makes our liability estimates subject to more than the usual amount of uncertainty.

We recently implemented a new process for increased quality review of claims payments in 11 of our health plans. While we do not anticipate this new process will impact the percentage of claims paid within the timely turnaround requirements, we believe it will have a minor impact on the timing of some paid claims. For this reason, our liability estimates in these 11 health plans are subject to more than the usual amount of uncertainty.

We recognized favorable prior period claims development in the amount of $227 million for the nine months ended September 30, 2018. This amount represents our estimate as of September 30, 2018, of the extent to which our initial estimate



	Nine Months Ended September 30,
	2019			2018
	(In millions)
Medical claims and benefits payable, beginning balance	$	1,961		$	2,192
Components of medical care costs related to:
Current period	10,613			11,670
Prior periods ⁽¹⁾	(253		)	(308		)
Total medical care costs	10,360			11,362
Change in non-risk and other provider payables	131			60
Payments for medical care costs related to:
Current period	8,996			9,866
Prior periods	1,481			1,706
Total paid	10,477			11,572
Medical claims and benefits payable, ending balance	$	1,975		$	2,042

_______________________


(1)	The September 30, 2018, amount includes the 2018 benefit of the 2017 Marketplace CSR reimbursement of $81 million.

Our estimates of medical claims and benefits payable recorded at December 31, 2018, and 2017 ~~was more than the amount that will ultimately be paid out in satisfaction~~developed favorably by approximately $253 million and $308 million as of ~~that liability. We believe these differences were due primarily to the following factors:~~September 30, 2019, and 2018, respectively.

The impact of the provision for adverse claims deviation and the accrued cost of settling claims as discussed above. Because we re-establish the provision for adverse claims deviation and the accrued cost of settling claims on a consistent basis every quarter, the impact of this item to medical care costsfavorable prior year development recognized in the nine months ended September 30, ~~2018, results~~2019, was ~~minimal.~~

Across all of our health plans, the inventory of unpaid claims increased significantly during the first half of 2017, then decreased in the last half of 2017. In hindsight, the impact of the changes in claims processing timing reduced our liabilities moreprimarily due to lower than ~~we had anticipated.~~

December 2017 data from The Centers for Disease Control and Prevention indicated widespread influenza activity in several states in which we operate health plans. The additional liabilities established in consideration of increased claims related to a more severe influenza season turned out to be higher than our actual experience.

~~In establishing our liability at December 31, 2017, we anticipated an increase in the~~expected utilization of medical services by ~~Marketplace~~our Medicaid members, ~~concerned about~~and improved operating performance. Consequently, the ~~future of their healthcare coverage~~ultimate costs recognized in 2019, as ~~a result of uncertainties related to high premium increases and issuer exits. This induced demand did not materialize to the degree we expected.~~claims payments were processed, were lower than our original estimates in 2018.

7. Debt

As of September 30, ~~2018,~~2019, contractual maturities of debt were as follows. All amounts represent the principal amounts ofdue on the debt instruments ~~outstanding.~~outstanding as of December 31 for each year presented, based on September 30, 2019 balances.



	Total		2020		2021		2022		2023		2024		Thereafter
	(In millions)
5.375% Notes	$	700	$	—	$	—	$	700	$	—	$	—	$	—
4.875% Notes	330		—		—		—		—		—		330
Term Loan Facility	220		6		16		22		22		154		—
1.125% Convertible Notes	12		12		—		—		—		—		—
Totals	$	1,262	$	18	$	16	$	722	$	22	$	154	$	330

Total 2019 2020 2021 2022 2023 Thereafter

(In millions)
5.375% Notes $ 700
$ —
$ —
$ —
$ 700
$ —
$ —
4.875% Notes 330
—
—
—
—
—
330
1.125% Notes 314
—
314
—
—
—
—
$ 1,344
$ —
$ 314
$ —
$ 700
$ —
$ 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:



	September 30, 2019			December 31, 2018
	(In millions)
Current portion of long-term debt:
1.125% Convertible Notes, net of unamortized discount	$	12		$	241
Term Loan Facility	3			—
Lease financing obligations	—			1
Debt issuance costs	—			(1		)
	$	15		$	241
Non-current portion of long-term debt:
5.375% Notes	$	700		$	700
4.875% Notes	330			330
Term Loan Facility	217			—
Debt issuance costs	(8		)	(10		)
Totals	$	1,239		$	1,020

September 30,
2018 December 31,
2017
(In millions)
Current portion of long-term debt:
1.125% Notes, net of unamortized discount of $18 at September 30, 2018, and $51 at December 31, 2017 $ 296
$ 499
1.625% Notes, net of unamortized discount of $3 at December 31, 2017 —
157
Lease financing obligations 1
1
Debt issuance costs (1 ) (4 )
296
653
Non-current portion of long-term debt:
5.375% Notes 700
700
4.875% Notes 330
330
Credit Facility —
300
Debt issuance costs (11 ) (12 )
1,019
1,318
Lease financing obligations 198
198
$ 1,513
$ 2,169

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(In millions)
Contractual interest at coupon rate	$	—	$	1	$	1	$	5
Amortization of the discount	1		5		5		18
Totals	$	1	$	6	$	6	$	23

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(In millions)
Contractual interest at coupon rate $ 1
$ 3
$ 5
$ 9
Amortization of the discount 5
8
18
24
$ 6
$ 11
$ 23
$ 33

Credit ~~Facility~~Agreement

~~In January 2017, weentered into~~We are party to a Credit Agreement, which provides for an ~~amended~~unsecured delayed draw term loan facility (the “Term Loan Facility”), and an unsecured $500 million revolving credit facility (the ~~Credit Facility)~~“Credit Facility”). The Credit Facility has a term of five years and all amounts outstanding will be due and payable on January 31, 2022. In May 2018, we repaid the $300 million outstanding borrowings under the Credit Facility. As of September 30, 2018, no amounts were outstanding under the Credit Facility, and outstanding letters of credit amounting to $6 million reduced our borrowing capacity under the Credit Facility to $494 million.

Borrowings under our Credit ~~Facility~~Agreement bear interest based, at our election, on a base rate or ~~an adjusted London Interbank Offered Rate (LIBOR),~~other defined rate, plus in each case the applicable margin. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Credit ~~Facility,~~Agreement, we are required to pay a quarterly commitment fee. ~~Certain of our wholly owned subsidiaries guarantee our obligations under the Credit Facility.~~

The Credit ~~Facility~~Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. As of September 30, ~~2018,~~2019, we were in compliance with all financial and non-financial covenants under the Credit ~~Facility~~Agreement and other long-term debt.

~~Bridge~~ 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.

Term Loan Facility. In January ~~2018,~~2019, we entered into a ~~bridge~~Sixth Amendment to the Credit Agreement that provided for a delayed draw Term Loan Facility in the 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 Facility will amortize in quarterly installments, commencing on September 30, 2020, equal to the principal amount of the Term Loan Facility outstanding multiplied by rates ranging from 1.25% to 2.50% (depending on the applicable fiscal quarter) for each fiscal quarter. The Term Loan Facility expires on January 31, 2024; any remaining outstanding balance under the Term Loan Facility will be due and payable on that date. As of September 30, 2019, $220 million was outstanding under the Term Loan Facility. Each advance under the Term Loan Facility results in a permanent reduction to its borrowing capacity; therefore, our borrowing capacity under the Term Loan Facility as of September 30, 2019, was $380 million.

Credit Facility. The Credit Facility expires on January 31, 2022; therefore, any amounts outstanding under the Credit Facility will be due and payable on that date. As of September 30, 2019, 0 amounts were outstanding under the Credit Facility, and outstanding letters of credit ~~agreement with several banks, which was subsequently terminated in August 2018.~~amounting to $2 million reduced our borrowing capacity under the Credit Facility to $498 million.

5.375% Notes due 2022

We ~~have~~had $700 million aggregate principal amount of senior notes (the ~~5.375% Notes)~~“5.375% Notes”) outstanding as of September 30, ~~2018,~~2019, which are due November 15, 2022, unless earlier redeemed. Interest, ~~on the~~at a rate of 5.375% ~~Notes~~per annum, is payable semiannually in arrears on May 15 and November 15. ~~Certain of our wholly owned subsidiaries guarantee our obligations under the 5.375% Notes; such guarantees mirror those of the Credit Facility. See Note 13,~~

~~“Supplemental Condensed Consolidating Financial Information,” for more information on the guarantors.~~ The 5.375% Notes contain customary non-financial covenants and change in control provisions.

4.875% Notes due 2025

We ~~have~~had $330 million aggregate principal amount of senior notes (the ~~4.875% Notes)~~“4.875% Notes”) outstanding as of September 30, ~~2018,~~2019, which are due June 15, 2025, unless earlier redeemed. Interest, ~~on the~~at a rate of 4.875% ~~Notes~~per annum, is payable semiannually in arrears on June 15 and December 15. ~~Certain of our wholly owned subsidiaries guarantee our obligations under the 4.875% Notes; such guarantees mirror those of the Credit Facility.~~ The 4.875% Notes contain customary non-financial covenants and change of control provisions.

1.125% Cash Convertible Senior Notes due 2020

In the ~~second~~nine months ended September 30, 2019, we received conversion requests and ~~third quarters of 2018,~~ we entered into privately negotiated note purchase agreements with certain holders of our outstanding 1.125% cash convertible senior notes due January 15, 2020 (the ~~1.125% Notes)~~“1.125% Convertible Notes”).

In the third quarter of ~~2018,~~2019, we ~~repaid $140~~paid $161 million to settle $55 million aggregate principal amount, or $54 million aggregate carrying amount, of the 1.125% Convertible Notes, ~~plus accrued interest, for a total cash payment of $483 million. The $343 million difference between~~including the ~~principal amount extinguished and our cash payment primarily represents the settlement of the~~related 1.125% Convertible Notes’ embedded cash conversion option ~~feature at fair value~~ (which is a derivative liability we refer to as the ~~1.125%~~“1.125% Conversion ~~Option).~~

InOption”) and the second quarter of 2018, we repaid $96 million aggregate principal amount of the 1.125% Notes, plus accrued interest, for a total cash payment of $228 million. As noted above, the $132 million difference between the principal amount extinguished and our cash payment primarily represents the settlement of the embedded cash conversion option feature at fair value.mark to market valuation adjustments discussed below.

In the nine months ended September 30, ~~2018,~~2019, we ~~have~~paid $794 million to settle $240 million aggregate principal amount, or $232 million aggregate carrying amount, of the 1.125% Convertible Notes, including the related 1.125% Conversion Option and the mark to market valuation adjustments discussed below.

In the three and nine months ended September 30, 2019, we recorded a loss on debt extinguishment of $2 million, and a gain on debt extinguishment of approximately $15 million, respectively, for the 1.125% Convertible Notes ~~purchases, including $10 million in the third quarter~~repayments (net of ~~2018,~~accelerated original issuance discount amortization), primarily relating to mark to market valuations on the ~~acceleration~~partial terminations of the Call Spread Overlay executed in connection with the related debt ~~discount. This loss is~~repayments. These amounts are reported in “Other expenses (income), net” in the accompanying consolidated statements of ~~operations.~~income. No common shares were issued in connection with ~~these transactions.~~the transaction.

In connection with the 1.125% Convertible Notes purchases, we also entered into privately negotiated ~~termination~~ agreements ~~with each of the counterparties~~ in the first, second, and third quarters of ~~2018,~~2019, to partially terminate the Call Spread Overlay, defined and further discussed in ~~Notes~~Note 8, ~~“Derivatives,~~“Derivatives,” and Note 9, ~~“Stockholders' Equity.~~“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 transactions described above, ~~we have $314~~$12 million aggregate principal amount of the 1.125% Convertible Notes were outstanding at September 30, ~~2018.~~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 only into cash, and not into shares of our common stock or any other securities. The initial conversion rate ~~for the 1.125% Notes~~ is 24.5277 shares of our common stock per $1,000 principal amount, or approximately $40.77 per share of our common stock. Upon conversion, in lieu of receiving shares of our common stock, a holder will receive an amount in cash, per $1,000 principal amount, ~~of 1.125% Notes,~~ equal to the settlement amount, determined in the manner set forth in the indenture. We may not redeem the 1.125% Convertible Notes prior to the maturity date. The 1.125% Convertible Notes ~~are convertible by the holders within one year of the current balance sheet date until they mature;~~mature on January 15, 2020; therefore, they 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 ~~operations~~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 ~~approximating what~~of 6% approximates the interest rate we would have incurred had we issued nonconvertible debt with otherwise similar ~~terms been issued is approximately 6%.~~terms. As of September 30, ~~2018,~~2019, the 1.125% Convertible Notes had a remaining amortization period of ~~1.3 years,~~less than one year, and their ‘if-converted’ value exceeded their principal amount by approximately ~~$626~~$28 million and ~~$406~~$581 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

~~1.625% Convertible Senior Notes due 2044~~

~~Conversion.~~ On July 11, 2018, we announced notice of our election to redeem the remaining $64 million aggregate principal amount of the 1.625% convertible senior notes due 2044 (the 1.625% Notes) on August 20, 2018 (the Redemption Date), pursuant to the terms of the indenture. Also pursuant to the indenture, the 1.625% Notes were convertible until August 17, 2018, at a conversion rate of 17.2157 shares of our common stock per $1,000 principal amount equal to the settlement amount (as defined in the related indenture), or approximately $58.09 per share of our common stock.

Through August 17, 2018, we received conversion notices from substantially all of the remaining holders of the 1.625% Notes outstanding. Under the conversions, we paid cash for the remaining $64 million aggregate principal amount and delivered 0.6 million shares of our common stock to the converting holders on the settlement dates in September 2018.

~~Exchange.~~ In March 2018, we entered into separate, privately negotiated, synthetic exchange agreements with certain holders of our outstanding 1.625% Notes, under which we exchanged $97 million aggregate principal amount and accrued interest for 1.8 million shares of our common stock. We recorded a loss on debt extinguishment, including transaction fees, of $10 million, primarily relating to the inducement premium paid to the bondholders, which is recorded in “Other expenses (income), net” in the accompanying consolidated statements of operations. We did not receive any proceeds from the transaction.

Cross-Default Provisions

The indentures governing the 4.875% Notes, the 5.375% Notes and the 1.125% Convertible Notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture.

8. Derivatives

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



	Balance Sheet Location	September 30, 2019		December 31, 2018
		(In millions)
Derivative asset:
1.125% Call Option	Current assets: Derivative asset	$	21	$	476
Derivative liability:
1.125% Conversion Option	Current liabilities: Derivative liability	$	21	$	476

Balance Sheet Location September 30,
2018 December 31,
2017
(In millions)
Derivative asset:
1.125% Call Option Current assets: Derivative asset $ 843
$ 522
Derivative liability:
1.125% Conversion Option Current liabilities: Derivative liability $ 843
$ 522

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

1.125% Convertible Notes Call Spread ~~Overlay.~~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 ~~second and third quarters of 2018,~~nine months ended September 30, 2019, in connection with the 1.125% Convertible Notes purchases (described in Note 7, ~~“Debt”~~“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 third quarter of ~~2018, this resulted in our receipt of $343~~2019, we received $105 million for the settlement of the 1.125% Call Option (which is a derivative asset), and ~~the payment of $306~~paid $90 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of ~~$37~~$15 million from the Counterparties.

In the ~~second quarter of 2018, this resulted in our receipt of $134~~nine months ended September 30, 2019, we received $578 million for the settlement of the 1.125% Call Option (which is a derivative asset), and ~~the payment of $113~~paid $514 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of ~~$21~~$64 million from the Counterparties.

1.125% Call ~~Option.~~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~~“Fair Value ~~Measurements.~~Measurements.”

1.125% Conversion ~~Option.~~ 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~~“Fair Value ~~Measurements.~~Measurements.”

As of September 30, ~~2018,~~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, 2018,~~mature on January 15, 2020, as described in Note 7, ~~“Debt.~~“Debt.”

9. Stockholders' Equity

~~1.625% Notes~~

~~Conversion. As described in Note 7, “Debt,” we issued 0.6 million shares of our common stock in connection with the conversion of the 1.625% Notes in the third quarter of 2018.~~

~~Exchange. As described in Note 7, “Debt,” we issued 1.8 million shares of our common stock in connection with the exchange of the 1.625% Notes in March 2018.~~

1.125% Warrants

In connection with the Call Spread Overlay transaction described in Note 8, ~~“Derivatives,~~“Derivatives,” in 2013, we issued 13.5 million warrants with a strike price of $53.8475 per share. Under certain circumstances, beginning in April 2020, if the price of our common stock exceeds the strike price of the 1.125% Warrants, we will be obligated to issue shares of our common stock subject to a share delivery cap. The 1.125% Warrants could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the 1.125% Warrants. Refer to Note 3, ~~“Net~~“Net Income ~~(Loss)~~ per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised. Following the transactions described below, ~~7.7~~0.3 million of the 1.125% Warrants remain outstanding.

As described in Note 8, ~~“Derivatives,~~“Derivatives,” in the ~~second and third quarters of 2018,~~nine months ended September 30, 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 third quarter of ~~2018,~~2019, we paid ~~$306~~$90 million to the Counterparties for the termination of ~~3.4~~1.4 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.

In the ~~second quarter of 2018,~~nine months ended September 30, 2019, we paid ~~$113~~$514 million to the Counterparties for the termination of ~~2.4~~5.9 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional ~~paid-in capital~~paid-in-capital for the same amount.

Share-Based Compensation

In connection with our ~~equity incentive plans and~~ employee stock ~~purchase plan,~~plans, approximately ~~281,000~~184,000 shares of common stock vested or were purchased, net of shares used to settle employees’ income tax obligations, during the nine months ended September 30, ~~2018.~~2019.

Share-based compensation is ~~generally~~ recorded to “General and administrative expenses” in the accompanying consolidated statements of ~~operations.~~income. Total share-based compensation expense ~~for the three and nine months ended September 30, 2018,~~ amounted to $10 million and $7 million, ~~and $20 million, respectively. Total share-based compensation expense for~~respectively, in the three months ended September 30, ~~2017, amounted to $3 million.~~2019 and 2018. Total share-based compensation expense ~~for~~amounted to $29 million and $20 million, respectively, in the nine months ended September 30, ~~2017, amounted to $38 million,~~2019 and 2018.

Equity Incentive Plan

In the second quarter of ~~which $23 million was recorded to “Restructuring and separation costs”~~2019, our stockholders approved the Molina Healthcare, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). The 2019 EIP provides for awards, in the ~~accompanying consolidated statements~~form of ~~operations.~~restricted stock awards, performance units, stock options, and other stock– or cash–based awards, to eligible persons who perform services for us. The 2019 EIP will remain in effect until its termination by the board of directors; provided, however, that all awards will be granted no later than May 8, 2029. Concurrent with the adoption of the 2019 EIP, the Molina Healthcare, Inc. 2011 Equity Incentive Plan was amended, restated and merged into the 2019 EIP. A maximum of 2.9 million shares of our common stock may be issued under the 2019 EIP.

As of September 30, ~~2018,~~2019, there was ~~$41~~$55 million of total unrecognized compensation expense related to unvested restricted stock awards ~~(RSAs), performance stock awards (PSAs)~~(“RSAs”), and performance stock units ~~(PSUs)~~(“PSUs”), which we expect to recognize over a remaining weighted-average ~~period~~periods of ~~2.8 years, 0.4~~2.5 years and ~~2.3~~1.8 years, respectively. This unrecognized compensation cost assumes an estimated forfeiture rate of ~~12.1%~~16.2% for non-executive employees as of September 30, ~~2018.~~2019.

Also as of September 30, ~~2018,~~2019, there was ~~$11~~$5 million of total unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of ~~2.0 years. No~~1.0 year. NaN stock options were granted or exercised in the nine months ended September 30, ~~2018.~~2019.

Activity for RSAs, ~~PSAs~~performance stock awards (“PSAs”) and PSUs ~~for the nine months ended September 30, 2018,~~ is summarized below:


	Restricted Stock Awards		Performance Stock Awards		Performance Stock Units		Total		Weighted Average Grant Date Fair Value		RSAs		PSAs		PSUs		Total		Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2017	401,804		84,762		91,828		578,394		$	58.35
Unvested balance, December 31, 2018											399,795		3,132		201,383		604,310		$	71.50
Granted	353,618		—		212,926		566,544		73.85		228,902		—		141,828		370,730		137.53
Vested	(188,954	)	(32,929	)	—		(221,883	)	57.87		(133,828	)	(3,132	)	(10,528	)	(147,488	)	72.21
Forfeited	(152,243	)	(48,701	)	(104,527	)	(305,471	)	63.67		(46,780	)	—		(11,616	)	(58,396	)	87.99
Unvested balance, September 30, 2018	414,225		3,132		200,227		617,584		70.11
Unvested balance, September 30, 2019											448,089		—		321,067		769,156		$	101.93

The aggregate fair values of RSAs, ~~PSAs~~PSUs and ~~PSUs~~PSAs granted and vested are presented in the following table:



	Nine Months Ended September 30,
	2019		2018
	(In millions)
Granted:
RSAs	$	32	$	26
PSUs	19		16
Total granted	$	51	$	42
Vested:
RSAs	$	18	$	14
PSUs	2		—
PSAs	—		3
Total vested	$	20	$	17

Nine Months Ended September 30,
2018 2017
(In millions)
Granted:
Restricted stock awards $ 26
$ 19
Performance stock units 16
16
$ 42
$ 35
Vested:
Restricted stock awards $ 14
$ 21
Performance stock awards 3
15
Performance stock units —
9
$ 17
$ 45
Employee Stock Purchase Plan

In May 2019, our stockholders approved the Molina Healthcare, Inc. 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which superseded the Molina Healthcare, Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”). A maximum of 3.0 million shares of our common stock may be issued under the 2019 ESPP, the terms of which are substantially similar to the 2011 ESPP. The 2019 ESPP will continue until the earliest of: termination of the 2019 ESPP by the board of directors (which may occur at any time); issuance of all of the shares reserved for issuance under the 2019 ESPP; or May 9, 2029.

10. Restructuring ~~and Separation~~ Costs

Restructuring ~~and separation~~ costs are reported by the same name in the accompanying consolidated statements of ~~operations.~~income.

IT Restructuring Plan

~~Following the 2017 Restructuring Plan noted below, our new executive team has~~Management is focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we ~~have begun to implement~~began a plan to restructure our information technology department (the ~~IT Restructuring)~~“IT Restructuring Plan”) in ~~the third quarter of 2018.~~

~~Expected Costs~~

~~In addition to $3 million incurred in the third quarter of~~ 2018, ~~we expect to incur approximately $6 million for the IT Restructuring in the fourth quarter of 2018. We expect such costs to consist primarily of one-time termination benefits and other costs~~which is reported in the Other segment. In early 2019, we entered into services agreements with an outsourcing vendor who manages certain of our information technology services.

We ~~will update the total estimated costs for~~expect the IT Restructuring ~~in our 2018 Annual Report on Form 10-K.~~

~~Costs Incurred~~

Plan to be substantially completed by the end of 2019. We ~~have incurred expenses under the IT Restructuring as follows:~~

Three and Nine Months Ended September 30, 2018
One-Time Termination Benefits Other Restructuring Costs Total
Consulting Fees Contract Termination Costs
(In millions)
Other $ 2
$ 1
$ —
$ 3

~~Reconciliation~~estimate that we will incur approximately $15 million of ~~Liability~~

~~For those restructuring and separation~~cumulative total costs, ~~that require cash settlement (one-time termination benefits and consulting fees), the following table presents a roll-forward of the accrued liability,~~ which is lower than the $20 million reported in ~~“Accounts payable and accrued liabilities” in the accompanying consolidated balance sheets.~~

One-Time Termination Benefits Other Restructuring Costs Total

Accrued as of December 31, 2017 $ —
$ —
$ —
Charges 2
1
3
Cash payments —
—
—
Accrued as of September 30, 2018 $ 2
$ 1
$ 3

~~2017 Restructuring Plan~~

~~Following a management-initiated, broad operational assessment in early 2017,~~ our board of directors approved, and we committed to, a comprehensive restructuring and profitability improvement plan in June 2017 (the 2017 Restructuring Plan). Key activities under this plan to date have included:

Streamlining of our organizational structure to eliminate redundant layers of management, consolidate regional support services, and other staff reductions to improve efficiency and the speed and quality of decision making;

Re-design of core operating processes such as provider payment, utilization management, quality monitoring and improvement, and information technology, to achieve more effective and cost-efficient outcomes;

~~Remediation of high-cost provider contracts and enhancement of high quality, cost-effective networks;~~

~~Restructuring, including selective exits, of direct delivery operations; and~~

~~Partnering with the lowest-cost, most effective vendors.~~

~~Costs Incurred~~

~~In our 2017~~ Annual Report on Form 10-K ~~we reported that we had incurred substantially all~~for the year ended December 31, 2018, because more of our IT employees transitioned to our outsourcing vendor than originally contemplated. Once employed by our outsourcing vendor, such employees are no longer included in the ~~costs associated with the 2017~~IT Restructuring Plan, resulting in ~~2017, amounting to $234 million.~~lower one-time termination costs.

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 nine months ended September 30, ~~2018,~~2019, we incurred ~~an additional $35~~$2 million ~~in such~~of other restructuring costs, primarily as a result of our further evaluation and write-off of a utilization and care management project terminated because of its inconsistency with the goals of the 2017 Restructuring Plan. We also recorded nominal amounts forpaid $5 million to settle one-time termination benefits, ~~true-ups~~and paid $3 million to settle other restructuring costs. As of ~~certain~~September 30, 2019, 0 amounts were accrued under the IT Restructuring Plan.

As of September 30, 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 (primarily consulting fees).

2017 Restructuring Plan

As of December 31, 2018, accrued liabilities of $18 million remained for the restructuring and profitability improvement plan approved by the board of directors in June 2017 (the “2017 Restructuring Plan”). In the nine months ended September 30, 2019, we incurred $3 million of restructuring costs for adjustments to previously recorded lease contract termination costs, and ~~consulting fees recorded in 2017.~~paid $7 million to settle one-time termination and lease contract termination costs. As of September 30, ~~2018, we had incurred $269~~2019, accrued liabilities of $14 million ~~in total~~remained for lease contract termination costs under the 2017 Restructuring Plan. We expect to ~~complete all activities under the 2017 Restructuring Plan in 2018, with the exception of the cash settlement of lease termination liabilities. We expect to~~ continue to settle ~~those~~these liabilities through 2025, unless the leases are terminated sooner.

The following tables present the major types of such costs by segment. Current and long-lived assets include current and non-current capitalized project costs, and capitalized software determined to be unrecoverable.

Three Months Ended September 30, 2018
One-Time Termination Benefits Other Restructuring Costs Total
Write-offs of Current and Long-lived Assets Consulting Fees Contract Termination Costs
(In millions)
Health Plans $ —
$ —
$ —
$ 2
$ 2
$ —
$ —
$ —
$ 2
$ 2

Nine Months Ended September 30, 2018
One-Time Termination Benefits Other Restructuring Costs Total
Write-offs of Current and Long-lived Assets Consulting Fees Contract Termination Costs
(In millions)
Health Plans $ —
$ (1 ) $ —
$ 10
$ 9
Other 5
20
1
—
26
$ 5
$ 19
$ 1
$ 10
$ 35

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

~~As of September 30, 2018, we had incurred cumulative restructuring costs under the 2017 Restructuring Plan as follows:~~

Separation Costs - Former Executives One-Time Termination Benefits Other Restructuring Costs Total
Write-offs of Current and Long-lived Assets Consulting Fees Contract Termination Costs
(In millions)
Health Plans $ —
$ 33
$ 15
$ —
$ 34
$ 82
Molina Medicaid Solutions —
—
8
—
—
8
Other 36
39
57
45
2
179
$ 36
$ 72
$ 80
$ 45
$ 36
$ 269

~~Reconciliation of Liability~~

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

~~consolidated balance sheets. The adjustments are due to true-ups of costs recorded in 2017.~~

Separation Costs - Former Executives One-Time Termination Benefits Other Restructuring Costs Total
(In millions)
Accrued as of December 31, 2017 $ 2
$ 11
$ 35
$ 48
Adjustments —
(1 ) 10
9
Charges —
6
2
8
Cash payments (2 ) (15 ) (15 ) (32 )
Accrued as of September 30, 2018 $ —
$ 1
$ 32
$ 33

11. Segments

We currently have ~~three~~2 reportable ~~segments, consisting of~~segments: 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. ~~Refer to Note 1, “Organization and Basis of Presentation,” for a discussion of our recent divestiture of Pathways.~~

~~Recent Developments – Molina Medicaid Solutions Segment~~

We closed on the sale of MMS to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million, which we received on October 1, 2018. As a result of this transaction, we recognized a pretax gain, net of transaction costs, of $37 million.

~~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.

Margin for our Health Plans segment is referred to as “Medical ~~margin,~~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~~ after medical ~~care~~ 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~~Medical Margin is the most important measure of earnings reviewed by the chief operating decision maker. ~~The service margin is equal to service revenue minus cost of service revenue.~~

The following table presents total revenue by segment. Inter-segment revenue was insignificant for all periods presented.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(In millions)
Total revenue:
Health Plans	$	4,239	$	4,565	$	12,546	$	13,826
Other	4		132		9		400
Consolidated	$	4,243	$	4,697	$	12,555	$	14,226

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(In millions)
Total revenue:
Health Plans $ 4,565
$ 4,899
$ 13,826
$ 14,538
Molina Medicaid Solutions 53
47
152
140
Other 79
85
248
256
Consolidated $ 4,697
$ 5,031
$ 14,226
$ 14,934

The following table reconciles margin by segment to consolidated income ~~(loss)~~ before income taxes:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(In millions)												(In millions)
Margin:
Health Plans	$	547		$	557		$	1,812		$	1,343		$	561		$	547		$	1,725		$	1,812
Molina Medicaid Solutions	14			5			26			13
Other	5			2			16			8			—			19			—			42
Total margin	566			564			1,854			1,364			561			566			1,725			1,854
Add: other operating revenues ⁽¹⁾	230			124			661			379			159			230			470			661
Add: gain on sale of subsidiary	37			—			37			—			—			37			—			37
Less: other operating expenses ⁽²⁾	(538		)	(769		)	(1,693		)	(2,029		)	(463		)	(538		)	(1,393		)	(1,693		)
Operating income (loss)	295			(81		)	859			(286		)
Operating income													257			295			802			859
Other expenses, net	36			32			116			10			24			36			52			116
Income (loss) before income taxes	$	259		$	(113	)	$	743		$	(296	)
Income before income tax expense													$	233		$	259		$	750		$	743

______________________


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


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

12. Commitments and Contingencies

~~California Medicaid Expansion Risk Corridor~~

In October 2018, we entered into contract amendments with the California Department of Health Care Services that retroactively reinstated the Medicaid Expansion risk corridor requirement for the state fiscal year ended June 2017. This risk corridor mandates a minimum medical loss ratio (MLR) of 85% and a maximum MLR of 95%. The estimated impact of such requirement resulted in a reduction to 2016 and 2017 premium revenue totaling approximately $57 million, which we recognized in the quarter ended September 30, 2018.

~~Regulatory Capital Requirements and Dividend Restrictions~~

Our health plans are subject to state laws and regulations that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state. Regulators in some states may also attempt to enforce capital requirements that require the retention of net worth in excess of amounts formally required by statute or regulation. Such statutes, regulations, and informal capital requirements also restrict the timing, payment, and amount of dividends and other distributions that may be paid to us as the sole stockholder. To the extent our subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based on current statutes and regulations, the net assets in these subsidiaries (after intercompany eliminations) which may not be transferable to us in the form of loans, advances, or cash dividends was approximately $2,041 million at September 30, 2018, and $1,691 million at December 31, 2017. Because of the statutory restrictions that inhibit the ability of our health plans to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by the parent company—Molina Healthcare, Inc.

As of September 30, 2018, our health plans had aggregate statutory capital and surplus of approximately $2,125 million compared with the estimated required minimum aggregate statutory capital and surplus of approximately $1,138 million. All of our health plans were in compliance with the minimum capital requirements at September 30, 2018. We have the ability, and have committed to provide, additional capital to each of our health plans as necessary to ensure compliance with statutory capital and surplus requirements.

Legal Proceedings

The ~~health care~~healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. Penalties associated with violations of these laws and regulations include significant fines, exclusion from participating in publicly funded programs, and the repayment of previously collected revenues.

In the ordinary course of business we are involved in legal actions, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. We have accrued liabilities for certain matters for which we deem the loss to be both probable and reasonably estimable, but the outcome of legal actions is inherently uncertain and our estimates of such losses could change as a result of further developments of these matters. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery or factual development to enable us to reasonably estimate a range of possible loss. An adverse determination in one or more of these pending matters could have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

~~Steamfitters Local 449 Pension Plan v. Molina Healthcare, Inc., et al.~~ On October 5, 2018, the Steamfitters Local 449 Pension Plan filed its first amended class action securities complaint in the Central District Court of California against the Company and its former executive officers, J. Mario Molina, John C. Molina, Terry P. Bayer, and Rick Hopfer, Case 2:18-cv-03579. The amended complaint purports to seek recovery on behalf of all persons or entities who purchased Molina common stock between October 31, 2014, and August 2, 2017, for alleged violations under Sections 10(b) and 20(a) of the Securities Exchange Act 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. The Company believes it has meritorious defenses to the alleged claims and intends to defend the matter vigorously.

States’ Budgets

Nearly all of our premium revenues come from the joint federal and state funding of the Medicaid and Children’s Health Insurance Program ~~(CHIP)~~(“CHIP”) programs. The states and Commonwealth in which we operate our health plans regularly face significant budgetary pressures.

13. ~~Supplemental Condensed Consolidating Financial Information~~Leases

As discussed in Note ~~7, “Debt,~~2, “Significant Accounting Policies,” we ~~have outstanding $700 million aggregate principal amount of 5.375% Notes due November 15, 2022, unless earlier redeemed. At September 30, 2018,~~elected the ~~5.375% Notes were fully and unconditionally guaranteed by certain of our wholly owned subsidiaries on a joint and several basis, with exceptions considered customary for such guarantees.~~

~~For all~~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 ~~following condensed consolidating financial statements present Molina Healthcare, Inc. (as “Parent Guarantor”),~~year of adoption. Accordingly, the ~~subsidiary guarantors (as “Other Guarantors”), the subsidiary non-guarantors (as “Non-Guarantors”) and “Eliminations”, according to the guarantor structure as assessed~~Topic 842 disclosures below are presented as of and for the ~~nine months~~three-month and nine-month periods ended September 30, ~~2018.~~2019, only.

~~In connection with~~We are a party to operating and finance leases primarily for our corporate and health plan offices. Our operating leases have remaining lease terms up to 10 years, some of which include options to extend the ~~divestiture~~leases for up to 10 years. As of ~~MMS described in Note 11, “Segments,” MMS was released as an “Other Guarantor” effective~~ September 30, ~~2018,~~2019, the weighted average remaining operating lease term is 4 years.

Our finance leases have remaining lease terms of 2 years to 19 years, some of which include options to extend the leases for up to 25 years. As of September 30, 2019, the weighted average remaining finance lease term is 16 years.

As of September 30, 2019, the weighted-average discount rate used to compute the present value of lease payments was 5.6% for operating lease liabilities, and ~~is reported in “Non-Guarantors”~~6.5% for ~~all periods presented.~~

~~In connection with the sale~~finance lease liabilities. The components of all of the membership interests of our wholly owned subsidiary Pathways Health and Community Support LLC (Pathways) described in Note 1, “Organization and Basis of Presentation,” Pathways was releasedlease expense were as ~~an “Other Guarantor” effective October 19, 2018, leaving our wholly owned subsidiary Molina Pathways, LLC as the sole subsidiary guarantor as of that date.~~

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~follows:

Three Months Ended September 30, 2018
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Revenue:
Total revenue $ 273
$ —
$ 4,695
$ (271 ) $ 4,697
Expenses:
Medical care costs (11 ) —
3,801
—
3,790
Cost of service revenue —
—
111
—
111
General and administrative expenses 243
1
338
(271 ) 311
Premium tax expenses —
—
110
—
110
Health insurer fees —
—
87
—
87
Depreciation and amortization 17
—
8
—
25
Restructuring and separation costs 3
—
2
—
5
Total operating expenses 252
1
4,457
(271 ) 4,439
Gain on sale of subsidiary 37
—
—
—
37
Operating income (loss) 58
(1 ) 238
—
295
Interest expense 26
—
—
—
26
Other expenses, net 10
—
—
—
10
Income (loss) before income taxes 22
(1 ) 238
—
259
Income tax (benefit) expense (6 ) —
68
—
62
Net income (loss) before equity in net earnings (losses) of subsidiaries 28
(1 ) 170
—
197
Equity in net earnings (losses) of subsidiaries 169
(2 ) —
(167 ) —
Net income (loss) $ 197
$ (3 ) $ 170
$ (167 ) $ 197



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
	(In millions)
Operating lease expense	$	9	$	26

Finance lease expense:
Amortization of right-of-use (“ROU”) assets	$	4	$	12
Interest on lease liabilities	3		11
Total finance lease expense	$	7	$	23

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~Supplemental consolidated cash flow information related to leases follows:



	Nine Months Ended September 30, 2019
	(In millions)
Cash used in operating activities:
Operating leases	$	28
Finance leases	12
Cash used in financing activities:
Finance leases	4
ROU assets recognized in exchange for lease obligations:
Operating leases	95
Finance leases	245

Three Months Ended September 30, 2018
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Net income (loss) $ 197
$ (3 ) $ 170
$ (167 ) $ 197
Other comprehensive gain, net of tax 1
—
1
(1 ) 1
Comprehensive income (loss) $ 198
$ (3 ) $ 171
$ (168 ) $ 198
Supplemental information related to leases, including location of amounts reported in the accompanying consolidated balance sheets, follows:



	September 30, 2019
	(In millions)
Operating leases:
ROU assets
Other assets	$	69
Lease liabilities
Accounts payable and accrued liabilities (current)	$	28
Other long-term liabilities (non-current)	49
Total operating lease liabilities	$	77
Finance leases:
ROU assets
Property, equipment, and capitalized software, net	$	233
Lease liabilities
Accounts payable and accrued liabilities (current)	$	8
Finance lease liabilities (non-current)	233
Total finance lease liabilities	$	241

Maturities of lease liabilities as of September 30, 2019, were as follows:



	Operating Leases			Finance Leases
	(In millions)
2019 (for the three months ended December 31, 2019)	$	9		$	6
2020	28			23
2021	18			23
2022	12			22
2023	10			21
Thereafter	8			311
Total lease payments	85			406
Less imputed interest	(8		)	(165		)
Totals	$	77		$	241

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

Three Months Ended September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Revenue:
Total revenue $ 380
$ (1 ) $ 5,031
$ (379 ) $ 5,031
Expenses:
Medical care costs 3
—
4,217
—
4,220
Cost of service revenue —
—
123
—
123
General and administrative expenses 244
—
518
(379 ) 383
Premium tax expenses —
—
106
—
106
Depreciation and amortization 23
—
10
—
33
Restructuring and separation costs 77
—
41
—
118
Impairment losses —
—
129
—
129
Total operating expenses 347
—
5,144
(379 ) 5,112
Operating income (loss) 33
(1 ) (113 ) —
(81 )
Interest expense 32
—
—
—
32
Income (loss) before income taxes 1
(1 ) (113 ) —
(113 )
Income tax expense (benefit) 9
(1 ) (24 ) —
(16 )
Net loss before equity in net (losses) earnings of subsidiaries (8 ) —
(89 ) —
(97 )
Equity in net (losses) earnings of subsidiaries (89 ) (86 ) 8
167
—
Net loss $ (97 ) $ (86 ) $ (81 ) $ 167
$ (97 )

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS~~

Three Months Ended September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Net loss $ (97 ) $ (86 ) $ (81 ) $ 167
$ (97 )
Other comprehensive income, net of tax —
—
—
—
—
Comprehensive loss $ (97 ) $ (86 ) $ (81 ) $ 167
$ (97 )

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

Nine Months Ended September 30, 2018
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Revenue:
Total revenue $ 867
$ 2
$ 14,220
$ (863 ) $ 14,226
Expenses:
Medical care costs (4 ) —
11,366
—
11,362
Cost of service revenue —
—
349
—
349
General and administrative expenses 762
3
1,096
(863 ) 998
Premium tax expenses —
—
320
—
320
Health insurer fees —
—
261
—
261
Depreciation and amortization 53
—
23
—
76
Restructuring and separation costs 28
—
10
—
38
Total operating expenses 839
3
13,425
(863 ) 13,404
Gain on sale of subsidiary 37
—
—
—
37
Operating income (loss) 65
(1 ) 795
—
859
Interest expense 90
—
1
—
91
Other expenses, net 25
—
—
—
25
(Loss) income before income taxes (50 ) (1 ) 794
—
743
Income tax expense 4
—
233
—
237
Net (loss) income before equity in net earnings (losses) of subsidiaries (54 ) (1 ) 561
—
506
Equity in net earnings (losses) of subsidiaries 560
(6 ) —
(554 ) —
Net income (loss) $ 506
$ (7 ) $ 561
$ (554 ) $ 506

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

Nine Months Ended September 30, 2018
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Net income (loss) $ 506
$ (7 ) $ 561
$ (554 ) $ 506
Other comprehensive loss, net of tax (4 ) —
(4 ) 4
(4 )
Comprehensive income (loss) $ 502
$ (7 ) $ 557
$ (550 ) $ 502

~~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
$ 1
$ 14,937
$ (1,014 ) $ 14,934
Expenses:
Medical care costs 10
—
12,812
—
12,822
Cost of service revenue —
—
369
—
369
General and administrative expenses 799
2
1,440
(1,014 ) 1,227
Premium tax expenses —
—
331
—
331
Depreciation and amortization 75
—
34
—
109
Restructuring and separation costs 120
—
41
—
161
Impairment losses —
—
201
—
201
Total operating expenses 1,004
2
15,228
(1,014 ) 15,220
Operating income (loss) 6
(1 ) (291 ) —
(286 )
Interest expense 85
—
—
—
85
Other income, net (75 ) —
—
—
(75 )
Loss before income taxes (4 ) (1 ) (291 ) —
(296 )
Income tax expense (benefit) 26
(1 ) (71 ) —
(46 )
Net loss before equity in net (losses) earnings of subsidiaries (30 ) —
(220 ) —
(250 )
Equity in net (losses) earnings of subsidiaries (220 ) (152 ) 8
364
—
Net loss $ (250 ) $ (152 ) $ (212 ) $ 364
$ (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 ) $ (152 ) $ (212 ) $ 364
$ (250 )
Other comprehensive income, net of tax 1
—
1
(1 ) 1
Comprehensive loss $ (249 ) $ (152 ) $ (211 ) $ 363
$ (249 )

~~CONDENSED CONSOLIDATING BALANCE SHEETS~~

September 30, 2018
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 399
$ 2
$ 2,413
$ —
$ 2,814
Investments 106
—
1,706
—
1,812
Receivables 2
—
1,344
—
1,346
Due from (to) affiliates 63
(4 ) (59 ) —
—
Prepaid expenses and other current assets 293
—
193
—
486
Derivative asset 843
—
—
—
843
Total current assets 1,706
(2 ) 5,597
—
7,301
Property, equipment, and capitalized software, net 187
—
77
—
264
Goodwill and intangible assets, net 14
—
181
—
195
Restricted investments —
—
118
—
118
Investment in subsidiaries, net 2,578
74
—
(2,652 ) —
Deferred income taxes 48
—
95
—
143
Other assets 40
—
6
(16 ) 30
$ 4,573
$ 72
$ 6,074
$ (2,668 ) $ 8,051

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable $ 4
$ —
$ 2,038
$ —
$ 2,042
Amounts due government agencies —
—
1,030
—
1,030
Accounts payable and accrued liabilities 635
—
189
—
824
Deferred revenue —
—
178
—
178
Current portion of long-term debt 296
—
—
—
296
Derivative liability 843
—
—
—
843
Total current liabilities 1,778
—
3,435
—
5,213
Long-term debt and lease financing obligations 1,217
—
16
(16 ) 1,217
Other long-term liabilities 17
—
43
—
60
Total liabilities 3,012
—
3,494
(16 ) 6,490
Total stockholders’ equity 1,561
72
2,580
(2,652 ) 1,561
$ 4,573
$ 72
$ 6,074
$ (2,668 ) $ 8,051

~~CONDENSED CONSOLIDATING BALANCE SHEETS~~

December 31, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 504
$ —
$ 2,682
$ —
$ 3,186
Investments 192
—
2,332
—
2,524
Restricted investments 169
—
—
—
169
Receivables 2
—
869
—
871
Due from (to) affiliates 148
(5 ) (143 ) —
—
Prepaid expenses and other current assets 103
16
136
(16 ) 239
Derivative asset 522
—
—
—
522
Total current assets 1,640
11
5,876
(16 ) 7,511
Property, equipment, and capitalized software, net 223
—
119
—
342
Goodwill and intangible assets, net 15
—
240
—
255
Restricted investments —
—
119
—
119
Investment in subsidiaries, net 2,306
82
—
(2,388 ) —
Deferred income taxes 17
—
101
(15 ) 103
Other assets 32
—
110
(1 ) 141
$ 4,233
$ 93
$ 6,565
$ (2,420 ) $ 8,471

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable $ 3
$ —
$ 2,189
$ —
$ 2,192
Amounts due government agencies —
—
1,542
—
1,542
Accounts payable and accrued liabilities 178
14
174
—
366
Deferred revenue —
—
282
—
282
Current portion of long-term debt 653
—
16
(16 ) 653
Derivative liability 522
—
—
—
522
Total current liabilities 1,356
14
4,203
(16 ) 5,557
Long-term debt and lease financing obligations 1,516
—
—
—
1,516
Deferred income taxes —
—
15
(15 ) —
Other long-term liabilities 24
1
37
(1 ) 61
Total liabilities 2,896
15
4,255
(32 ) 7,134
Total stockholders’ equity 1,337
78
2,310
(2,388 ) 1,337
$ 4,233
$ 93
$ 6,565
$ (2,420 ) $ 8,471

~~CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS~~

Nine Months Ended September 30, 2018
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Operating activities:
Net cash provided by (used in) operating activities $ 451
$ 1
$ (643 ) $ —
$ (191 )
Investing activities:
Purchases of investments (136 ) —
(1,066 ) —
(1,202 )
Proceeds from sales and maturities of investments 383
—
1,687
—
2,070
Purchases of property, equipment and capitalized software (16 ) —
(8 ) —
(24 )
Capital contributions to subsidiaries (122 ) —
122
—
—
Dividends from subsidiaries 268
—
(268 ) —
—
Change in amounts due to/from affiliates 70
1
(71 ) —
—
Other, net —
—
(23 ) —
(23 )
Net cash provided by investing activities 447
1
373
—
821
Financing activities:
Repayment of credit facility (300 ) —
—
—
(300 )
Repayment of principal amount of 1.125% Notes (236 ) —
—
—
(236 )
Cash paid for partial settlement of 1.125% Conversion Option (477 ) —
—
—
(477 )
Cash received for partial termination of 1.125% Call Option 477
—
—
—
477
Cash paid for partial termination of 1.125% Warrants (419 ) —
—
—
(419 )
Repayment of principal amount of 1.625% Notes (64 ) —
—
—
(64 )
Other, net 7
—
—
—
7
Net cash used in financing activities (1,012 ) —
—
—
(1,012 )
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents (114 ) 2
(270 ) —
(382 )
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period 513
—
2,777
—
3,290
Cash, cash equivalents, and restricted cash and cash equivalents at end of period $ 399
$ 2
$ 2,507
$ —
$ 2,908

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
$ —
$ 742
$ —
$ 957
Investing activities:
Purchases of investments (331 ) —
(1,563 ) —
(1,894 )
Proceeds from sales and maturities of investments 148
—
1,388
—
1,536
Purchases of property, equipment and capitalized software (67 ) —
(18 ) —
(85 )
Capital contributions to subsidiaries (363 ) 2
361
—
—
Dividends from subsidiaries 136
—
(136 ) —
—
Change in amounts due to/from affiliates (100 ) —
100
—
—
Other, net —
—
(33 ) —
(33 )
Net cash (used in) provided by investing activities (577 ) 2
99
—
(476 )
Financing activities:
Proceeds from senior notes offerings, net of issuance costs 325
—
—
—
325
Proceeds from borrowings under credit facility 300
—
—
—
300
Other, net 7
—
—
—
7
Net cash provided by financing activities 632
—
—
—
632
Net increase in cash, cash equivalents, and restricted cash and cash equivalents 270
2
841
—
1,113
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period 86
—
2,826
—
2,912
Cash, cash equivalents, and restricted cash and cash equivalents at end of period $ 356
$ 2
$ 3,667
$ —
$ 4,025

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 fact, may be deemed to be forward-looking statements for purposes of the Securities Act and the Securities Exchange Act. Without limiting the foregoing, we use the words “anticipate(s),” “believe(s),” “estimate(s),” “expect(s),” “intend(s),” “may,” “plan(s),” “project(s),” “will,” “would,” “could,” “should” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we will actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and, accordingly, you should not place undue reliance on our forward-looking statements. We caution you that we do not undertake any obligation to update forward-looking statements made by us. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected, estimated, or expected. Those known risks and uncertainties include, but are not limited to, risks and uncertainties related to the following:

the ~~success of the Company’s profit improvement and maintenance initiatives, including the timing and amounts of the benefits realized, and administrative and medical cost savings achieved;~~

~~the~~ numerous political, judicial, and market-based uncertainties associated with the Affordable Care Act (the “ACA”) or ~~“Obamacare;~~“Obamacare,”

including the ultimate outcome on appeal of the 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 adjustment requirements, the potential for disproportionate enrollment of higher acuity members, the discontinuation of premium tax credits, and the adequacy of agreed rates;

subsequent adjustments to reported premium revenue based upon subsequent developments or new information, including changes to estimated amounts payable or receivable related to Marketplace risk adjustment;

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

~~the Company’s~~our ability to predict with a reasonable degree of accuracy utilization rates, including utilization rates associated with seasonal flu patterns or other newly emergent diseases;

significant budget pressures on state governments and their potential inability to maintain current rates, to implement expected rate increases, or to maintain existing benefit packages or membership eligibility thresholds or criteria;

the full reimbursement of the ACA health insurer fee, or HIF;

the success of ~~the Company’s~~our efforts to retain existing or awarded government contracts, ~~including~~and the success of any requests for proposal protest filings or ~~defenses;~~

defenses, including the pending Texas STAR+PLUS and STAR/CHIP RFPs;

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

~~the Company’s ability to consummate and realize benefits from divestitures and acquisitions, including the recently consummated MMS and Pathways divestitures;~~

~~the Company’s~~our receipt of adequate premium rates to support increasing pharmacy costs, including costs associated with specialty drugs and costs resulting from formulary changes that allow the option of higher-priced non-generic drugs;

~~the Company’s~~our ability to operate profitably in an environment where the trend in premium rate increases lags behind the trend in increasing medical costs;

the interpretation and implementation of federal or state medical cost expenditure floors, administrative cost and profit ceilings, premium stabilization programs, profit sharing arrangements, and risk adjustment provisions and requirements;

~~the Company’s~~our 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 ~~the Company’s~~our ability to recognize revenue amounts associated therewith;

cyber-attacks or other privacy or data security incidents resulting in an inadvertent unauthorized disclosure of protected health information;

the success of ~~the Company’s~~our health plan in Puerto Rico, including the resolution of the debt crisis and the effect of the PROMESA law, the effects of political and regulatory instability, and the impact of any future significant weather events;

the success and renewal of ~~the Company’s~~our duals demonstration programs in California, Illinois, Michigan, Ohio, South Carolina, and Texas;

the accurate estimation of incurred but not reported or paid medical costs across ~~the Company’s~~our health plans;

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

our ability to consummate, integrate, and realize benefits from acquisitions;

complications, member confusion, eligibility re-determinations, or enrollment backlogs related to the ~~annual~~ renewal of Medicaid ~~coverage;~~

coverage, as well as the chilling effect of the new so-called public charge rule;

government audits, ~~and~~ reviews, comment letters, or potential investigations, and any fine, sanction, enrollment freeze, monitoring program, or premium recovery that may result therefrom;

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

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

changes in funding under ~~the Company’s~~our contracts as a result of regulatory changes, programmatic adjustments, or other reforms;

high dollar claims related to catastrophic illness;

the favorable resolution of litigation, arbitration, or administrative proceedings, including litigation involving the ACA to which we ~~ourselves~~ are not a direct party;

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

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

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

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

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 our Annual Report on Form 10-K for the year ended December 31, ~~2017~~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 on Form 10-Q and the following discussion of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the notes to those statements appearing elsewhere in this report, and the audited financial statements and Management’s Discussion and Analysis appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

OVERVIEW

~~ABOUT MOLINA HEALTHCARE~~

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

Molina Healthcare, Inc., a FORTUNE 500 company, 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 ofhealthcare services under the Medicaid ~~program.~~ and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). Through our locally operated health plans in 14 states and the Commonwealth of Puerto Rico, we served approximately 3.3 million members as of September 30, 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,~~

~~consisting 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 we sold in late 2018, as well as certain corporate amounts not allocated to the Health Plans 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.

THIRD QUARTER 2019 HIGHLIGHTS

In summary, we produced pretax earnings of $233 million, and net income of $175 million in the third quarter of 2019, resulting in an after-tax margin of 4.1%. On a year-to-date basis, pretax earnings were $750 million and net income was $569 million, resulting in an after-tax margin of 4.5%. These results include, on a consolidated and year-to-date basis, a medical care ratio (“MCR”) of 85.7% and a general and administrative (“G&A”) expense ratio of 7.6%.

Program Performance

We have a broad and well diversified business portfolio, and all of our lines of business and our ~~Other segment.~~local health plans are continuing to perform well for the third quarter and nine months year to date.

In the Medicaid business, our MCR for the third quarter was sequentially flat at approximately 88.1%. These results were in line with our expectations and performance in this business continued to be stable, as we have achieved an 88.2% MCR for the first nine months of the year.

Our Medicare business, comprising our Medicare Special Needs Plans and MMP products, continued to perform well in the third quarter and was also in line with our expectation. The 85.6% MCR in the third quarter was fairly stable compared to 85.2% MCR in the second quarter of this year. We achieved an 85.2% MCR for the first nine months of the year, as we continue to manage high-acuity members by providing access to high-quality healthcare at a reasonable cost, including our management of long term services and supports, or LTSS, benefits which are embedded in our MMP product. Additionally, we continue to see the results of our quality and risk adjustment efforts, as our Medicare risk scores are becoming more commensurate with the acuity of this population and risk adjustment revenue has increased.

Our Marketplace business has also continued to perform well and the results are in line with seasonal expectations, as we reported a 71.2% MCR for the third quarter compared to 67.2% MCR in the second quarter of this year. For the first nine months of the year, the Marketplace MCR was 66.7%, and the attractive margin profile of this business will allow us to be more competitive on premium rates, increase value added benefits, and offer more competitive commissions in 2020, so we can grow membership - albeit at a lower, but still attractive and more sustainable margin.

G&A Expenses

Our G&A expense ratio increased 60 basis points to 7.6% in the nine months ended September 30, 2019, from 7.0% for the same period in 2018, due mainly to the year-over-year decline in total revenues.

Balance Sheet and Capital Management

We continue to improve our balance sheet, as we repaid an additional $55 million aggregate principal amount of our 1.125% Convertible Notes in the third quarter, for a total of $240 million year to date. The impact of capital deployment actions in the quarter resulted in lower interest expense, a slight loss on repayment of the convertible notes, and a lower share count.

~~OVERVIEW -~~ FINANCIAL SUMMARY


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(In millions, except per-share amounts)												(Dollars in millions, except per-share amounts)
Revenue:
Premium revenue	$	4,337		$	4,777		$	13,174		$	14,165		$	4,084		$	4,337		$	12,085		$	13,174
Premium tax revenue	110			106			320			331			119			110			367			320
Health insurer fees reimbursed	83			—			248			—			—			83			—			248
Investment income and other revenue	37			18			93			48			40			37			103			93

Operating expenses:
Medical care costs	3,790			4,220			11,362			12,822			3,523			3,790			10,360			11,362
General and administrative expenses	311			383			998			1,227			323			311			953			998
Premium tax expenses	110			106			320			331			119			110			367			320
Health insurer fees	87			—			261			—			—			87			—			261
Restructuring costs													—			5			5			38
Gain on sale of subsidiary													—			37			—			37

Gain on sale of subsidiary	37			—			37			—
Operating income (loss)	295			(81		)	859			(286		)
Operating income													257			295			802			859
Interest expense	26			32			91			85			22			26			67			91
Other expenses (income), net	10			—			25			(75		)	2			10			(15		)	25
Income tax expense (benefit)	62			(16		)	237			(46		)
Net income (loss)	197			(97		)	506			(250		)
Income before income tax expense													233			259			750			743
Income tax expense													58			62			181			237
Net income													175			197			569			506

Net income per diluted share													$	2.75		$	2.90		$	8.80		$	7.60

Operating Statistics:
Ending total membership	4.0			4.5			4.0			4.5			3,346,000			3,999,000			3,346,000			3,999,000
MCR ⁽¹⁾	87.4		%	88.3		%	86.2		%	90.5		%	86.3		%	87.4		%	85.7		%	86.2		%
G&A ratio ⁽²⁾	6.6		%	7.6		%	7.0		%	8.2		%	7.6		%	6.6		%	7.6		%	7.0		%
Premium tax ratio ⁽¹⁾	2.5		%	2.2		%	2.4		%	2.3		%	2.8		%	2.5		%	2.9		%	2.4		%
Effective income tax rate	24.0		%	14.6		%	31.9		%	15.5		%	24.7		%	24.0		%	24.1		%	31.9		%
Net profit (loss) margin ⁽²⁾	4.2		%	(1.9		)%	3.6		%	(1.7		)%
Net income (loss) per diluted share	$	2.90		$	(1.70	)	$	7.60		$	(4.44	)
After-tax margin ⁽²⁾													4.1		%	4.2		%	4.5		%	3.6		%

________________________


(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)	~~Net profit margin represents net income as a percentage of total revenue.~~ G&A ratio represents general and administrative expenses as a percentage of total revenue. After-tax margin represents net income as a percentage of total revenue.

CONSOLIDATED RESULTS

See tables below, under “Summary of Significant Items,” for details relating to significant non-run rate items, such as impairment losses, restructuring costs and material out of period adjustments to premiums or medical care costs.

NET INCOME AND OPERATING INCOME

Net income ~~for~~in the third quarter of ~~2018~~2019 amounted to $175 million, or $2.75 per diluted share, compared with $197 million, or $2.90 per diluted share, ~~compared with a net loss of $97 million, or $1.70 per diluted share for~~in the third quarter of ~~2017.~~2018. Operating income ~~for the third quarter~~ of ~~2018 amounted to $295 million, compared with an operating loss of $81~~$257 million in the third quarter of ~~2017. The~~

~~year-over-year improvement is~~2019, was lower compared with $295 million in the third quarter of 2018, mainly ~~driven by a~~resulting from the year-over-year decline in ~~the medical care ratio (MCR).~~premium revenue. Additionally, results for the third quarter of ~~2017 reflect $247~~2018 included the recognition of a $37 million ~~in impairment and restructuring charges, or $3.16 per diluted share.~~gain on the sale of subsidiary.

Net income ~~for~~in the nine months ended September 30, ~~2018 was~~2019, amounted to $569 million, or $8.80 per diluted share, compared with $506 million, or $7.60 per diluted share, ~~compared with a net loss of $250 million, or $4.44 per diluted share for~~in the nine months ended September 30, ~~2017.~~2018. Operating income ~~for~~amounted to $802 million in the nine months ended September 30, ~~2018 amounted to~~2019, compared with $859 million ~~compared with an operating loss of $286 million for~~in the nine months ended September 30, ~~2017. The year-over-year improvement is mainly driven by a decline in~~2018.

In the ~~MCR. Additionally, results for the~~third quarter and nine months ended September 30, ~~2017 reflect $362 million in impairment and restructuring charges, or $4.69~~2019, net income per diluted ~~share.~~share was favorably impacted by the reduction of the dilutive impact of the 1.125% Warrants, as a result of the 1.125% Warrants partial termination transactions that settled between September 2018 and September 2019. See further discussion in Notes to Consolidated Financial Statements, Note 9, “Stockholders' Equity.”

PREMIUM REVENUE

Premium revenue decreased ~~$440~~$253 million in the third quarter of ~~2018,~~2019, when compared with the third quarter of ~~2017.~~2018. Member months declined ~~11%~~18%, partially offset by a per-member per-month ~~(PMPM)~~(“PMPM”) revenue increase of 2%12%. ~~Lower~~Premium revenue decreased $1,089 million in the nine months ended September 30, 2019, when compared with the nine months ended September 30, 2018. Member months declined 18%, partially offset by a PMPM revenue increase of 10%. The premium revenue decline in both periods was primarily in the Medicaid and Marketplace programs.

The decline in Medicaid premium revenue was driven primarily by ~~a decrease~~the loss in ~~Marketplace~~ membership due to the previously announced loss of the New Mexico Medicaid contract, along with the resizing of the Florida Medicaid contract as reported throughout 2018. This was partially offset by ~~Marketplace~~Medicaid premium rate ~~increases. In addition, we recognized~~increases, and the impact of a $57 million reduction in ~~revenues for~~premium revenue recognized in the third quarter of 2018, relating to a retroactive California Medicaid Expansion risk corridor for the state’s 2017 fiscal year.

The decline in Marketplace premium revenue was primarily due to declining membership, which also drove a relatively smaller benefit from prior year Marketplace risk adjustment in 2019 compared with 2018, partially offset by premium rate increases.

MEDICAL CARE RATIO

The consolidated MCR decreased to 86.3% in the third quarter of 2019, from 87.4% in the third quarter of 2018. The consolidated MCR in the third quarter of 2018 would have been 86.4% excluding the retroactive California Medicaid Expansion risk corridor adjustment and a slight benefit from the Marketplace cost sharing (“CSR”) reimbursement related to 2017 dates of service. Prior period reserve development in the quarter was negligible.

~~Premium revenue~~The consolidated MCR decreased ~~$991 million~~to 85.7% in the nine months ended September 30, 2019, from 86.2% in the nine months ended September 30, 2018. The consolidated MCR in the nine months ended September 30, 2018, ~~when compared with~~would have been 86.5%, excluding the ~~nine months ended September 30, 2017. Member months declined 13%,~~retroactive California Medicaid Expansion risk corridor adjustment and the $81 million benefit from the Marketplace CSR reimbursement related to 2017 dates of service.

The improvement in both periods was due to a decrease in the Medicaid and Medicare MCRs, partially offset by ~~a revenue PMPM~~an increase ~~of 6%, primarily relating to~~in the Marketplace ~~membership as noted above.~~MCR.

PREMIUM TAX REVENUE AND EXPENSES

The premium tax ratio (premium tax expense as a percentage of premium revenue plus premium tax revenue) was ~~2.5% for~~2.8% in the third quarter of ~~2018~~2019, compared with ~~2.2% for~~2.5% in the third quarter of ~~2017;~~2018; and ~~2.4%~~2.9% compared with ~~2.3%~~2.4% for the nine months ended September 30, 2019 and 2018, respectively. The increase is mainly attributed to the state of Michigan’s implementation of an insurance provider assessment in 2019, and ~~2017, respectively. At our California health plan,~~ the ~~premium tax rate is based on~~state of Illinois’ implementation of a managed care organization provider assessment in the prior state fiscal year enrollment. Because the California health plan’s enrollment and premium revenue have declined in 2018, premium taxes recognized in 2018 have driven a higher premium tax ratio in 2018.third quarter of 2019.

INVESTMENT INCOME AND OTHER REVENUE

Investment income and other revenue increased to $40 million in the third quarter of 2019, compared with $37 million ~~for~~in the third quarter of 2018, ~~compared with $18 million for the third quarter of 2017,~~ and increased to $103 million in the nine months ended September 30, 2019, compared with $93 million ~~for~~in the nine months ended September 30, 2018, ~~compared with $48 million for the nine months ended September 30, 2017. The current quarter and year-to-date increases were a result of two factors. First, investment income improved~~mainly due to ~~annualized portfolio yields, and, for~~gains realized on the ~~nine months ended September 30, 2018, we had higher average invested assets. In addition, other revenue increased~~sale of certain investments in the third quarter of 2019, and ~~nine months ended September 30, 2018, due~~improved annualized portfolio yields overall in 2019.

G&A EXPENSES

The G&A expense ratio increased to ~~administrative services fees earned~~7.6% in ~~our Washington health plan following that state’s decision to transition~~ the ~~management~~third quarter of ~~Medicaid pharmacy benefits to an administrative services-based arrangement in 2018.~~

~~MEDICAL CARE RATIO (MCR)~~

~~Overall, the MCR decreased to 87.4%~~2019, from 6.6% in the third quarter of 2018, ~~from 88.3% in the third quarter of 2017. Excluding the retroactive California Medicaid Expansion risk corridor adjustment~~ and a small benefit from the 2017 Marketplace cost sharing reduction (CSR), the MCR would have been 86.4% in the third quarter of 2018. Excluding the change in Marketplace premium deficiency reserve for 2017 dates of service, the MCR for the third quarter of 2017 would have been 89.0%. The improvement was mainly dueincreased to ~~a decrease in the Medicaid and Marketplace MCRs, partially offset by an increase in the Medicare MCR.~~

~~Overall, the MCR improved to 86.2% for the nine months ended September 30, 2018, from 90.5%~~7.6% in the nine months ended September 30, ~~2017. Excluding adjustments for the retroactive California Medicaid Expansion risk corridor, and the combined benefit of the 2017 Marketplace risk adjustment and CSR reimbursement, the MCR for~~2019, compared with 7.0% in the nine months ended September 30, ~~2018 would have been 86.9%. Excluding~~2018. These increases were due mainly to the ~~change~~year-over-year decline in Marketplace premium deficiency reserve for 2017 dates of service, the MCR for the nine months ended September 30, 2017 would have been 90.2%. The improvement was due to a decrease in the MCRs across our Medicaid, Medicare and Marketplace plans.total revenues.

~~GENERAL AND ADMINISTRATIVE (G&A) EXPENSES~~

The general and administrative (G&A) expense ratio decreased to 6.6% for the third quarter of 2018, from 7.6% for the third quarter of 2017, and decreased to 7.0% for the nine months ended September 30, 2018, from 8.2% for the

~~nine months ended September 30, 2017. This year-over-year improvement was primarily the result of continued G&A cost containment.~~

HEALTH INSURER FEES ~~(HIF)~~

~~Health insurer fees amounted to $87 million and $261 million, and~~There are no health insurer fees (“HIF”) expensed or reimbursed ~~amounted~~in 2019 due to ~~$83 million and $248 million, in~~the moratorium under Public Law No. 115-120. In the third quarter of 2018 and the nine months ended September 30, 2018, the HIF amounted to $87 million and $261 million, respectively, and HIF reimbursements amounted to $83 million and $248 million, respectively.

~~There were no HIF expensed or reimbursed~~RESTRUCTURING COSTS

We incurred restructuring costs of $5 million in ~~2017~~the nine months ended September 30, 2019, mainly due to ~~the HIF moratorium under the Consolidated Appropriations Act~~true-ups of ~~2016.~~

~~GAIN ON SALE OF SUBSIDIARY~~

We closed on the sale of Molina Medicaid Solutions (MMS) to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million, which we received on October 1, 2018. As a result of this transaction, we recognized a pretax gain, net of transaction costs, of $37 million, or $0.42 per diluted sharelease terminations recorded in ~~the third quarter of 2018.~~

~~INTEREST EXPENSE~~

~~Interest expense was $26 million for~~our 2017 Restructuring Plan. In the third quarter of 2018 ~~compared with $32 million for the third quarter of 2017. Interest expense was $91 million for~~and the nine months ended September 30, 2018, ~~compared with $85~~we incurred restructuring costs of $5 million ~~for~~and $38 million, respectively, related to our 2017 Restructuring Plan.

INTEREST EXPENSE

Interest expense declined to $22 million in the third quarter of 2019, from $26 million in the third quarter of 2018, and declined to $67 million in the nine months ended September 30, ~~2017.~~2019, from $91 million in the nine months ended September 30, 2018. As further described below in “Liquidity,” ~~year to date~~ we ~~have~~ reduced the principal amount outstanding of ~~outstanding~~our 1.125% Convertible Notes by $240 million in the nine months ended September 30, 2019, and reduced total debt by ~~$697 million.~~$759 million in the year ended December 31, 2018. The decrease in interest expense in 2019 was partially offset by interest expense attributable to $220 million borrowed under our Term Loan Facility in the nine months ended September 30, 2019.

Interest expense includes non-cash interest expense relating primarily to the amortization of the discount on convertible senior notes, which amounted to $5$1 million and $8$5 million in the third quarter of ~~2018~~2019, and ~~2017,~~2018, respectively, and ~~$18~~$5 million and ~~$24~~$18 million in the nine months ended September 30, 2019 and 2018, respectively. The decline in 2019 is due to repayment of our convertible senior notes throughout 2018 and ~~2017, respectively.~~in the nine months ended September 30, 2019. See further discussion in Notes to Consolidated Financial Statements, Note 7, ~~“Debt.~~“Debt.”

OTHER EXPENSES (INCOME), NET

In the ~~three~~third quarter of 2019 and the nine months ended September 30, 2019, we recognized a loss on debt repayment of $2 million, and a gain on debt repayment of $15 million, respectively. In the third quarter of 2018 and the nine months ended September 30, 2018, we ~~recorded other expenses~~recognized losses on debt repayment of $10 million and $25 million, respectively, in connection with convertible senior notes repayment transactions. The net gain year to date in 2019 was due to a favorable mark to market valuation on the ~~loss on~~partial termination of the Call Spread Overlay executed in connection with the related debt ~~extinguishment resulting from our 1.125% Notes repayments and the 1.625% Notes exchange. These transactions are described~~repayment. See further discussion in Notes to Consolidated Financial Statements, Note 7, ~~“Debt.~~“Debt.” ~~In early 2017, we received a $75 million fee in connection with a terminated Medicare acquisition.~~

INCOME TAXES

The provision for income taxes was recorded at an effective rate of 24.7% in the third quarter of 2019, compared with 24.0% ~~for~~in the third quarter of 2018, ~~compared with a benefit of 14.6% for the third quarter of 2017,~~ and ~~31.9% for~~24.1% in the nine months ended September 30, ~~2018,~~2019, compared with ~~a benefit of 15.5% for~~31.9% in the nine months ended September 30, ~~2017.~~2018. The effective tax rate ~~for~~was higher in 2018 ~~differs from 2017 as a result of the reduction in the federal statutory rate from 35%~~due to ~~21% under the TCJA and~~ higher non-deductible expenses in 2018, primarily related to the non-deductible ~~HIF, as a percentage of pre-tax income (loss).~~HIF. The HIF ~~was~~is not applicable in ~~2017~~2019 due to the ~~2017 HIF moratorium.~~moratorium under Public Law No. 115-120.

SUMMARY OF ~~SIGNIFICANT~~NON-RUN RATE ITEMS

The ~~tables~~table below ~~summarize~~summarizes the impact of certain expenses and other items ~~significant to our financial performance in the periods presented.~~that management believes are not indicative of longer-term business trends and operations. The individual items presented below increase (decrease) income ~~(loss)~~ before income tax ~~expense (benefit).~~expense.

Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
Amount
Per Diluted Share ⁽¹⁾
Amount
Per Diluted Share ⁽¹⁾

Retroactive California Medicaid Expansion risk corridor for the state fiscal year ended June 30, 2017 $ (57 ) $ (0.65 ) $ (57 ) $ (0.67 )
Marketplace risk adjustment, for 2017 dates of service —
—
56
0.66
Marketplace CSR subsidies, for 2017 dates of service 5
0.06
81
0.95
Gain on sale of subsidiary 37
0.42
37
0.43
Restructuring costs ⁽²⁾
(5 ) (0.06 ) (38 ) (0.45 )
Loss on debt extinguishment (10 ) (0.12 ) (25 ) (0.33 )
$ (30 ) $ (0.35 ) $ 54
$ 0.59

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Amount
Per Diluted Share ⁽¹⁾
Amount
Per Diluted Share ⁽¹⁾

Restructuring costs ⁽²⁾
$ (118 ) $ (1.39 ) $ (161 ) $ (1.92 )
Impairment losses ⁽³⁾
(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 September 30,												Nine Months Ended September 30,
	2019						2018						2019						2018
	Amount			Per Diluted Share ⁽¹⁾			Amount			Per Diluted Share ⁽¹⁾			Amount			Per Diluted Share ⁽¹⁾			Amount			Per Diluted Share ⁽¹⁾
	(In millions except per diluted share amounts)
(Loss) gain on debt repayment	$	(2	)	$	(0.03	)	$	(10	)	$	(0.12	)	$	15		$	0.18		$	(25	)	$	(0.33	)
Restructuring costs	—			—			(5		)	(0.06		)	(5		)	(0.06		)	(38		)	(0.45		)
Gain on sale of subsidiary	—			—			37			0.42			—			—			37			0.43
	$	(2	)	$	(0.03	)	$	22		0.24			$	10		$	0.12		$	(26	)	$	(0.35	)

~~__________________~~

___________________


(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 the statutory income tax ~~rates~~rate of 22.6% and 22% for 2019 and 2018, ~~and 37% for 2017.~~


~~(2)~~	~~For more information, refer to Notes to Consolidated Financial Statements, Note 10, “Restructuring and Separation Costs.”~~


~~(3)~~	~~In the nine months ended September 30, 2017, we recorded non-cash impairment losses for goodwill and intangibles, primarily relating to our Pathways subsidiary.~~ respectively.

REPORTABLE SEGMENTS

HOW WE ASSESS PERFORMANCE

We derive our revenues primarily from health insurance ~~premiums, and our~~premiums. Our primary customers are state Medicaid agencies and the federal government.

One of the key metrics used to assess the performance of our ~~most significant segment, the~~ Health Plans segment is the MCR, which represents the amount of medical care costs as a percentage of premium revenue. Therefore, the underlying margin, or the amount earned by the Health Plans segment after medical costs are deducted from premium revenue, is the most important measure of earnings reviewed by management.

Margin for our Health Plans segment is referred to as “Medical ~~margin,~~Margin.” Medical Margin amounted to $561 million in the third quarter of 2019, and ~~for our Molina Medicaid Solutions~~$547 million in the third quarter of 2018. Medical Margin amounted to $1,725 million in the nine months ended September 30, 2019, and ~~Other segments, as “Service margin.” The service margin is equal to service revenue minus cost of service revenue.~~$1,812 million in the nine months ended September 30, 2018. Management’s discussion and analysis of the changes in the individual components of ~~medical margin and service margin~~Medical Margin follows.

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

~~SEGMENT SUMMARY~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(In millions)
Health Plans segment medical margin ⁽¹⁾
$ 547
$ 557
$ 1,812
$ 1,343
Molina Medicaid Solutions segment service margin ⁽²⁾
14
5
26
13
Other segment service margin ⁽²⁾
5
2
16
8
Total margin $ 566
$ 564
$ 1,854
$ 1,364

Health Plans segment medical care ratio 87.4 % 88.3 % 86.2 % 90.5 %

~~_______________________~~


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


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

HEALTH PLANS

~~RECENT DEVELOPMENTS~~

~~Renewal of Medicaid Contracts~~

~~Year to date in 2018, we renewed Medicaid contracts in Washington, Florida and Puerto Rico as follows:~~

In May 2018, our Washington health plan was selected by the Washington State Health Care Authority (HCA) to enter into a managed care contract for the eight remaining regions of the state’s Apple Health Integrated Managed Care program, in addition to the two regions previously awarded to us. We were selected by HCA for the following regions: Greater Columbia, King, North Sound, Pierce, and Spokane beginning January 1, 2019; and Salish, Thurston-Mason, and Great Rivers beginning January 1, 2020. As of September 30, 2018, we served approximately 738,000 Medicaid members in Washington, which represented premium revenue of $1,558 million for the nine months ended September 30, 2018.

In June 2018, our Florida health plan was awarded comprehensive Medicaid Managed Care contracts by the Florida Agency for Health Care Administration (AHCA) in Regions 8 and 11 of the Florida Statewide Medicaid Managed Care Invitation to Negotiate. As of September 30, 2018, we served approximately 96,000 Medicaid members in those regions, which represented premium revenue of approximately $346 million for the nine months ended September 30, 2018. Services under the new contract are expected to begin on January 1, 2019. We will be serving both the Medicaid and long-term care populations in the two regions.

In July 2018, our Puerto Rico health plan was selected by the Puerto Rico Health Insurance Administration to be one of the organizations to administer the Commonwealth’s new Medicaid Managed Care contract. We expect to serve approximately 290,000 members under the new contract. The base contract runs for a period of three years with an optional one-year extension. As of September 30, 2018, we served approximately 320,000 Medicaid members in the East and Southwest regions of Puerto Rico, which represented premium revenue of $549 million for the nine months ended September 30, 2018.

TRENDS AND UNCERTAINTIES

~~Upcoming Contract Reprocurements~~Decline in Membership and Premium Revenue

~~The following table illustrates Health Plans segment~~Medicaid Program

Our Medicaid contracts ~~scheduled for re-procurement~~ in the near term. While we have been notified of the Medicaid regulators’ intention to re-procure the contracts, the anticipated award dates and effective dates are management’s current best estimates; such dates are subject to change. Premium revenue is stated in millions.

Premium Revenue
Membership as of Nine Months Ended Anticipated
State Health Plan Medicaid Program(s) September 30, 2018 September 30, 2018 Award Date Effective Date
Texas ABD, MMP 99,000
$ 1,460
Q2 2019 6/1/2020
Texas TANF, CHIP 124,000
236
Q3 2019 9/1/2020

New Mexico ~~Health Plan Update.~~ Inand in all but two regions in Florida terminated in late 2018 and early 2019. As a result, our ~~Annual Report on Form 10-K for 2017, we reported that we were notified by the New Mexico~~ Medicaid ~~agency that we had not been selected for a tentative award of a 2019 Medicaid contract. A hearing was held on our judicial protest on October 17, 2018, with a decision expected~~membership has decreased to approximately 96,000 members in ~~the fourth quarter of 2018. Regardless of the court’s decision on our protest, we would have further rights of appeal. We are continuing to manage the business in run-off until such time~~Florida as ~~a different outcome is determined. As~~ of September 30, ~~2018,~~2019, from 468,000 members in Florida and New Mexico, in the aggregate, as of December 31, 2018. In 2019, we ~~served approximately 206,000~~continue to serve Medicare and Marketplace members in both Florida and New Mexico, as well as Medicaid members in ~~New Mexico, which represented~~two regions in Florida.

In addition, our Medicaid membership has declined further in Puerto Rico as a result of the entry of more managed care organizations to that market late last year. We served approximately 186,000 members in Puerto Rico as of September 30, 2019, compared with 252,000 members as of December 31, 2018.

Our Medicaid premium revenues have decreased 9% in the nine months ended September 30, 2019, when compared with the nine months ended September 30, 2018, primarily as a result of the changes described above. We expect our Medicaid premium revenues to continue to decline in 2019 compared with 2018.

Marketplace Program

We estimate that our 2019 Marketplace end-of-year enrollment will decrease to approximately 270,000 members due to expected attrition. This projected enrollment is lower than the 289,000 and 362,000 members enrolled as of September 30, 2019, and December 31, 2018, respectively. Consequently, we expect our Marketplace premium revenues to continue to decrease in 2019 compared with 2018.

Status of Upcoming Contract Re-Procurements

Medicaid Program

Texas Health Plan. On October 29, 2019, the Texas Health and Human Services Commission (HHSC) notified our Texas health plan, Molina Healthcare of Texas, Inc., that HHSC intends to award contracts to Molina Healthcare of Texas, Inc. for the STAR+PLUS program in the Hidalgo and North East service areas. The awards will be for an initial contract term of 3 years, and anticipated to have an operational effective date of September 1, 2020. STAR+PLUS is a Texas Medicaid Managed Care program integrating the delivery of Acute Care services and Long-Term Services and Supports (LTSS) for people who are age 65 or older, blind, or disabled. Currently, our Texas health plan services the Bexar, Dallas, El Paso, Harris, Hidalgo, and Jefferson service areas, with total membership of approximately 86,000 enrollees. Under the existing STAR+PLUS contract, the premium revenue ~~of $891 million~~for this program amounted to approximately $1.2 billion for the nine months ended September 30, ~~2018.~~2019. We are seeking to understand the basis for HHSC’s selection of intended contract awards. We do not expect this matter to affect our earnings during fiscal year 2019.

~~Medicare-Medicaid Plans (MMP) Update.~~ ~~The current authority for three of our MMP programs, in California, Illinois and Ohio, ends December 31, 2019. In July 2018, the Ohio Medicaid agency~~Our Texas health plan has submitted a request for proposal (“RFP”) response with regard to ~~Centers for Medicare and Medicaid Services (CMS) for a three-year extension~~the STAR/CHIP program. We currently expect the STAR/CHIP award to be announced in the fourth quarter of ~~its duals demonstration~~2019. The STAR/CHIP program ~~through~~is currently expected to have an operational effective date of December ~~31, 2022. We~~1, 2020. As of September 30, 2019, our Texas health plan served 116,000 members under the existing STAR/CHIP contracts, under which we estimate annualized premium revenues of approximately ~~$690~~$310 million in ~~2018 under~~2019.

Ohio Health Plan. We have received information that the state of Ohio expects to release its Medicaid contract RFP early in 2020, with an announcement of the awards expected in the third quarter of 2020, and an operational effective date of January 1, 2021.

California Health Plan. We have received information that the state of California expects to release its Medicaid contract RFP in 2020, with new contracts effective in 2023.

Losses of any of our Texas, Ohio, or California Medicaid contracts could have a material adverse effect on our business, financial condition, cash flows, and results of operations.

MMP Program

Our California, Illinois and Ohio MMP ~~program.~~contracts have been extended, with one-year renewal terms, through December 31, 2022. These contracts represent aggregate annualized revenues of approximately $910 million in 2019.

Our Michigan, South Carolina and Texas MMP contracts are active through December 31, 2020. In ~~June 2018,~~October 2019, the ~~California~~Michigan Medicaid agency submitted a request to CMS for a one-year extension of its duals demonstration program, through December 31, 2020. We estimate annualized premium revenues of approximately $180 million in 2018 under our California MMP program.

~~As of October 31, 2018, the Illinois Medicaid agency had not yet submitted an~~three-year extension request to ~~CMS for its duals demonstration program. We estimate annualized premium revenues of approximately $80 million in 2018 under our Illinois MMP program.~~CMS.

Pressures on Medicaid Funding

~~Currently,~~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, ~~and~~ constitute a fundamental change into the federal role in ~~health care.~~healthcare 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:~~following, as well as numerous other potential changes and reforms:

~~Ending~~Changes in 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 (a “per capita cap”);~~basis;

Requiring Medicaid beneficiaries to work; and

Limiting the amount of lifetime benefits for Medicaid ~~beneficiaries;~~beneficiaries.

ACA

In December 2018, in a case brought by the state of Texas and

~~Numerous~~ nineteen other ~~potential changes and reforms.~~

states, a federal judge in Texas held that the ACA’s individual mandate is unconstitutional. He further held that the individual mandate is inseverable from the entire body of the ACA, and thus the ~~Marketplace~~

entire ACA is unconstitutional. The ~~future~~District Court stayed its order pending appeal, and the decision has now been appealed to and argued before a three judge panel of the ~~Affordable Care Act (ACA) and its underlying programs, including~~Fifth Circuit Court of Appeals. A decision of that court is expected in the ~~Marketplace, are subject to substantial uncertainty. While we continue to monitor~~fourth quarter of 2019, after which the ~~current political and programmatic developments pertaining~~case may be further appealed to the ~~Marketplace, in 2018 we~~United States Supreme Court. Any final, non-appealable determination that the ACA is unconstitutional would have ~~taken various actions to improve~~a material adverse effect on our ~~Marketplace operating performance. The action with the greatest impact to year-to-date~~business, financial condition, cash flows, and results ~~effective January 1, 2018, was the significant increase to premium rates (averaging 58%).~~

~~We have entered into contracts to participate in nine Marketplace states, including the Utah and Wisconsin Marketplaces, effective January 2019.~~of operations.

MEMBERSHIP

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


	September 30, 2018	December 31, 2017	September 30, 2017	September 30, 2019	December 31, 2018	September 30, 2018
Ending Membership by Program:
Temporary Assistance for Needy Families (TANF) and Children’s Health Insurance Program (CHIP)	2,436,000	2,457,000	2,451,000
TANF and CHIP				1,993,000	2,295,000	2,436,000
Medicaid Expansion	664,000	668,000	662,000	598,000	660,000	664,000
Aged, Blind or Disabled (ABD)	415,000	412,000	411,000
ABD				364,000	406,000	415,000
Total Medicaid	3,515,000	3,537,000	3,524,000	2,955,000	3,361,000	3,515,000
Medicare-Medicaid Plan (MMP) – Integrated ⁽¹⁾	55,000	57,000	58,000
Medicare Special Needs Plans (Medicare)	45,000	44,000	44,000
MMP – Integrated ⁽¹⁾				58,000	54,000	55,000
Medicare Special Needs Plans (“Medicare”)				44,000	44,000	45,000
Total Medicare	100,000	101,000	102,000	102,000	98,000	100,000
Total Medicaid and Medicare	3,615,000	3,638,000	3,626,000	3,057,000	3,459,000	3,615,000
Marketplace	384,000	815,000	877,000	289,000	362,000	384,000
	3,999,000	4,453,000	4,503,000	3,346,000	3,821,000	3,999,000

Ending Membership by Health Plan:
California	623,000	746,000	751,000	580,000	608,000	623,000
Florida(2)	395,000	625,000	641,000	136,000	313,000	395,000
Illinois	223,000	165,000	163,000	224,000	224,000	223,000
Michigan	394,000	398,000	399,000	361,000	383,000	394,000
New Mexico(2)	234,000	253,000	256,000	24,000	222,000	234,000
Ohio	315,000	327,000	343,000	292,000	302,000	315,000
Puerto Rico	320,000	314,000	306,000	186,000	252,000	320,000
South Carolina	117,000	116,000	113,000	134,000	120,000	117,000
Texas	436,000	430,000	444,000	350,000	423,000	436,000
Washington	770,000	777,000	770,000	818,000	781,000	770,000
Other ⁽²⁾⁽³⁾	172,000	302,000	317,000	241,000	193,000	172,000
	3,999,000	4,453,000	4,503,000	3,346,000	3,821,000	3,999,000

_________________________


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


(2)	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.

~~Premiums by Program~~

The amount of the premiums paid to our health plans vary substantially between states and among various government programs. The following table sets forth the ranges of premiums paid to our state health plans by program on a PMPM basis, for the nine months ended September 30, 2018. The “Consolidated” column represents the weighted-average amounts for our total membership by program.

PMPM Premiums
Low High Consolidated
TANF and CHIP $ 120.00
$ 340.00
$ 190.00
Medicaid Expansion 300.00
510.00
360.00
ABD 520.00
1,530.00
1,030.00
MMP – Integrated 1,360.00
3,190.00
2,170.00
Medicare 600.00
1,270.00
1,170.00
Marketplace 250.00
650.00
380.00

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019, COMPARED WITH THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

FINANCIAL PERFORMANCE BY PROGRAM

The following tables summarize member months, premium revenue, medical care costs, 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, 2018															Three Months Ended September 30, 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	7.4	$	1,379	$	187.03	$	1,228	$	166.41	MCR ⁽²⁾	89.0	%		$	151		6.0			$	1,225			$	202.46			$	1,071			$	176.88		87.4	%		$	154
Medicaid Expansion	2.0	671		333.11		640		317.62		95.3			31			1.8			696				385.63				622				345.25			89.5			74
ABD	1.2	1,322		1,054.92		1,186		946.38		89.7			136			1.1			1,247				1,136.67				1,097				1,000.56			88.0			150
Total Medicaid	10.6	3,372		316.86		3,054		286.86		90.5			318			8.9			3,168				353.81				2,790				311.70			88.1			378
MMP	0.2	353		2,159.72		323		1,981.45		91.7			30			0.2			399				2,328.70				345				2,010.50			86.3			54
Medicare	0.1	156		1,157.71		121		895.25		77.3			35			0.1			160				1,230.01				134				1,029.75			83.7			26
Total Medicare	0.3	509		1,706.95		444		1,490.63		87.3			65			0.3			559				1,854.96				479				1,587.61			85.6			80
Total Medicaid and Medicare	10.9	3,881		354.70		3,498		319.63		90.1			383			9.2			3,727				402.76				3,269				353.31			87.7			458
Marketplace	1.2	456		394.02		292		252.61		64.1			164			0.9			357				410.23				254				292.21			71.2			103
	12.1	$	4,337	$	358.46	$	3,790	$	313.23	87.4	%		$	547		10.1			$	4,084			$	403.40			$	3,523			$	348.06		86.3	%		$	561


	Three Months Ended September 30, 2017															Three Months Ended September 30, 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	7.5	$	1,392	$	185.95	$	1,242	$	165.76	MCR ⁽²⁾	89.1	%		$	150		7.4			$	1,379			$	187.03			$	1,228			$	166.41		89.0	%		$	151
Medicaid Expansion	2.0	773		385.58		667		332.99		86.4			106			2.0			671				333.11				640				317.62			95.3			31
ABD	1.2	1,288		1,038.85		1,259		1,016.06		97.8			29			1.2			1,322				1,054.92				1,186				946.38			89.7			136
Total Medicaid	10.7	3,453		321.77		3,168		295.23		91.8			285			10.6			3,372				316.86				3,054				286.86			90.5			318
MMP	0.2	378		2,263.07		336		2,013.67		89.0			42			0.2			353				2,159.72				323				1,981.45			91.7			30
Medicare	0.1	163		1,231.61		126		951.01		77.2			37			0.1			156				1,157.71				121				895.25			77.3			35
Total Medicare	0.3	541		1,806.26		462		1,543.05		85.4			79			0.3			509				1,706.95				444				1,490.63			87.3			65
Total Medicaid and Medicare	11.0	3,994		362.04		3,630		329.08		90.9			364			10.9			3,881				354.70				3,498				319.63			90.1			383
Marketplace	2.7	783		301.72		590		227.22		75.3			193			1.2			456				394.02				292				252.61			64.1			164
	13.7	$	4,777	$	350.55	$	4,220	$	309.68	88.3	%		$	557		12.1			$	4,337			$	358.46			$	3,790			$	313.23		87.4	%		$	547

Nine Months Ended September 30, 2018

Member
Months ⁽¹⁾
Premium Revenue Medical Care Costs
MCR ⁽²⁾
Medical Margin
Total PMPM Total PMPM
TANF and CHIP 22.3
$ 4,145
$ 186.12
$ 3,705
$ 166.35
89.4 % $ 440
Medicaid Expansion 6.1
2,184
359.37
1,957
322.01
89.6
227
ABD 3.7
3,864
1,034.25
3,550
950.11
91.9
314
Total Medicaid 32.1
10,193
317.70
9,212
287.10
90.4
981
MMP 0.5
1,077
2,173.90
941
1,899.26
87.4
136
Medicare 0.4
470
1,171.59
385
959.54
81.9
85
Total Medicare 0.9
1,547
1,725.71
1,326
1,479.06
85.7
221
Total Medicaid and Medicare 33.0
11,740
355.96
10,538
319.50
89.8
1,202
Marketplace 3.8
1,434
379.91
824
218.44
57.5
610
36.8
$ 13,174
$ 358.42
$ 11,362
$ 309.12
86.2 % $ 1,812


	Nine Months Ended September 30, 2017															Nine Months Ended September 30, 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	22.8	$	4,185	$	183.69	$	3,861	$	169.44	MCR ⁽²⁾	92.2	%		$	324		18.3			$	3,594			$	196.01			$	3,141			$	171.30		87.4	%		$	453
Medicaid Expansion	6.1	2,376		389.14		2,045		334.93		86.1			331			5.4			2,055				380.08				1,810				334.85			88.1			245
ABD	3.6	3,769		1,033.45		3,634		996.58		96.4			135			3.3			3,590				1,097.94				3,200				978.64			89.1			390
Total Medicaid	32.5	10,330		317.49		9,540		293.21		92.4			790			27.0			9,239				342.03				8,151				301.77			88.2			1,088
MMP	0.5	1,083		2,189.96		976		1,974.22		90.1			107			0.5			1,193				2,368.38				1,034				2,051.90			86.6			159
Medicare	0.4	449		1,142.68		369		939.21		82.2			80			0.4			489				1,270.32				399				1,037.24			81.7			90
Total Medicare	0.9	1,532		1,726.39		1,345		1,516.09		87.8			187			0.9			1,682				1,892.63				1,433				1,612.29			85.2			249
Total Medicaid and Medicare	33.4	11,862		354.88		10,885		325.66		91.8			977			27.9			10,921				391.44				9,584				343.53			87.8			1,337
Marketplace	8.4	2,303		276.27		1,937		232.31		84.1			366			2.8			1,164				414.17				776				276.28			66.7			388
	41.8	$	14,165	$	339.19	$	12,822	$	307.03	90.5	%		$	1,343		30.7			$	12,085			$	393.52			$	10,360			$	337.37		85.7	%		$	1,725



	Nine Months Ended September 30, 2018
	Member Months ⁽¹⁾	Premium Revenue				Medical Care Costs				MCR ⁽²⁾		Medical Margin
	Member Months ⁽¹⁾	Total		PMPM		Total		PMPM		MCR ⁽²⁾		Medical Margin
TANF and CHIP	22.3	$	4,145	$	186.12	$	3,705	$	166.35	89.4	%	$	440
Medicaid Expansion	6.1	2,184		359.37		1,957		322.01		89.6		227
ABD	3.7	3,864		1,034.25		3,550		950.11		91.9		314
Total Medicaid	32.1	10,193		317.70		9,212		287.10		90.4		981
MMP	0.5	1,077		2,173.90		941		1,899.26		87.4		136
Medicare	0.4	470		1,171.59		385		959.54		81.9		85
Total Medicare	0.9	1,547		1,725.71		1,326		1,479.06		85.7		221
Total Medicaid and Medicare	33.0	11,740		355.96		10,538		319.50		89.8		1,202
Marketplace	3.8	1,434		379.91		824		218.44		57.5		610
	36.8	$	13,174	$	358.42	$	11,362	$	309.12	86.2	%	$	1,812

_______________________


(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

The Medical Margin of our Medicaid ~~MCR decreased to 90.5%~~program increased $60 million, or 19% in the third quarter of ~~2018, from 91.8% in~~2019 when compared with the third quarter of ~~2017,~~2018, and ~~decreased to 90.4% for~~increased $107 million, or 11% in the nine months ended September 30, 2018, from 92.4% for the nine months ended September 30, 2017. Excluding recognition of the $57 million retroactive California Medicaid Expansion risk corridor adjustment, the Medicaid MCR would have been 89.0% in the third quarter of 2018, and 89.9% for2019, when compared with the nine months ended September 30, 2018. The ~~decreases were mainly~~increase in both periods was due to ~~improved performance~~improvement in the overall Medicaid MCR, which more than offset the impact of declining Medicaid premium revenue. The Medicaid MCR decreased to 88.1% from 90.5%, or 240 basis points, in the third quarter of 2019 when compared with the same period in 2018, and decreased to 88.2% from 90.4%, or 220 basis points, in the nine months ended September 30, 2019, when compared with the same period in 2018.

The Medicaid MCR for ~~ABD and TANF and CHIP, partially offset by a decline~~both periods in ~~performance for Medicaid Expansion.~~

~~TANF and CHIP~~.2019 benefited from improvements across all programs. The MCR for TANF and CHIP improved for both periods due to ~~89.0%~~PMPM premium revenue increases. The improved MCR for the ABD program was principally driven by increases in premium revenue PMPM, lower pharmacy costs from re-contracted pharmacy benefits management, and our continued focus on medical cost management.

The decrease in the Medicaid Expansion MCR for both periods in 2019 when compared to 2018, was mainly due to the impact of a $57 million reduction in premium revenue, recognized in the third quarter of 2018, ~~from 89.1%~~relating to a retroactive California Medicaid Expansion risk corridor for the state’s 2017 fiscal year.

Medicaid premium revenue decreased $204 million and $954 million in the third quarter of ~~2017;~~2019 and ~~improved to 89.4% for~~ the nine months ended September 30, 2019, respectively, 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 ~~from 92.2% for~~and early 2019, partially offset by net rate increases in certain other markets. As noted above, we expect lower Medicaid premium revenue throughout 2019, when compared with 2018.

Medicare Program

The Medical Margin of our Medicare program increased $15 million, or 23%, in the third quarter of 2019, when compared with the third quarter of 2018, and increased $28 million, or 13%, in the nine months ended September 30, 2017. The year over year improvement was primarily due to improved performance at our Illinois, California and Texas health plans, partially offset by a decline in performance at our New Mexico health plan.

~~Medicaid Expansion.~~ The MCR for Medicaid Expansion was 95.3% in the third quarter of 2018, up from 86.4% in the third quarter of 2017, and was 89.6% for the nine months ended September 30, 2018, up from 86.1% for the nine months ended September 30, 2017. Excluding recognition of the $57 million retroactive California Medicaid Expansion risk corridor adjustment, the Medicaid Expansion MCR would have been 87.9% in the third quarter of 2018, and 87.3% for2019, when compared with the nine months ended September 30, 2018. ~~These increases were primarily~~Premiums continue to increase compared with the prior year, mainly due to risk scores that are more commensurate with the ~~premium reduction we received in California in July 2017. Medicaid Expansion has generally performed well because rate adequacy has trended favorably, and membership is concentrated in~~acuity of our ~~higher performing health plans, particularly California, Michigan, and Washington.~~population.

~~ABD~~. Marketplace Program

The ~~MCR for ABD improved to 89.7%~~Marketplace Medical Margin decreased $61 million in the third quarter of ~~2018,~~2019, when compared with ~~97.8% in~~ the third quarter of ~~2017;~~2018, and ~~improved to 91.9% for~~decreased $222 million in the nine months ended September 30, ~~2018, from 96.4% for~~2019, when compared with the nine months ended September 30, ~~2017.~~2018. The ~~year-over-year improvement can be~~decrease in both periods in 2019 is mainly attributed to a ~~number of actions, including our management of high acuity members.~~

~~Medicare and MMP~~

~~The overall MCR for the combined Medicare programs increased to 87.3%~~decrease in the third quarter of 2018, from 85.4% in the third quarter of 2017, but improved to 85.7% for the nine months ended September 30, 2018, from 87.8% for the nine months ended September 30, 2017. The MCR increase in the third quarter of 2018 is mainly due to certain premium transfers between the MMP and Medicaid programs that had no impact on consolidated results, and higher inpatient costs in our MMP program. The improvement for the nine months ended September 30, 2018 was partly driven by the recognition of additional MMP at‑risk revenue for dates of service in 2016 and 2017, resulting from ultimate settlements with CMS that were higher than the original estimates recognized in those periods. The Medicare business also benefited from favorable medical care trends and improved medical management of inpatient utilization for this population. Accurate and complete risk score documentation and effective management of chronic and high acuity conditions are critical to the successful management of this program.

~~Marketplace~~

~~Lower Marketplace premium revenue was~~revenues, driven by a decrease in membership of over ~~50%~~20%, partially offset by premium rate ~~increases.~~increases and increased premiums tied to risk scores. Additionally, the decrease in premiums in both periods in 2019 reflects a relatively smaller benefit from prior year Marketplace risk adjustment in 2019 compared with 2018. As ~~previously disclosed,~~noted above, we ~~increased~~expect Marketplace premium ~~rates~~revenue to be lower in 2019, when compared with 2018.

The decrease in Medical Margin for the nine months ended September 30, 2019, was partially driven by the impact of the $81 million CSR reimbursement recognized in the nine months ended September 30, 2018. The CSR benefit related to 2017 dates of service and ~~reduced our Marketplace presence effective January 1, 2018, as part~~was recognized following the federal government’s confirmation that the reconciliation would be performed on an annual basis. In the fourth quarter of ~~our overall program~~2017, we had assumed a nine-month reconciliation of this item pending confirmation of the time period to ~~improve profitability.~~which the 2017 reconciliation would be applied.

The MCR for the Marketplace program ~~decreased~~amounted to 71.2% in the third quarter of 2019, compared with 64.1% in the third quarter of 2018, ~~from 75.3%~~and 66.7% in the ~~third quarter of 2017; and improved to~~nine months ended September 30, 2019, compared with 57.5% in the nine months ended September 30, ~~2018,~~2018. The increased MCR in both periods in 2019 reflects a relatively smaller benefit from 84.1% for the nine months ended September 30, 2017. Excluding the benefit of the 2017 Marketplace cost sharing reduction (CSR) reimbursement recognized in 2018, the MCR for the third quarter of 2018 would have been 65.3%. Excluding the combined benefit of the 2017prior year Marketplace risk adjustment in 2019 compared with 2018, and ~~CSR reimbursement recognized~~the impact of higher acuity membership, partially offset by the impact of rate increases and increased premiums tied to risk scores. Additionally, the increase in ~~2018, the~~ MCR for the nine months ended September 30, ~~2018 would have been 65.7%. Excluding~~2019, reflects the ~~changes~~impact of the CSR reimbursement recognized in ~~Marketplace premium deficiency reserves for 2017 dates of service, the MCR for the third quarter of 2017 would have been 79.1%, and 82.4% for~~ the nine months ended September 30, ~~2017. The year over year improvement is mainly due to the overall program to improve profitability, as discussed above.~~2018.

FINANCIAL PERFORMANCE BY ~~STATE~~HEALTH PLAN

The following tables summarize member months, premium revenue, medical care costs, 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 — Medicaid and Medicare

Three Months Ended September 30, 2018
Member
Months Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 1.7
$ 435
$ 249.00
$ 446
$ 255.22
102.5 % $ (11 )
Florida 1.0
388
363.16
362
339.33
93.4
26
Illinois 0.7
207
312.72
182
274.98
87.9
25
Michigan 1.1
397
350.05
321
282.49
80.7
76
New Mexico 0.6
304
471.66
275
426.69
90.5
29
Ohio 0.9
584
624.84
532
568.93
91.1
52
Puerto Rico 1.0
179
189.65
162
171.96
90.7
17
South Carolina 0.4
124
354.53
112
318.56
89.9
12
Texas 0.7
577
848.47
525
772.14
91.0
52
Washington 2.3
511
226.77
444
197.04
86.9
67
Other ⁽¹⁾
0.5
175
334.29
137
261.49
78.2
38
10.9
$ 3,881
$ 354.70
$ 3,498
$ 319.63
90.1 % $ 383


	Three Months Ended September 30, 2017															Three Months Ended September 30, 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	1.9	$	601	$	322.97	$	563	$	302.67	MCR	93.7	%		$	38		1.6			$	510			$	315.90			$	423			$	261.97		82.9	%		$	87
Florida	1.0	388		355.59		390		356.83		100.3			(2		)	0.3			130				436.99				127				427.80			97.9			3
Illinois	0.5	137		287.69		138		289.36		100.6			(1		)	0.7			257				383.41				232				347.28			90.6			25
Michigan	1.2	390		337.17		345		298.83		88.6			45			1.1			401				373.01				332				307.97			82.6			69
New Mexico	0.7	304		429.07		277		390.91		91.1			27
Ohio	0.9	549		560.06		483		492.61		88.0			66			0.9			615				687.38				563				628.98			91.5			52
Puerto Rico	1.0	191		202.59		159		168.25		83.1			32			0.6			117				209.25				102				182.53			87.2			15
South Carolina	0.3	113		332.48		101		297.74		89.6			12			0.4			151				379.20				138				347.23			91.6			13
Texas	0.7	541		778.50		506		728.19		93.5			35			0.7			592				912.76				540				833.51			91.3			52
Washington	2.3	612		276.73		522		236.11		85.3			90			2.3			643				269.52				570				238.55			88.5			73
Other ⁽¹⁾	0.5	168		294.99		146		256.99		87.1			22
Other ^{(1) (2)}																0.6			311				437.60				242				341.29			78.0			69
	11.0	$	3,994	$	362.04	$	3,630	$	329.08	90.9	%		$	364		9.2			$	3,727			$	402.76			$	3,269			$	353.31		87.7	%		$	458


	Nine Months Ended September 30, 2018															Three Months Ended September 30, 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	5.3	$	1,446	$	270.63	$	1,299	$	243.14	MCR	89.8	%		$	147		1.7			$	435			$	249.00			$	446			$	255.22		102.5	%		$	(11	)
Florida	3.2	1,147		356.15		1,069		331.93		93.2			78			1.0			388				363.16				362				339.33			93.4			26
Illinois	1.8	551		308.45		474		265.47		86.1			77			0.7			207				312.72				182				274.98			87.9			25
Michigan	3.4	1,161		343.08		983		290.26		84.6			178			1.1			397				350.05				321				282.49			80.7			76
New Mexico(2)	2.0	936		469.19		875		438.70		93.5			61			0.6			304				471.66				275				426.69			90.5			29
Ohio	2.8	1,670		590.71		1,474		521.26		88.2			196			0.9			584				624.84				532				568.93			91.1			52
Puerto Rico	2.9	549		190.34		501		173.83		91.3			48			1.0			179				189.65				162				171.96			90.7			17
South Carolina	1.1	369		350.94		323		306.76		87.4			46			0.4			124				354.53				112				318.56			89.9			12
Texas	2.1	1,715		831.21		1,554		753.31		90.6			161			0.7			577				848.47				525				772.14			91.0			52
Washington	6.8	1,666		245.40		1,544		227.41		92.7			122			2.3			511				226.77				444				197.04			86.9			67
Other ⁽¹⁾	1.6	530		323.84		442		269.98		83.4			88			0.5			175				334.29				137				261.49			78.2			38
	33.0	$	11,740	$	355.96	$	10,538	$	319.50	89.8	%		$	1,202		10.9			$	3,881			$	354.70			$	3,498			$	319.63		90.1	%		$	383

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
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
Washington 6.7
1,835
275.60
1,603
240.83
87.4
232
Other ⁽¹⁾
1.7
510
292.93
454
261.01
89.1
56
33.4
$ 11,862
$ 354.88
$ 10,885
$ 325.66
91.8 % $ 977

~~______________________~~


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

~~Health Plans Segment Financial Data — Marketplace~~



	Nine Months Ended September 30, 2019
	Member Months	Premium Revenue				Medical Care Costs				MCR		Medical Margin
	Member Months	Total		PMPM		Total		PMPM		MCR		Medical Margin
California	4.9	$	1,508	$	306.96	$	1,286	$	261.76	85.3	%	$	222
Florida	1.0	418		410.71		374		367.95		89.6		44
Illinois	2.0	726		365.35		632		318.26		87.1		94
Michigan	3.3	1,199		370.77		990		305.99		82.5		209
Ohio	2.7	1,835		682.59		1,653		614.89		90.1		182
Puerto Rico	1.8	341		190.42		301		167.98		88.2		40
South Carolina	1.2	427		368.35		378		326.61		88.7		49
Texas	2.0	1,789		910.64		1,623		826.20		90.7		166
Washington	7.1	1,868		261.92		1,691		236.98		90.5		177
Other ^{(1) (2)}	1.9	810		402.31		656		325.93		81.0		154
	27.9	$	10,921	$	391.44	$	9,584	$	343.53	87.8	%	$	1,337


	Three Months Ended September 30, 2018																Nine Months Ended September 30, 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	0.2	$	49	$	309.04	$	37		$	235.63	MCR	76.2	%		$	12		5.3			$	1,446			$	270.63			$	1,299			$	243.14		89.8	%		$	147
Florida	0.2	66		548.60		45			362.39		66.1			21			3.2			1,147				356.15				1,069				331.93			93.2			78
Illinois																	1.8			551				308.45				474				265.47			86.1			77
Michigan	—	12		233.51		7			145.13		62.1			5			3.4			1,161				343.08				983				290.26			84.6			178
New Mexico	0.1	28		419.20		18			249.33		59.5			10
New Mexico ⁽²⁾																	2.0			936				469.19				875				438.70			93.5			61
Ohio	0.1	27		485.08		18			336.86		69.4			9			2.8			1,670				590.71				1,474				521.26			88.2			196
Puerto Rico																	2.9			549				190.34				501				173.83			91.3			48
South Carolina																	1.1			369				350.94				323				306.76			87.4			46
Texas	0.6	228		357.54		134			209.80		58.7			94			2.1			1,715				831.21				1,554				753.31			90.6			161
Washington	—	44		656.70		34			518.75		79.0			10			6.8			1,666				245.40				1,544				227.41			92.7			122
Other⁽¹⁾	—	2		NM		(1		)	NM		NM			3			1.6			530				323.84				442				269.98			83.4			88
	1.2	$	456	$	394.02	$	292		$	252.61	64.1	%		$	164		33.0			$	11,740			$	355.96			$	10,538			$	319.50		89.8	%		$	1,202

______________________

Three Months Ended September 30, 2017
Member
Months Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 0.3
$ 88
$ 208.19
$ 63
$ 147.87
71.0 % $ 25
Florida 0.9
260
313.36
235
283.13
90.4
25
Michigan —
14
212.08
10
150.24
70.8
4
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
Texas 0.7
183
291.14
109
172.70
59.3
74
Washington 0.1
42
327.40
33
256.52
78.3
9
Other⁽¹⁾
0.5
144
375.83
100
259.15
69.0
44
2.7
$ 783
$ 301.72
$ 590
$ 227.22
75.3 % $ 193

Nine Months Ended September 30, 2018
Member
Months Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 0.6
$ 171
$ 326.82
$ 89
$ 169.98
52.0 % $ 82
Florida 0.5
211
491.13
67
155.24
31.6
144
Michigan 0.1
40
248.24
23
145.38
58.6
17
New Mexico 0.2
93
426.07
55
247.57
58.1
38
Ohio 0.2
84
466.75
58
324.91
69.6
26
Texas 2.0
679
330.92
440
214.65
64.9
239
Washington 0.2
139
654.78
105
497.00
75.9
34
Other⁽¹⁾
—
17
NM
(13 ) NM
NM 30
3.8
$ 1,434
$ 379.91
$ 824
$ 218.44
57.5 % $ 610

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
Washington 0.4
123
315.95
128
327.51
103.7
(5 )
Other ⁽¹⁾
1.3
410
333.05
391
316.86
95.1
19
8.4
$ 2,303
$ 276.27
$ 1,937
$ 232.31
84.1 % $ 366

~~_________________________~~


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

~~Health Plans Segment Financial Data — Total~~

Three Months Ended September 30, 2018

Member
Months
Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 1.9
$ 484
$ 253.96
$ 483
$ 253.60
99.9 % $ 1
Florida 1.2
454
382.20
407
341.70
89.4
47
Illinois 0.7
207
312.72
182
274.98
87.9
25
Michigan 1.1
409
345.28
328
276.88
80.2
81
New Mexico 0.7
332
466.63
293
409.68
87.8
39
Ohio 1.0
611
616.95
550
555.83
90.1
61
Puerto Rico 1.0
179
189.65
162
171.96
90.7
17
South Carolina 0.4
124
354.53
112
318.56
89.9
12
Texas 1.3
805
611.01
659
500.14
81.9
146
Washington 2.3
555
239.25
478
206.38
86.3
77
Other ⁽¹⁾
0.5
177
336.18
136
260.19
77.4
41
12.1
$ 4,337
$ 358.46
$ 3,790
$ 313.23
87.4 % $ 547

Three Months Ended September 30, 2017

Member
Months
Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 2.2
$ 689
$ 301.64
$ 626
$ 273.90
90.8 % $ 63
Florida 1.9
648
337.40
625
325.09
96.4
23
Illinois 0.5
137
287.69
138
289.36
100.6
(1 )
Michigan 1.2
404
330.27
355
290.63
88.0
49
New Mexico 0.8
333
424.61
297
378.98
89.3
36
Ohio 1.0
572
550.75
503
485.61
88.2
69
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 1.4
724
546.57
615
463.83
84.9
109
Washington 2.4
654
279.52
555
237.23
84.9
99
Other ⁽¹⁾
1.0
312
327.47
246
257.86
78.7
66
13.7
$ 4,777
$ 350.55
$ 4,220
$ 309.68
88.3 % $ 557

Nine Months Ended September 30, 2018

Member
Months
Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 5.9
$ 1,617
$ 275.64
$ 1,388
$ 236.61
85.8 % $ 229
Florida 3.7
1,358
372.07
1,136
311.09
83.6
222
Illinois 1.8
551
308.45
474
265.47
86.1
77
Michigan 3.5
1,201
338.83
1,006
283.77
83.7
195
New Mexico 2.2
1,029
464.92
930
419.78
90.3
99
Ohio 3.0
1,754
583.29
1,532
509.52
87.4
222
Puerto Rico 2.9
549
190.34
501
173.83
91.3
48
South Carolina 1.1
369
350.94
323
306.76
87.4
46
Texas 4.1
2,394
581.74
1,994
484.70
83.3
400
Washington 7.0
1,805
257.82
1,649
235.59
91.4
156
Other ⁽¹⁾
1.6
547
334.26
429
262.27
78.5
118
36.8
$ 13,174
$ 358.42
$ 11,362
$ 309.12
86.2 % $ 1,812

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
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
Washington 7.1
1,958
277.83
1,731
245.62
88.4
227
Other ⁽¹⁾
3.0
920
309.56
845
284.16
91.8
75
41.8
$ 14,165
$ 339.19
$ 12,822
$ 307.03
90.5 % $ 1,343

~~__________________~~


(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.

~~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):~~Health Plans Segment Financial Data — Marketplace

Three Months Ended September 30,
2018 2017
Amount PMPM
% of
Total
Amount PMPM
% of
Total
Fee for service $ 2,865
$ 236.74
75.6 % $ 3,196
$ 234.51
75.8 %
Pharmacy 495
40.90
13.1
638
46.85
15.1
Capitation 297
24.52
7.8
342
25.07
8.1
Other 133
11.07
3.5
44
3.25
1.0
$ 3,790
$ 313.23
100.0 % $ 4,220
$ 309.68
100.0 %



	Three Months Ended September 30, 2019
	Member Months	Premium Revenue				Medical Care Costs				MCR		Medical Margin
	Member Months	Total		PMPM		Total		PMPM		MCR		Medical Margin
California	0.2	$	57	$	371.07	$	33	$	210.87	56.8	%	$	24
Florida	0.1	41		349.53		25		212.00		60.7		16
Michigan	—	7		431.41		4		289.45		67.1		3
Ohio	—	25		792.96		19		626.30		79.0		6
Texas	0.4	142		351.04		105		257.68		73.4		37
Washington	0.1	45		719.67		33		548.75		76.2		12
Other⁽¹⁾	0.1	40		480.41		35		408.35		85.0		5
	0.9	$	357	$	410.23	$	254	$	292.21	71.2	%	$	103

Nine Months Ended September 30,
2018 2017
Amount PMPM % of Total Amount PMPM % of Total
Fee for service $ 8,471
$ 230.46
74.6 % $ 9,630
$ 230.58
75.1 %
Pharmacy 1,645
44.76
14.5
1,904
45.60
14.8
Capitation 891
24.23
7.8
1,022
24.47
8.0
Other 355
9.67
3.1
266
6.38
2.1
$ 11,362
$ 309.12
100.0 % $ 12,822
$ 307.03
100.0 %



	Three Months Ended September 30, 2018
	Member Months	Premium Revenue				Medical Care Costs					MCR		Medical Margin
	Member Months	Total		PMPM		Total			PMPM		MCR		Medical Margin
California	0.2	$	49	$	309.04	$	37		$	235.63	76.2	%	$	12
Florida	0.2	66		548.60		45			362.39		66.1		21
Michigan	—	12		233.51		7			145.13		62.1		5
New Mexico	0.1	28		419.20		18			249.33		59.5		10
Ohio	0.1	27		485.08		18			336.86		69.4		9
Texas	0.6	228		357.54		134			209.80		58.7		94
Washington	—	44		656.70		34			518.75		79.0		10
Other⁽²⁾	—	2		NM		(1		)	NM		NM		3
	1.2	$	456	$	394.02	$	292		$	252.61	64.1	%	$	164



	Nine Months Ended September 30, 2019
	Member Months	Premium Revenue				Medical Care Costs				MCR		Medical Margin
	Member Months	Total		PMPM		Total		PMPM		MCR		Medical Margin
California	0.5	$	174	$	364.72	$	101	$	210.76	57.8	%	$	73
Florida	0.4	152		389.44		81		207.22		53.2		71
Michigan	—	27		474.12		15		265.95		56.1		12
Ohio	0.1	79		801.90		53		543.00		67.7		26
Texas	1.3	457		344.19		331		249.44		72.5		126
Washington	0.2	143		744.47		97		509.50		68.4		46
Other⁽¹⁾	0.3	132		494.59		98		364.71		73.7		34
	2.8	$	1,164	$	414.17	$	776	$	276.28	66.7	%	$	388

~~MOLINA MEDICAID SOLUTIONS~~



	Nine Months Ended September 30, 2018
	Member Months	Premium Revenue				Medical Care Costs					MCR		Medical Margin
	Member Months	Total		PMPM		Total			PMPM		MCR		Medical Margin
California	0.6	$	171	$	326.82	$	89		$	169.98	52.0	%	$	82
Florida	0.5	211		491.13		67			155.24		31.6		144
Michigan	0.1	40		248.24		23			145.38		58.6		17
New Mexico	0.2	93		426.07		55			247.57		58.1		38
Ohio	0.2	84		466.75		58			324.91		69.6		26
Texas	2.0	679		330.92		440			214.65		64.9		239
Washington	0.2	139		654.78		105			497.00		75.9		34
Other⁽²⁾	—	17		NM		(13		)	NM		NM		30
	3.8	$	1,434	$	379.91	$	824		$	218.44	57.5	%	$	610

~~We closed on the sale of MMS to DXC Technology Company on September 30, 2018.~~_________________________


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


(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

~~FINANCIAL OVERVIEW~~

~~The Molina Medicaid Solutions segment service margin for the third quarter of 2018 and 2017 and for the nine months ended September 30, 2018 and 2017, was insignificant.~~



	Three Months Ended September 30, 2019
	Member Months	Premium Revenue				Medical Care Costs				MCR		Medical Margin
	Member Months	Total		PMPM		Total		PMPM		MCR		Medical Margin
California	1.8	$	567	$	320.67	$	456	$	257.55	80.3	%	$	111
Florida	0.4	171		412.29		152		366.86		89.0		19
Illinois	0.7	257		383.41		232		347.28		90.6		25
Michigan	1.1	408		373.92		336		307.68		82.3		72
Ohio	0.9	640		690.88		582		628.89		91.0		58
Puerto Rico	0.6	117		209.25		102		182.53		87.2		15
South Carolina	0.4	151		379.20		138		347.23		91.6		13
Texas	1.1	734		696.46		645		611.78		87.8		89
Washington	2.4	688		280.85		603		246.36		87.7		85
Other ^{(1) (2)}	0.7	351		442.14		277		348.40		78.8		74
	10.1	$	4,084	$	403.40	$	3,523	$	348.06	86.3	%	$	561



	Three Months Ended September 30, 2018
	Member Months	Premium Revenue				Medical Care Costs				MCR		Medical Margin
	Member Months	Total		PMPM		Total		PMPM		MCR		Medical Margin
California	1.9	$	484	$	253.96	$	483	$	253.60	99.9	%	$	1
Florida	1.2	454		382.20		407		341.70		89.4		47
Illinois	0.7	207		312.72		182		274.98		87.9		25
Michigan	1.1	409		345.28		328		276.88		80.2		81
New Mexico⁽²⁾	0.7	332		466.63		293		409.68		87.8		39
Ohio	1.0	611		616.95		550		555.83		90.1		61
Puerto Rico	1.0	179		189.65		162		171.96		90.7		17
South Carolina	0.4	124		354.53		112		318.56		89.9		12
Texas	1.3	805		611.01		659		500.14		81.9		146
Washington	2.3	555		239.25		478		206.38		86.3		77
Other ⁽¹⁾	0.5	177		336.18		136		260.19		77.4		41
	12.1	$	4,337	$	358.46	$	3,790	$	313.23	87.4	%	$	547



	Nine Months Ended September 30, 2019
	Member Months	Premium Revenue				Medical Care Costs				MCR		Medical Margin
	Member Months	Total		PMPM		Total		PMPM		MCR		Medical Margin
California	5.4	$	1,682	$	312.08	$	1,387	$	257.25	82.4	%	$	295
Florida	1.4	570		404.81		455		323.37		79.9		115
Illinois	2.0	726		365.35		632		318.26		87.1		94
Michigan	3.3	1,226		372.58		1,005		305.29		81.9		221
Ohio	2.8	1,914		686.80		1,706		612.35		89.2		208
Puerto Rico	1.8	341		190.42		301		167.98		88.2		40
South Carolina	1.2	427		368.35		378		326.61		88.7		49
Texas	3.3	2,246		682.10		1,954		593.50		87.0		292
Washington	7.3	2,011		274.52		1,788		244.10		88.9		223
Other ^{(1) (2)}	2.2	942		413.13		754		330.48		80.0		188
	30.7	$	12,085	$	393.52	$	10,360	$	337.37	85.7	%	$	1,725



	Nine Months Ended September 30, 2018
	Member Months	Premium Revenue				Medical Care Costs				MCR		Medical Margin
	Member Months	Total		PMPM		Total		PMPM		MCR		Medical Margin
California	5.9	$	1,617	$	275.64	$	1,388	$	236.61	85.8	%	$	229
Florida	3.7	1,358		372.07		1,136		311.09		83.6		222
Illinois	1.8	551		308.45		474		265.47		86.1		77
Michigan	3.5	1,201		338.83		1,006		283.77		83.7		195
New Mexico⁽²⁾	2.2	1,029		464.92		930		419.78		90.3		99
Ohio	3.0	1,754		583.29		1,532		509.52		87.4		222
Puerto Rico	2.9	549		190.34		501		173.83		91.3		48
South Carolina	1.1	369		350.94		323		306.76		87.4		46
Texas	4.1	2,394		581.74		1,994		484.70		83.3		400
Washington	7.0	1,805		257.82		1,649		235.59		91.4		156
Other ⁽¹⁾	1.6	547		334.26		429		262.27		78.5		118
	36.8	$	13,174	$	358.42	$	11,362	$	309.12	86.2	%	$	1,812

__________________


(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.

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 we sold in late 2018, as well as certain corporate amounts not allocated to ~~other reportable segments.~~

~~We sold our Pathways subsidiary on October 19, 2018. See further information~~the Health Plans segment. Beginning in 2019, we no longer report service revenue or cost of service revenue as a result of the ~~Notes to Consolidated Financial Statements, Note 1. “Organization~~sales of the MMIS and ~~Basis of Presentation.”~~behavioral health subsidiaries noted above.

FINANCIAL OVERVIEW

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

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, which is generally received a short time before related healthcare services are paid. Such cash flows are our primary source of liquidity. Thus, any decline in our profitability may have a negative impact on our liquidity. 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. In the third quarter of 2019 and nine months ended September 30, 2019, the parent received $430 million and $1,064 million, respectively, in dividends from the regulated health plan subsidiaries. In addition, the parent received $185 million in dividends from the regulated health plan subsidiaries during October 2019.

To satisfy minimum statutory net worth requirements, the parent company may contribute capital to the regulated health plan subsidiaries. In the third quarter of 2019 and nine months ended September 30, 2019, the parent contributed capital of $19 million and $25 million, respectively, to the regulated health plan subsidiaries.

Cash, cash equivalents and investments at the parent company amounted to $796 million and $170 million as of September 30, 2019, and December 31, 2018, respectively. The increase in 2019 was mainly due to the dividends received from regulated health plan subsidiaries, as described above, and proceeds from borrowings under the Term Loan Facility, partially offset by principal repayments of our outstanding 1.125% Convertible Notes, as described further below in “Cash Flow Activities.”

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 ~~are classified as current assets, except~~have final maturities of less than 10 years, or less than 10 years average life for structured securities. Professional portfolio managers operating under documented guidelines manage our ~~held-to-maturity restricted~~ investments ~~which are classified as non-current assets,~~ and ~~which are not included in~~a portion of our cash equivalents. Our portfolio managers must obtain our prior approval before selling investments where the ~~totals below.~~ loss position of those investments exceeds certain levels.

Our ~~held-to-maturity~~ restricted investments are invested principally in ~~certificates of deposit~~cash, cash equivalents, and U.S. ~~treasury securities.~~

Treasury securities; we have the ability to 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, 2018, the fair value of our fixed income investments would decrease by approximately $16 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, 2018, no amounts were 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,
2018 2017 Change
(In millions)
Net cash (used in) provided by operating activities $ (191 ) $ 957
$ (1,148 )
Net cash provided by (used in) investing activities 821
(476 ) 1,297
Net cash (used in) provided by financing activities (1,012 ) 632
(1,644 )
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents $ (382 ) $ 1,113
$ (1,495 )



	Nine Months Ended September 30,
	2019			2018			Change
	(In millions)
Net cash provided by (used in) operating activities	$	398		$	(191	)	$	589
Net cash (used in) provided by investing activities	(80		)	821			(901		)
Net cash used in financing activities	(510		)	(1,012		)	502
Net decrease in cash, cash equivalents, and restricted cash and cash equivalents	$	(192	)	$	(382	)	$	190

Operating Activities

We typically receive capitation payments monthly, in advance of payments for medical claims; however, ~~state or federal~~government payors may ~~decide to~~ adjust their payment schedules, ~~which could~~ positively or negatively ~~impact~~impacting our reported cash flows from operating activities in any given period. ~~State or federal~~For example, government payors may delay our premium payments, or they may prepay the following month’s premium payment.

Net cash ~~used in~~provided by operations for the nine months ended September 30, ~~2018,~~2019 was ~~$191~~$398 million, compared with ~~$957~~$191 million ~~of net cash provided for~~used in operations in the nine months ended September 30, ~~2017.~~2018. The ~~year over year decline~~$589 million increase in cash flow was ~~mainly~~ due to the ~~following:~~

~~The~~net impact of timing ~~effect of premium receipts~~differences in receivables, payables and other ~~revenues negatively impacted our cash flows from operating activities by $687 million on a year-over-year comparative basis. This impact was~~current assets, settlements with government agencies, mainly related to the final 2017 CSR settlement paid in 2019, and timing of ~~premiums received at our California, Florida, Ohio, and Washington health plans.~~premium receipts.

~~The decline in medical claims and benefits payable, mainly resulting from reduced Marketplace membership in Florida, Utah, Washington and Wisconsin decreased cash flows from operations by $693 million~~.

Settlements with government agencies decreased our cash flows by $633 million on a year-over-year comparative basis, primarily due to payments in the third quarter of 2018, including risk transfer payments associated with our Marketplace health plans.

The declines discussed above were partially offset by favorable timing differences in the settlement of various operating expenses, including the health insurer fee (HIF). The HIF payable of $348 million was paid on October 1, 2018, after receiving certain related state reimbursements. These favorable timing differences benefited our cash flows by $308 million~~on a year-over-year comparative basis~~.

Investing Activities

Net cash used in investing activities was $80 million in the nine months ended September 30, 2019, compared with $821 million provided by investing activities ~~was $821 million for~~in the nine months ended September 30, 2018, ~~compared with $476 million~~a decrease in cash flow of ~~net cash used in investing activities for the nine months ended September 30, 2017.~~$901 million. The year over year ~~improvement is~~decline was primarily due to ~~higher~~increased purchases of investments, net of lower proceeds from sales and maturities of investments, ~~net of purchases, for~~in the nine months ended September 30, ~~2018, largely driven by cash flow needs associated with our financing activities, as described below.~~2019.

Financing Activities

Net cash used in financing activities was $510 million in the nine months ended September 30, 2019, compared with $1,012 million in the nine months ended September 30, 2018. In the nine months ended September 30, 2019, net cash paid for the aggregate 1.125% Convertible Notes-related transactions amounted to $794 million, partially offset by proceeds of $220 million borrowed under the Term Loan Facility. In the nine months ended September 30, 2018, ~~compared with $632 million of~~ net cash ~~provided by~~used in financing activities included net cash paid for the ~~nine months ended September 30, 2017. The year over year decline was mainly due to~~aggregate 1.125% Convertible Notes-related transactions of $710 million, the ~~following:~~

~~$300~~$300 million repayment of the Credit Facility, ~~in 2018;~~

~~$236~~and $64 million ~~partial principal~~ repayment of the ~~1.125% Notes in 2018;~~

~~$477 million cash paid for partial settlement of the 1.125% Conversion Option in 2018;~~

~~$419 million cash paid for partial termination of the 1.125% Warrants in 2018;~~

~~$64 million principal repayment of~~ 1.625% ~~Notes in 2018; and~~

~~$625 million of proceeds from the sale of the 4.875% Notes and borrowings under the Credit Facility in 2017.~~

~~These uses of cash were partially offset by $477 million of cash received in the nine months ended September 30, 2018 for a partial settlement of the 1.125% Call Option.~~Convertible Notes.

FINANCIAL CONDITION

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

On a consolidated basis, at September 30, ~~2018,~~2019, our working capital was ~~$2,088~~$2,569 million, compared with ~~$1,954~~$2,216 million at December 31, ~~2017.~~2018. At September 30, ~~2018,~~2019, our cash and investments amounted to ~~$4,746~~$4,517 million, compared with ~~$6,000~~$4,629 million at December 31, ~~2017.~~2018.

~~Because of the statutory restrictions that inhibit the ability~~Regulatory Capital and Dividend Restrictions

Each of our ~~health plans~~regulated 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 ~~net assets~~funds to ~~us,~~us. Based upon current statutes and regulations, the minimum capital and surplus (net assets) requirement for these subsidiaries was estimated to be approximately $1,100 million at September 30, 2019, compared to $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 ~~retained earnings readily available to pay~~ dividends tothat may be paid through the remainder of 2019 by our ~~stockholders is generally limited to cash, cash equivalents and investments held~~HMO subsidiaries without prior approval by ~~the parent company—Molina Healthcare, Inc. Such cash, cash equivalents and investments amounted to $505 million~~regulatory authorities as of September 30, ~~2018, or $390~~2019, is approximately $56 million when adjusted for the timing of the HIF payment and the proceeds received from the sale of MMS, both of which occurred on October 1, 2018. Parent company cash, cash equivalents and investments amounted to $696 million as of December 31, 2017. The decrease is mainly attributed to reductions in the ~~principal~~aggregate. Our HMO subsidiaries may pay dividends over this amount, ~~of outstanding debt, partially offset~~but only after approval is granted by ~~net cash paid to~~ the ~~parent company by our subsidiaries.~~regulatory authorities.

In the nine months ended September 30, 2018, the regulated health plan subsidiaries paid $258 million in dividends to the parent, and our unregulated subsidiaries paid $10 million in dividends to the parent. In the nine months ended September 30, 2018, the parent company contributed capital of $122 million to our regulated health plan subsidiaries to satisfy statutory net worth requirements.

Debt Ratings

Our 5.375% Notes and 4.875% Notes are rated “BB-” by Standard & Poor’s, and ~~“B3”~~“B2” by Moody’s Investor Service, Inc. A downgrade in our ratings could adversely affect our borrowing capacity and increase our borrowing costs.

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~~Agreement Financial Covenants	Required Per Agreement	As of September 30, ~~2018~~2019

Net leverage ratio	<4.0x	~~1.2x~~0.9x
Interest coverage ratio	>3.5x	~~10.8x~~15.3x

In addition, the indentures governing the 4.875% Notes, the 5.375% Notes and the 1.125% Convertible Notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture. As of September 30, ~~2018,~~2019, we were in compliance with all covenants under the Credit ~~Facility~~Agreement and the indentures governing our outstanding notes.

Capital Plan Progress

~~Year to date, we have reduced the principal amount of outstanding debt by $697 million.~~

In the ~~third~~first quarter of ~~2018,~~2019, we repaid ~~$140~~$46 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to ~~partially~~ terminate the ~~related 1.125% Call Option and 1.125% Warrants. In addition, we converted the remaining $64 million aggregate principal amount~~respective portion of ~~our 1.625% Notes for~~

~~cash and 0.6 million shares of our common stock. Additionally, we terminated our bridge credit agreement in the third quarter of 2018.~~

In the second quarter of 2018, we repaid $300 million outstanding under our Credit Facility. In addition, we repaid $96 million aggregate principal amount of our 1.125% Notes, and entered into privately negotiated termination agreements to partially terminate the related 1.125% Call Option and 1.125% Warrants.

In the ~~first~~second quarter of ~~2018,~~2019, we ~~exchanged $97~~repaid $139 million aggregate principal amount ~~and accrued interest~~ of our ~~1.625%~~1.125% Convertible Notes ~~for 1.8~~and entered into privately negotiated termination agreements to terminate the respective portion of the related 1.125% Call Option and 1.125% Warrants.

In the third quarter of 2019, we repaid $55 million ~~shares~~aggregate principal amount of our ~~common stock.~~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 $12 million.

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~~healthcare 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. ~~For more information on~~

Credit Agreement Borrowing Capacity. As of September 30, 2019, we had available borrowing capacity of $380 million under the Term Loan Facility, following our ~~regulatory capital requirements and dividend restrictions, refer~~draw down of $220 million in the first half of 2019. Under the Term Loan Facility, we may request up to ~~Notes to Consolidated Financial Statements, Note 12, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions.”~~

~~Borrowing Capacity and Debt Financing.~~ Weten advances, each in a minimum principal amount of $50 million, until July 31, 2020. In addition, we have available borrowing capacity of ~~$494~~$498 million under our Credit Facility. See further discussion in the Notes to Consolidated Financial Statements, Note 7, ~~“Debt.~~“Debt.”

~~Sale of MMS.~~ We closed on the sale of Molina Medicaid Solutions (MMS) to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million, which we received on October 1, 2018.

Savings from the IT Restructuring ~~Plans.~~ ~~Our new executive team has~~Plan. Management is focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we ~~have begun to implement~~began a plan to restructure our information technology department (the ~~IT Restructuring)~~“IT Restructuring Plan”) in 2018, which is reported in the ~~third quarter~~Other segment. In early 2019, we entered into services agreements with an outsourcing vendor who manages certain of ~~2018. As we further implement~~our information technology services. We expect the IT Restructuring Plan to be substantially completed by the end of 2019. We currently estimate that this plan will reduce annualized run-rate expenses by approximately $10 million to $15 million in the ~~fourth quarter~~first full year, increasing to approximately $25 million to $30 million by the end of ~~2018, we will report estimates of anticipated future~~the fifth full year. Such savings, ~~in our 2018 Annual Report on Form 10-K.~~

~~Under the restructuring plan we implemented in 2017 (the 2017 Restructuring Plan), we have~~if achieved, ~~savings in our Health Plans and~~would reduce Other ~~segments of approximately $230 million since the plan’s inception through September 30, 2018. These savings have reduced both “General~~segment general and administrative ~~expenses” and “Medical care costs” reported~~expenses in our consolidated statements of ~~operations.~~

income. Further details ~~of our restructuring plans, including costs associated with such plans,~~ are described in the Notes to Consolidated Financial Statements, Note 10, ~~“Restructuring and Separation Costs.~~“Restructuring Costs.”

~~Shelf Registration Statement.~~ We have a shelf registration statement on file with the Securities and Exchange Commission to register an unlimited amount of any combination of debt or equity securities in one or more offerings. Specific information regarding the terms and securities being offered and the use of proceeds will be provided at the time of an offering.

Future Uses

Acquisition. On October 10, 2019, we entered into a definitive agreement to acquire certain assets of YourCare Health Plan, Inc. Upon the closing of this transaction, expected to occur in early 2020, we will serve approximately 46,000 Medicaid members in seven counties in the Western New York and Finger Lakes regions. The purchase price of approximately $40 million will be funded with available cash, and the closing is subject to customary closing conditions.

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. ~~Refer to~~ The fair value of the 1.125% Convertible Notes ~~to Consolidated Financial Statements, Note 7, “Debt,” for a detailed discussion~~was $34 million as of ~~our convertible notes, including recent transactions. The~~September 30, 2019, which amount reflects both the principal amount ~~of our 1.125% Notes is convertible into cash prior to its maturity date under certain circumstances, one of which relates to~~outstanding and the closing price of our common stock over a specified period. We refer to this conversion trigger as the stock price trigger, which is $53.00 per share. The 1.125% Notes met this trigger in the quarter ended September 30, 2018, and are convertible to cash through at least December 31, 2018. In addition, they are convertible by the holders within one yearestimated fair value of the current balance sheet date until they mature; therefore, they are reported in current portion of long-term debt. If conversion requests are received, the settlement of the notes must be paid in cash pursuant to the terms of the relevant indentures.1.125% Conversion Option. We have sufficient available cash, combined with borrowing capacity available under our Credit ~~Facility,~~Agreement, to fund conversions, ~~should they occur.~~and to repay the outstanding principal amount of the 1.125% Convertible Notes at maturity on January 15, 2020. Refer to the Notes to Consolidated Financial Statements, Note 7, “Debt,” for a detailed discussion of the 1.125% Convertible Notes, including recent transactions.

~~HIF. The HIF payable of $348 million was paid on October 1, 2018.~~

CONTRACTUAL OBLIGATIONS

A summary of future obligations under our various contractual obligations and commitments as of December 31, ~~2017,~~2018, was disclosed in our ~~2017~~ Annual Report on Form ~~10-K.~~

~~As of September 30, 2018,~~10-K for the ~~principal amount of debt outstanding was $1,344 million, compared with $2,041 million reported at~~year ended December 31, ~~2017. Refer to~~2018.

Other than the financing transactions described in the Notes to Consolidated Financial Statements, Note 7, ~~“Debt,~~“Debt,” ~~for a description of debt repayments in 2018.~~

As of December 31, 2017, we reported operating lease obligations of $262 million. Of this total, approximately $49 million related to the Molina Medicaid Solutions and Pathways subsidiaries. As noted in the Notes to Consolidated Financial Statements, Note 1, “Organization and Basis of Presentation,” these subsidiaries were recently sold; therefore, such lease obligations are no longer obligations of Molina Healthcare.

~~Other than these items,~~ there were no significant changes to this previously filed information outside the ordinary course of business during the nine months ended September 30, ~~2018.~~2019. See also Note 13, “Leases,” for a summary of the maturities of our lease liabilities as of September 30, 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 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, 2018, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017.

~~Health Plans segment contractual provisions that may adjust or limit revenue or profit~~

•

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, 2019, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018.


•	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.”


•	Quality incentives. For a discussion of this topic, including amounts recorded in our consolidated financial statements, refer to Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”


•	Goodwill and intangible assets, net. There have been no significant changes, during the nine months ended September 30, 2019, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and financial position are exposed to financial market risk relating to changes in interest rates, and the resulting impact on investment income and interest expense.

Substantially all of our investments and restricted investments are subject to interest rate risk and will decrease in value if market interest rates increase. Assuming a hypothetical and immediate 1% increase in market interest rates at September 30, 2019, the fair value of our fixed income investments would decrease by approximately $39 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 2,4, “~~Significant Accounting Policies~~Fair Value Measurements,” and Note 5, “Investments.”

~~Health Plans segment quality incentives~~.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. As of September 30, 2019, $220 million was outstanding under the Term Loan Facility. For ~~a discussion of this topic, including amounts recorded in our consolidated financial statements, refer to~~further information, see Notes to Consolidated Financial Statements, Note 2,7, “~~Significant Accounting Policies~~Debt.”

~~Goodwill and intangible assets, net.~~ As result of the divestiture of MMS on September 30, 2018, the carrying amount of goodwill was reduced by $43 million; therefore, goodwill and intangible assets, net, represented approximately 2% of total assets and 12% of stockholders’ equity as of September 30, 2018, compared with 3% and 19%, respectively, at December 31, 2017. Other than the divestiture of MMS, there have been no significant changes during the nine months ended September 30, 2018, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our chief executive officer and our chief financial officer, has concluded, based upon its evaluation as of the end of the period covered by this report, that the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange ~~Act of 1934, as amended (the “Exchange Act”))~~Act), are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during the fiscal quarter ended September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

LEGAL PROCEEDINGS

For information regarding legal proceedings, see Notes to Consolidated Financial Statements, Note 12, ~~“Commitments~~“Commitments and ~~Contingencies.~~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 with respect to our securities. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The risk factors described in our ~~2017~~ Annual Report on Form 10-K for the year ended December 31, 2018, 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, ~~2018,~~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		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	105	$	97.94	—	$	—	375	$	140.31	—	$	—
August 1 - August 31	243	$	134.01	—	$	—	—	$	—	—	$	—
September 1 - September 30	—	$	—	—	$	—	—	$	—	—	$	—
Total	348	$	123.13	—			375	$	140.31	—

_______________________

(1)

During the three months ended September 30, ~~2018,~~2019, we withheld ~~348~~375 shares of common stock, ~~under our 2011 Equity Incentive Plan~~ to settle employee income tax ~~obligations.~~obligations, for releases of awards granted under the Molina Healthcare, Inc. 2011 Equity Incentive Plan. This plan was amended, restated and merged into the Molina Healthcare, Inc. 2019 Equity Incentive Plan. For further information refer to Note 9, “Stockholders' Equity.”

INDEX TO EXHIBITS



Exhibit No.	Title	Method of Filing

~~2.1~~10.1	~~Membership Interest Purchase~~First Amendment, dated August 1, 2019, to the Master Services Agreement for Information Technology Services, dated ~~as of October 19, 2018,~~February 4, 2019, by and ~~among Pyramid Health Holdings, LLC, Molina Pathways, LLC, and~~between Molina Healthcare, Inc.* and Infosys Limited.	Filed herewith.

31.1	Section 302 Certification of Chief Executive Officer	Filed herewith.

31.2	Section 302 Certification of Chief Financial Officer	Filed herewith.

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

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.

* Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.

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 1, 2018~~October 30, 2019	/s/ JOSEPH M. ZUBRETSKY
		Joseph M. Zubretsky
		Chief Executive Officer
		(Principal Executive Officer)

Dated:	~~November 1, 2018~~October 30, 2019	/s/ THOMAS L. TRAN
		Thomas L. Tran
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)

Molina Healthcare, Inc. September 30, ~~2018~~2019 Form 10-Q | 6251



	September 30, 2018			December 31, 2017
	(In millions, except per-share data)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,814		$	3,186
Investments	1,812			2,524
Restricted investments	—			169
Receivables	1,346			871
Prepaid expenses and other current assets	486			239
Derivative asset	843			522
Total current assets	7,301			7,511
Property, equipment, and capitalized software, net	264			342
Goodwill and intangible assets, net	195			255
Restricted investments	118			119
Deferred income taxes	143			103
Other assets	30			141
	$	8,051		$	8,471

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	2,042		$	2,192
Amounts due government agencies	1,030			1,542
Accounts payable and accrued liabilities	824			366
Deferred revenue	178			282
Current portion of long-term debt	296			653
Derivative liability	843			522
Total current liabilities	5,213			5,557
Long-term debt	1,019			1,318
Lease financing obligations	198			198
Other long-term liabilities	60			61
Total liabilities	6,490			7,134

Stockholders’ equity:
Common stock, $0.001 par value, 150 shares authorized; outstanding: 62 shares at September 30, 2018 and 60 shares at December 31, 2017	—			—
Preferred stock, $0.001 par value; 20 shares authorized, no shares issued and outstanding	—			—
Additional paid-in capital	760			1,044
Accumulated other comprehensive loss	(10		)	(5		)
Retained earnings	811			298
Total stockholders’ equity	1,561			1,337
	$	8,051		$	8,471



	Total		Quoted Market Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In millions)
Corporate debt securities	$	1,191	$	—	$	1,191	$	—
U.S. treasury notes	221		221		—		—
Government-sponsored enterprise securities (GSEs)	170		170		—		—
Municipal securities	119		—		119		—
Asset-backed securities	92		—		92		—
Certificate of deposit	15		—		15		—
Other	4		—		4		—
Subtotal - current investments	1,812		391		1,421		—
1.125% Call Option derivative asset	843		—		—		843
Total assets	$	2,655	$	391	$	1,421	$	843

1.125% Conversion Option derivative liability	$	843	$	—	$	—	$	843
Total liabilities	$	843	$	—	$	—	$	843



	September 30, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
5.375% Notes	$	693	$	711	$	692	$	730
1.125% Notes ⁽¹⁾	295		1,142		496		1,052
4.875% Notes	326		325		325		329
1.625% Notes ⁽²⁾	—		—		157		220
Credit Facility⁽²⁾	—		—		300		300
	$	1,314	$	2,178	$	1,970	$	2,631



	Amortized Cost		Estimated Fair Value
	(In millions)
Due in one year or less	$	111	$	111
Due after one year through five years	7		7
	$	118	$	118



	Three and Nine Months Ended September 30, 2018
	One-Time Termination Benefits		Other Restructuring Costs				Total
	One-Time Termination Benefits		Consulting Fees		Contract Termination Costs		Total
	(In millions)
Other	$	2	$	1	$	—	$	3



	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 Current and 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



	Three Months Ended September 30, 2018
	Parent Guarantor			Other Guarantors			Non-Guarantors		Eliminations			Consolidated
	(In millions)
Revenue:
Total revenue	$	273		$	—		$	4,695	$	(271	)	$	4,697
Expenses:
Medical care costs	(11		)	—			3,801		—			3,790
Cost of service revenue	—			—			111		—			111
General and administrative expenses	243			1			338		(271		)	311
Premium tax expenses	—			—			110		—			110
Health insurer fees	—			—			87		—			87
Depreciation and amortization	17			—			8		—			25
Restructuring and separation costs	3			—			2		—			5
Total operating expenses	252			1			4,457		(271		)	4,439
Gain on sale of subsidiary	37			—			—		—			37
Operating income (loss)	58			(1		)	238		—			295
Interest expense	26			—			—		—			26
Other expenses, net	10			—			—		—			10
Income (loss) before income taxes	22			(1		)	238		—			259
Income tax (benefit) expense	(6		)	—			68		—			62
Net income (loss) before equity in net earnings (losses) of subsidiaries	28			(1		)	170		—			197
Equity in net earnings (losses) of subsidiaries	169			(2		)	—		(167		)	—
Net income (loss)	$	197		$	(3	)	$	170	$	(167	)	$	197



	PMPM Premiums
	Low		High		Consolidated
TANF and CHIP	$	120.00	$	340.00	$	190.00
Medicaid Expansion	300.00		510.00		360.00
ABD	520.00		1,530.00		1,030.00
MMP – Integrated	1,360.00		3,190.00		2,170.00
Medicare	600.00		1,270.00		1,170.00
Marketplace	250.00		650.00		380.00