UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-31719

MOLINA HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-4204626
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Oceangate, Suite 100
Long Beach,	California	90802
(Address of principal executive offices)		(Zip Code)

(562) 435-3666

(Registrant’s telephone number, including area code)

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 ☐ 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)~~Section 13(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 ☒

The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of October ~~23, 2020,~~22, 2021, was approximately ~~59,300,000.~~58,400,000.

Table of Contents

MOLINA HEALTHCARE, INC. FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2020~~2021

TABLE OF CONTENTS


ITEM NUMBER	ITEM NUMBER		Page	ITEM NUMBER		Page

PART I	PART I			PART I

1.	1.	Financial Statements	3	1.	Financial Statements	3

2.	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

3.	3.	Quantitative and Qualitative Disclosures About Market Risk	42	3.	Quantitative and Qualitative Disclosures About Market Risk	36

4.	4.	Controls and Procedures	43	4.	Controls and Procedures	36

PART II	PART II			PART II

1.	1.	Legal Proceedings	43	1.	Legal Proceedings	36

1A.	1A.	Risk Factors	43	1A.	Risk Factors	36

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	44	2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

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

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

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

6.	6.	Exhibits	45	6.	Exhibits	38

		Signatures	46		Signatures	39

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(In millions, except per-share amounts)
(Unaudited)
Revenue:
Premium revenue $ 4,768 $ 4,084 $ 13,444 $ 12,085
Premium tax revenue 170 119 477 367
Health insurer fees reimbursed 69 0 206 0
Investment income and other revenue 14 40 61 103
Total revenue 5,021 4,243 14,188 12,555
Operating expenses:
Medical care costs 4,098 3,523 11,412 10,360
General and administrative expenses 368 323 1,030 953
Premium tax expenses 170 119 477 367
Health insurer fees 70 0 209 0
Depreciation and amortization 23 21 64 68
Other 3 0 9 5
Total operating expenses 4,732 3,986 13,201 11,753
Operating income 289 257 987 802
Other expenses, net:
Interest expense 27 22 72 67
Other expense (income), net 0 2 5 (15)
Total other expenses, net 27 24 77 52
Income before income tax expense 262 233 910 750
Income tax expense 77 58 271 181
Net income $ 185 $ 175 $ 639 $ 569
Net income per share - Basic $ 3.14 $ 2.81 $ 10.80 $ 9.15
Net income per share - Diluted $ 3.10 $ 2.75 $ 10.65 $ 8.80


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In millions, except per-share amounts) (Unaudited)
Revenue:
Premium revenue	$	6,800	$	4,768	$	19,689	$	13,444
Premium tax revenue	204		170		576		477
Health insurer fees reimbursed	—		69		—		206
Investment income	20		10		39		48
Other revenue	16		4		58		13
Total revenue	7,040		5,021		20,362		14,188
Operating expenses:
Medical care costs	6,049		4,098		17,342		11,412
General and administrative expenses	532		368		1,489		1,030
Premium tax expenses	204		170		576		477
Health insurer fees	—		70		—		209
Depreciation and amortization	32		23		96		64
Other	2		3		30		9
Total operating expenses	6,819		4,732		19,533		13,201
Operating income	221		289		829		987
Other expenses, net:
Interest expense	30		27		90		72
Other expense, net	—		—		—		5
Total other expenses, net	30		27		90		77
Income before income tax expense	191		262		739		910
Income tax expense	48		77		183		271
Net income	$	143	$	185	$	556	$	639

Net income per share - Basic	$	2.49	$	3.14	$	9.63	$	10.80
Net income per share - Diluted	$	2.46	$	3.10	$	9.51	$	10.65

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020

		(In millions) (Unaudited)									(In millions) (Unaudited)
Net income	Net income	$	185	$	175	$	639	$	569	Net income	$	143	$	185	$	556	$	639
Other comprehensive income:
Unrealized investment income		6		0		43		17
Other comprehensive loss income:										Other comprehensive loss income:
Unrealized investment (loss) income										Unrealized investment (loss) income	(13)		6		(27)		43
Less: effect of income taxes	Less: effect of income taxes	1		0		10		4		Less: effect of income taxes	(4)		1		(7)		10
Other comprehensive income, net of tax		5		0		33		13
Other comprehensive (loss) income, net of tax										Other comprehensive (loss) income, net of tax	(9)		5		(20)		33
Comprehensive income	Comprehensive income	$	190	$	175	$	672	$	582	Comprehensive income	$	134	$	190	$	536	$	672

See accompanying notes.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 3

Table of Contents

CONSOLIDATED BALANCE SHEETS


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020

		(Dollars in millions, except per-share amounts)					(Dollars in millions, except per-share amounts)
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	3,196	$	2,452	Cash and cash equivalents	$	4,357	$	4,154
Investments	Investments	1,769		1,946		Investments	2,900		1,875
Receivables	Receivables	1,775		1,406		Receivables	1,912		1,672
Prepaid expenses and other current assets	Prepaid expenses and other current assets	213		163		Prepaid expenses and other current assets	197		175
Total current assets	Total current assets	6,953		5,967		Total current assets	9,366		7,876
Property, equipment, and capitalized software, net	Property, equipment, and capitalized software, net	395		385		Property, equipment, and capitalized software, net	385		391
Goodwill and intangible assets, net		265		172
Goodwill, and intangible assets, net						Goodwill, and intangible assets, net	915		941
Restricted investments	Restricted investments	93		79		Restricted investments	156		136
Deferred income taxes	Deferred income taxes	74		79		Deferred income taxes	83		69
Other assets	Other assets	101		105		Other assets	128		119
Total assets	Total assets	$	7,881	$	6,787	Total assets	$	11,033	$	9,532

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Medical claims and benefits payable	Medical claims and benefits payable	$	2,289	$	1,854	Medical claims and benefits payable	$	3,191	$	2,696
Amounts due government agencies	Amounts due government agencies	640		664		Amounts due government agencies	2,081		1,253
Accounts payable, accrued liabilities and other	Accounts payable, accrued liabilities and other	566		502		Accounts payable, accrued liabilities and other	797		641
Deferred revenue	Deferred revenue	61		249		Deferred revenue	1		375
Total current liabilities	Total current liabilities	3,556		3,269		Total current liabilities	6,070		4,965
Long-term debt	Long-term debt	1,813		1,237		Long-term debt	2,130		2,127
Finance lease liabilities	Finance lease liabilities	226		231		Finance lease liabilities	220		225
Other long-term liabilities	Other long-term liabilities	85		90		Other long-term liabilities	95		119
Total liabilities	Total liabilities	5,680		4,827		Total liabilities	8,515		7,436
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 59 million shares at September 30, 2020, and 62 million shares at December 31, 2019		0		0
Preferred stock, $0.001 par value; 20 million shares authorized, 0 shares issued and outstanding		0		0
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 58 million shares at September 30, 2021, and 59 million shares at December 31, 2020						Common stock, $0.001 par value, 150 million shares authorized; outstanding: 58 million shares at September 30, 2021, and 59 million shares at December 31, 2020	—		—
Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding						Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding	—		—
Additional paid-in capital	Additional paid-in capital	181		175		Additional paid-in capital	205		199
Accumulated other comprehensive income	Accumulated other comprehensive income	37		4		Accumulated other comprehensive income	17		37
Retained earnings	Retained earnings	1,983		1,781		Retained earnings	2,296		1,860
Total stockholders’ equity	Total stockholders’ equity	2,201		1,960		Total stockholders’ equity	2,518		2,096
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	7,881	$	6,787	Total liabilities and stockholders’ equity	$	11,033	$	9,532

See accompanying notes.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 4

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Total				Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total
		Outstanding	Amount								Outstanding								Amount

		(In millions)																		(In millions)
		(Unaudited)																		(Unaudited)
Balance at December 31, 2019		62	$	0			$	175						$	4			$	1,781		$	1,960
Balance at December 31, 2020																			Balance at December 31, 2020	59			$	—		$	199		$	37		$	1,860		$	2,096
Net income	Net income	—	—		—				—			178				178			Net income	—			—		—			—			228			228
Common stock purchases	Common stock purchases	(3)	—		(9)				—			(437)				(446)			Common stock purchases	(1)			—		(2)			—			(120)			(122)
Termination of warrants		—	—		(30)				—			—				(30)

Other comprehensive loss, net	Other comprehensive loss, net	—	—		—				(19)			—				(19)			Other comprehensive loss, net	—			—		—			(11)			—			(11)
Share-based compensation	Share-based compensation	—	—		4				—			—				4			Share-based compensation	—			—		(27)			—			—			(27)
Balance at March 31, 2020		59	0		140				(15)			1,522				1,647
Balance at March 31, 2021																			Balance at March 31, 2021	58			—		170			26			1,968			2,164
Net income	Net income	—	—		—				—			276				276			Net income	—			—		—			—			185			185
Other comprehensive income, net		—	—		—				47			—				47

Share-based compensation	Share-based compensation	—	—		26				—			—				26			Share-based compensation	—			—		21			—			—			21
Balance at June 30, 2020		59	0		166				32			1,798				1,996
Balance at June 30, 2021																			Balance at June 30, 2021	58			—		191			26			2,153			2,370
Net income	Net income	—	—		—				—			185				185			Net income	—			—		—			—			143			143
Other comprehensive income, net		—	—		—				5			—				5

Other comprehensive loss, net																			Other comprehensive loss, net	—			—		—			(9)			—			(9)
Share-based compensation	Share-based compensation	—	—		15				—			—				15			Share-based compensation	—			—		14			—			—			14
Balance at September 30, 2020		59	$	0	$	181			$	37		$	1,983			$	2,201
Balance at September 30, 2021																			Balance at September 30, 2021	58			$	—	$	205		$	17		$	2,296		$	2,518


		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Total				Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
		Outstanding	Amount								Outstanding								Amount

		(In millions)																		(In millions)
		(Unaudited)																		(Unaudited)
Balance at December 31, 2018		62	$	0			$	643						$	(8)			$	1,012		$	1,647
Balance at December 31, 2019																			Balance at December 31, 2019	62			$	—		$	175		$	4		$	1,781		$	1,960
Net income	Net income	—	—		—				—			198				198			Net income	—			—		—			—			178			178
Adoption of new accounting standard		—	—		—				—			85				85
Partial termination of warrants		—	—		(103)				—			—				(103)
Common stock purchases																			Common stock purchases	(3)			—		(9)			—			(437)			(446)
Termination of warrants																			Termination of warrants	—			—		(30)			—			—			(30)

Other comprehensive loss, net																			Other comprehensive loss, net	—			—		—			(19)			—			(19)
Share-based compensation																			Share-based compensation	—			—		4			—			—			4
Balance at March 31, 2020																			Balance at March 31, 2020	59			—		140			(15)			1,522			1,647
Net income																			Net income	—			—		—			—			276			276

Other comprehensive income, net	Other comprehensive income, net	—	—		—				5			—				5			Other comprehensive income, net	—			—		—			47			—			47
Share-based compensation	Share-based compensation	1	—		3				—			—				3			Share-based compensation	—			—		26			—			—			26
Balance at March 31, 2019		63	0		543				(3)			1,295				1,835
Balance at June 30, 2020																			Balance at June 30, 2020	59			—		166			32			1,798			1,996
Net income	Net income	—	—		—				—			196				196			Net income	—			—		—			—			185			185
Partial termination of warrants		—	—		(321)				—			—				(321)

Other comprehensive income, net	Other comprehensive income, net	—	—		—				8			—				8			Other comprehensive income, net	—			—		—			5			—			5
Share-based compensation	Share-based compensation	—	—		18				—			—				18			Share-based compensation	—			—		15			—			—			15
Balance at June 30, 2019		63	0		240				5			1,491				1,736
Net income		—	—		—				—			175				175
Partial termination of warrants		—	—		(90)				—			—				(90)
Share-based compensation		—	—		10				—			—				10
Balance at September 30, 2019		63	$	0	$	160			$	5		$	1,666			$	1,831
Balance at September 30, 2020																			Balance at September 30, 2020	59			$	—	$	181		$	37		$	1,983		$	2,201

See accompanying notes.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 5

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,
2020 2019
(In millions)
(Unaudited)
Operating activities:
Net income $ 639 $ 569
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 64 68
Deferred income taxes (3) 7
Share-based compensation 43 29
Loss (gain) on debt repayment 5 (15)
Other, net 2 0
Changes in operating assets and liabilities:
Receivables (369) 50
Prepaid expenses and other current assets (98) (6)
Medical claims and benefits payable 431 14
Amounts due government agencies (24) (355)
Accounts payable, accrued liabilities and other 55 37
Deferred revenue (188) (4)
Income taxes 34 4
Net cash provided by operating activities 591 398
Investing activities:
Purchases of investments (670) (1,938)
Proceeds from sales and maturities of investments 891 1,890
Net cash paid in business combinations (62) 0
Purchases of property, equipment and capitalized software (64) (30)
Other, net 3 (2)
Net cash provided by (used in) investing activities 98 (80)
Financing activities:
Proceeds from senior notes offering, net of issuance costs 789 0
Repayment of term loan facility (600) 0
Common stock purchases (453) 0
Proceeds from borrowings under term loan facility 380 220
Cash paid for partial termination of warrants (30) (514)
Cash paid for partial settlement of conversion option (27) (578)
Cash received for partial settlement of call option 27 578
Repayment of principal amount of convertible senior notes (12) (240)
Other, net (5) 24
Net cash provided by (used in) financing activities 69 (510)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents 758 (192)
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period 2,508 2,926
Cash, cash equivalents, and restricted cash and cash equivalents at end of period $ 3,266 $ 2,734

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 6~~

~~Table of Contents~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(continued)~~

Nine Months Ended September 30,
2020 2019
(In millions)
(Unaudited)
Supplemental cash flow information:
Schedule of non-cash investing and financing activities:
Common stock used for share-based compensation $ (8) $ (7)
Details of business combinations:
Fair value of assets acquired $ (106) $ 0
Fair value of contingent consideration liabilities 40 0
Fair value of liabilities assumed 4 0
Net cash paid in business combinations $ (62) $ 0
Details of change in fair value of derivatives, net:
(Loss) gain on call option $ (2) $ 124
Gain (loss) on conversion option 2 (124)
Change in fair value of derivatives, net $ 0 $ 0

~~See accompanying notes.~~


	Nine Months Ended September 30,
	2021		2020

	(In millions) (Unaudited)
Operating activities:
Net income	$	556	$	639
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	96		64
Deferred income taxes	(8)		(3)
Share-based compensation	49		43
Loss on debt repayment	—		5
Other, net	9		2
Changes in operating assets and liabilities:
Receivables	(247)		(369)
Prepaid expenses and other current assets	(43)		(98)
Medical claims and benefits payable	522		431
Amounts due government agencies	810		(24)
Accounts payable, accrued liabilities and other	129		63
Deferred revenue	(374)		(188)
Income taxes	23		34
Net cash provided by operating activities	1,522		599
Investing activities:
Purchases of investments	(2,018)		(670)
Proceeds from sales and maturities of investments	965		891
Purchases of property, equipment and capitalized software	(56)		(64)
Net cash paid in business combinations	—		(62)
Other, net	3		3
Net cash (used in) provided by investing activities	(1,106)		98
Financing activities:
Common stock purchases	(128)		(453)
Common stock withheld to settle employee tax obligations	(52)		(8)
Contingent consideration liabilities settled	(20)		—
Proceeds from senior notes offering, net of issuance costs	—		789
Repayment of term loan facility	—		(600)
Proceeds from borrowings under term loan facility	—		380





Other, net	(4)		(47)
Net cash (used in) provided by financing activities	(204)		61
Net increase in cash, cash equivalents, and restricted cash and cash equivalents	212		758
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period	4,223		2,508
Cash, cash equivalents, and restricted cash and cash equivalents at end of period	$	4,435	$	3,266

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 76

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, ~~2020~~2021

1. Organization and Basis of Presentation

Organization and Operations

Molina Healthcare, Inc. provides managed healthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). ~~We currently have 2~~In the first quarter of 2021, we realigned our reportable ~~segments: the Health Plans segment~~operating segments to reflect recent changes in our internal operating and ~~the Other segment. Our~~reporting structure, which is now organized by government program. These reportable segments ~~are consistent with how we currently manage the business~~consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and ~~view the markets we serve.~~4) Other. For further information, refer to Note 10, “Segments.”

As of September 30, ~~2020, the Health Plans segment consisted of health plans operating in 15 states and the Commonwealth of Puerto Rico, and~~2021, we served approximately ~~4.0~~4.8 million members eligible for ~~Medicaid, Medicare, and other~~ government-sponsored healthcare programs, for low-income families and individuals, including Marketplace members, most of whom receive government premium subsidies. The health plans are generally operated by our respective wholly owned subsidiaries in those states and licensed as health maintenance organizations (“HMO”).located across 18 states.

Our state Medicaid contracts typically have terms of three to five years, 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 (“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;~~disabled (“ABD”); and regions or service areas.

Recent Developments ~~- Health Plans Segment~~

New ~~York.~~York Acquisition—Medicaid. ~~In September 2020,~~On October 25, 2021, we ~~entered into a definitive agreement to acquire~~closed on our acquisition of substantially all of the assets of Affinity Health Plan, Inc., a Medicaid health plan in New York. The net purchase price for the transaction is approximately $380 million, ~~subject to various adjustments at closing,~~net of certain tax benefits and allocation of required regulatory capital, which we ~~intend to fund~~funded with cash on hand. ~~We currently expect the transaction to close as early as the second quarter of 2021.~~

~~In July 2020, we completed the acquisition of certain assets of YourCare Health Plan, Inc. See Note 4, “Business Combinations,” for further information.~~

~~Kentucky.~~New York Acquisition—Medicaid. ~~In September 2020, we completed the acquisition of certain assets of Passport Health Plan, Inc. See Note 4, “Business Combinations,” for further information.~~

In May 2020, our Kentucky health plan had been selected as an awardee pursuant to the statewide Medicaid managed care RFP issued by the Kentucky Cabinet for Health and Family Services, Department for Medicaid Services. On October 23, 2020, pursuant to a protest filing appeal with regard to the RFP awards, a court ordered the addition of a sixth health plan to the Kentucky Medicaid program for 2021. That ruling did not rescind the Medicaid contract award to our Kentucky health plan for7, 2021, ~~nor did it have any impact on the earlier novation of the Passport Medicaid contract to us. The new Medicaid contract is currently expected to begin on January 1, 2021.~~

~~Acquisition of Magellan Complete Care (“MCC”).~~ ~~In April 2020,~~ we ~~entered into~~announced a definitive agreement to acquire the ~~MCC line of~~Medicaid Managed Long Term Care business of ~~Magellan Health, Inc.~~AgeWell New York. As of August 31, 2021, AgeWell served approximately 13,000 managed long-term services and supports members, with full-year 2020 premium revenue of approximately $700 million. The purchase price for the transaction is approximately ~~$820~~$110 million, net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing ~~conditions,~~conditions. We currently expect the transaction to close by the third quarter of 2022.

Nevada Procurement—Medicaid. On August 17, 2021, we announced that our Nevada health plan subsidiary was selected as an awardee in Clark and Washoe Counties. This new contract is expected to ~~close around the end of 2020. In connection~~commence on January 1, 2022, and will offer health coverage to TANF, CHIP and Medicaid Expansion beneficiaries. The four year contract with ~~this transaction, Magellan Health, Inc. has agreed to provide certain transition services following the closing.~~a possible two year extension was ratified in September 2021.

~~Texas.~~California Procurement—Medicaid. ~~In March~~The state currently expects a final RFP to be released in February 2022.

Texas Acquisition—Medicaid and Medicare. On April 22, 2021, we announced a definitive agreement to acquire Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan (“MMP”) contracts, along with certain operating assets. As of December 31, 2020, Cigna served approximately 48,000 members in the Texas ~~Health~~ABD program, also known as “STAR+PLUS,” in the Hidalgo, Tarrant and ~~Human Services Commission (“HHSC”) notified~~Northeast service areas, and approximately 2,000 MMP members in the Hidalgo service area, with full year 2020 premium revenue of approximately $1.0 billion. The purchase price for the transaction is approximately $60 million, which we intend to fund with cash on hand. The transaction is subject to the receipt of applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close in January 2022.

Ohio Procurement—Medicaid. On April 13, 2021, we announced that our ~~Texas~~Ohio health plan ~~that HHSC had upheld our protest~~subsidiary was selected as an awardee in all three regions across the state pursuant to the Medicaid managed care request for award issued on September 30, 2020, by the Ohio Department of Medicaid. This new contract is expected to begin July 1, 2022, and ~~had canceled all previously awarded contracts associated with~~will offer health care coverage to Medicaid beneficiaries through the re-~~procurement awards announced in October 2019 for the~~state of Ohio’s Covered Family and Children, Expansion, and ABD program (known in Texas as “STAR+PLUS”). In addition, HHSC canceled the pending re-procurement associated with the TANF and CHIP programs (known in Texas as “STAR/CHIP”). HHSC further indicated that it was deliberating next steps with respect to both re-~~procurements.~~programs.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 87

Table of Contents

~~Illinois~~. In March 2020, we terminated our agreement to acquire all of the capital stock of NextLevel Health Partners, Inc. due to the seller’s stated unwillingness to close pursuant to the terms of the acquisition agreement.

Consolidation and Interim Financial Information

The consolidated financial statements include the accounts of Molina Healthcare, Inc., and its 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, ~~2020,~~2021 are not necessarily indicative of the results for the entire year ending December 31, ~~2020.~~2021.

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, ~~2019.~~2020. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, ~~2019,~~2020, 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, ~~2019.~~2020.

Reclassifications

Consistent with the change in reportable segments described above, certain prior year disclosures in Note 7, “Medical Claims and Benefits Payable,” and Note 10, “Segments,” have been recast to conform to the current year presentation.

Certain immaterial amounts presented in the accompanying consolidated statement of cash flows for the nine months ended September 30, 2020, have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. 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;~~payable;

•~~Health Plans segment contractual~~Contractual provisions that may limit revenue recognition based upon the costs incurred or the profits realized under a specific contract;

•~~Health Plans segment quality~~Quality incentives that allow us to recognize incremental revenue if certain quality standards are met;

•Settlements under risk- or savings-sharing programs;

•Purchase price allocations relating to business combinations, including the determination of contingent consideration;

•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 the outcome of litigation;

•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 reconciles 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 “Restricted investments” in the accompanying consolidated balance sheets.

September 30,
2020 2019
(In millions)
Cash and cash equivalents $ 3,196 $ 2,679
Restricted cash and cash equivalents 70 55
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows $ 3,266 $ 2,734

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 98

Table of Contents

~~Investments~~


	September 30,
	2021		2020

	(In millions)
Cash and cash equivalents	$	4,357	$	3,196
Restricted cash and cash equivalents	78		70
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows	$	4,435	$	3,266

~~Our investments are principally held in debt securities,~~Receivables

Receivables consist primarily of premium amounts due from government agencies, which are grouped into two separate categories for accounting and reporting purposes: available-for-sale securities, and held-to-maturity securities. Available-for-sale (“AFS”) securities are recorded at fair value and unrealized gains and losses, if any, are recorded in stockholders’ equity as other comprehensive income (loss), net of applicable income taxes. Held-to-maturity (“HTM”) securities are recorded at amortized cost, which approximates fair value, and unrealized holding gains or losses are not generally recognized. Realized gains and losses, and unrealized losses arising from credit-related factors with respect to AFS and HTM securities are included in the determination of net income. The cost of securities sold is determined using the specific-identification method.

Our investment policy requires that all our investments have final maturities of less than 10 years, or less than 10 years average life for structured securities. Investments and restricted investments are subject to ~~interest rate risk and will decrease in value if market rates increase. Declines in interest rates over time will reduce our investment income.~~

In general, our AFS securities are classified as current assets without regard to the securities’ contractual maturity dates because they may be readily liquidated. We monitor our investments for credit-related impairment. For comprehensive discussions of the fair value and classificationpotential retroactive adjustments. Because substantially all of our ~~investments, see Note 5, “Fair Value Measurements,”~~receivable amounts are readily determinable and ~~Note 6, “Investments.”~~

~~Accrued interest receivable relating to~~substantially all of our AFS and HTM securities is presented within “Prepaid expenses and other current assets” in the accompanying consolidated balance sheets, and amounted to $9 million and $12 million at September 30, 2020, and December 31, 2019, respectively. We do not measure ancreditors are governmental authorities, our allowance for credit losses ~~on accrued interest receivable. Instead, we write off accrued interest receivable that has not been collected within 90 days of the interest payment due date. We recognize~~is insignificant. Any amounts determined to be uncollectible are charged to expense when such ~~write offs as a reversal of interest income. No accrued interest was written off during the nine months ended September 30, 2020.~~determination is made.


	September 30, 2021		December 31, 2020

	(In millions)
Government receivables	$	1,331	$	969
Pharmacy rebate receivables	264		178
Health insurer fee reimbursement receivables	25		104
Other	292		255
Magellan Complete Care acquisition opening balance	—		166
Total	$	1,912	$	1,672

Premium Revenue Recognition and ~~Premiums Receivable~~Amounts Due Government Agencies

Premium revenue is generated from our ~~Health Plans segment~~ contracts ~~related to~~with state and federal agencies, in connection with our participation in the Medicaid, Medicare, and Marketplace programs. Premium revenue is generally received based on per member per month (“PMPM”) rates established in advance of the periods covered. These premium revenues are recognized in the month that members are entitled to receive healthcare services, and premiums collected in advance are deferred. ~~The state~~State Medicaid programs and the federal Medicare program periodically adjust ~~premiums. Additionally, many~~premium rates.

Certain components of premium revenue are subject to accounting estimates and are described in further detail below, and in our 2020 Annual Report on Form 10-K, Note 2, “Significant Accounting Policies,” under “Contractual Provisions That May Adjust or Limit Revenue or Profit,” and “Quality Incentives.”

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 9

Table of Contents

Contractual Provisions That May Adjust or Limit Revenue or Profit

Many of our contracts contain provisions that may adjust or limit revenue or profit, aswhich include those provisions with significant interim period balances described in further detail below. ~~Consequently, we~~We recognize premium revenue as it is earned under such provisions. Liabilities accrued for premiums to be returned under such provisions are ~~recognized~~reported in the aggregate as “Amounts due government ~~agencies”~~agencies,” in the accompanying consolidated balance ~~sheets, and~~sheets. Categorized by segment, such amounts due government agencies included the ~~following categories by program:~~following:

September 30,
2020 December 31,
2019
(In millions)
Medicaid program:
Minimum MLR and profit sharing $ 136 $ 92
Other 83 95
Medicare program:
Risk adjustment and Part D risk sharing 38 14
Minimum MLR and profit sharing 35 36
Other 30 21
Marketplace program:
Risk adjustment 265 368
Minimum MLR 33 15
Other 20 23
Total amounts due government agencies $ 640 $ 664

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 10~~

~~Table of Contents~~

~~Contractual Provisions That May Adjust or Limit Revenue or Profit~~


	September 30, 2021		December 31, 2020

	(In millions)
Medicaid:
Minimum MLR and profit sharing	$	852	$	513
Other	249		76
Medicare:
Risk adjustment and Part D risk sharing	87		45
Minimum MLR and profit sharing	82		62
Other	41		30
Marketplace:
Risk adjustment	691		326
Minimum MLR	30		37
Other	49		21
Magellan Complete Care acquisition opening balance	—		143
Total amounts due government agencies	$	2,081	$	1,253

Medicaid ~~Program~~

Minimum MLR and ~~Medical Cost Corridors.~~ A portion of our premium revenue may be returned if certain minimum amounts are not spent on defined medical care costs. Under certain medical cost corridor provisions, the health plans may receive additional premiums if amounts spent on medical care costs exceed a defined maximum threshold.

~~Profit Sharing.~~ Our contracts with certain states contain profit sharing 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.

Retroactive Premium Adjustments. State Medicaid programs periodically adjust premium rates on a retroactive basis. In these cases, we adjust our premium revenue in the period in which we determine that the adjustment is probable and reasonably ~~estimable, and~~estimable. Our adjustment is based on our best estimate of the ultimate premium we expect to realize for the period being adjusted.

~~Various~~Beginning in 2020, through September 30, 2021, various states ~~have implemented~~enacted temporary ~~premium refunds and related actions~~risk corridors in response to the reduced demand for medical services stemming from COVID-19, which ~~are resulting~~have resulted in a reduction of our medical margin. In some cases, these ~~premium actions are~~risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. InBeginning in the second quarter of 2020, we have recognized ~~approximately $75 million for certain of these~~ retroactive ~~premium actions~~risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. ~~In most of those states,~~For the ~~refund period extended into the third quarter of 2020,~~three and one additional state, Michigan, enacted a premium refund mechanism in the third quarter of 2020. Consequently, we recognized an additional $88 million related to these retroactive premium actions in the third quarter of 2020, resulting in $163 million recognized in the nine months ended September 30, ~~2020.~~2021, we recognized approximately $17 million and $183 million, respectively, related to such risk corridors, primarily in the Medicaid segment.

It is possible that certain states could ~~increase~~change the ~~level~~structure of existing ~~premium refunds, and it is also possible that other states could~~risk corridors, implement ~~some form of retroactive premium refund during~~new risk corridors in the ~~fourth quarter of 2020.~~future or discontinue existing risk corridors. Due to these uncertainties, the ultimate outcomes could differ materially from our estimates as a result of changes in facts or further developments, which could have an adverse effect on our consolidated financial position, results of operations, or cash flows.

~~Medicare Program~~

~~Risk Adjustment.~~ Our Medicare premiums are subject to retroactive increase or decrease based on the health status of 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 & Medicaid Services (“CMS”) practices.

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

Marketplace ~~Program~~

~~Risk Corridor Settlement.~~ In April 2020, the United States Supreme Court held that §1342 of the Affordable Care Act obligated the federal government to pay participating insurers the full Marketplace risk corridor amounts calculated by that statute, and that impacted insurers may sue the federal government in the U.S. Court of Federal Claims to recover damages for breach of that obligation. In June 2020, the Claims Court granted us judgment in the amount of $128.1 million for our 2014, 2015, and 2016 Marketplace risk corridor claims, which we received in October 2020. Since we accounted for the judgment as a gain contingency at September 30, 2020, it will be recognized in our fourth quarter 2020 financial results. The judgment does not create additional Minimum MLR rebates.

Risk Adjustment. Under this program, our health plans’ composite risk scores are compared with the overall average risk score for the relevant state and market pool. Generally, our health plans will make a risk adjustment payment into the pool if their composite risk scores are below the average risk score (risk adjustment payable), and will receive a risk adjustment payment from the pool if their composite risk scores are above the average risk 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 income. As of September 30, 2021, Marketplace risk adjustment payables amounted to $691 million and related receivables amounted to $29 million, for a net payable of $662 million, of which $660 million related to 2021, and $2 million related primarily to 2020. As of December 31, 2020, Marketplace risk adjustment payables amounted to $326 million and related receivables amounted to $20 million, for a net payable of $306 million.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 1110

Table of Contents

to $265 million and related receivables amounted to $59 million, for a net payable of $206 million. This net payable consisted of $230 million in payables relating to 2020, and $24 million in receivables relating primarily to 2019. As of December 31, 2019, Marketplace risk adjustment payables amounted to $368 million and related receivables amounted to $63 million, for a net payable of $305 million, which related primarily to 2019 and prior periods.

~~Minimum MLR.~~ The ACA 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 income.

~~Quality Incentives~~

At many of our health plans, revenue ranging from approximately 1% to 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.~~

~~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.~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(In millions)
Maximum available quality incentive premium - current period $ 69 $ 47 $ 195 $ 138
Quality incentive premium revenue recognized in current period:
Earned current period $ 63 $ 46 $ 180 $ 109
Earned prior periods 19 5 23 35
Total $ 82 $ 51 $ 203 144
Quality incentive premium revenue recognized as a percentage of total premium revenue 1.7 % 1.2 % 1.5 % 1.2 %

~~Receivables~~

Receivables consist primarily of amounts due from government agencies, which may be subject to potential retroactive adjustments. Because substantially all our receivable amounts are readily determinable and substantially all of our creditors are governmental authorities, our allowance for credit losses is insignificant.

September 30,
2020 December 31,
2019
(In millions)
Government receivables $ 1,180 $ 1,056
Pharmacy rebate receivables 175 150
Health insurer fee reimbursement receivables 180 5
Other 240 195
Total $ 1,775 $ 1,406

~~Reinsurance~~

We bear underwriting and reserving risks associated with our health plan subsidiaries. Until the second quarter of 2020, we limited our risk of catastrophic losses solely by maintaining high deductible reinsurance coverage with a highly-rated, unaffiliated insurance company (the “third-party reinsurer”). Beginning in the second quarter of 2020, we now retain certain of these risks through our wholly-owned, captive insurance subsidiary (the “captive”). We continue to reduce our exposure to significant catastrophic losses by insuring levels of coverage, with the third-party reinsurer, for losses in excess of what we retain with the captive. Because we remain liable to our policyholders in the event the third-party reinsurer is unable to pay its portion of the losses, we continually monitor the third-party reinsurer’s financial condition, including its ability to maintain high credit ratings. We report reinsurance premiums as

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 12~~

~~Table of Contents~~

~~a reduction to premium revenue, while related reinsurance recoveries are reported as a reduction to medical care costs. Intercompany transactions with our captive are eliminated in consolidation.~~

~~Premium Deficiency Reserves on Loss Contracts~~

We assess the profitability of our medical care policies to identify groups of contracts where current operating results or forecasts indicate probable future losses. If anticipated future variable costs exceed anticipated future premiums and investment income, a premium deficiency reserve is recognized. In the third quarter of 2020, we recognized a premium deficiency reserve of $10 million for our Medicaid contract in Puerto Rico. As described in Note 1, “Organization and Basis of Presentation,” we will exit Puerto Rico’s Medicaid program when our current contract expires on October 31, 2020. No premium deficiency reserve was recorded as of December 31, 2019.

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 final maturities of less than 10 years, or less than 10 years average life for structured securities. Restricted investments are invested principally in cash, cash equivalents, and U.S. Treasury securities. Concentration of credit risk with respect to accounts receivable is limited because our payors consist principally of the federal government, and the local governments of ~~each state or commonwealth~~the states in which our health plan subsidiaries operate.

~~Health Insurer Fee~~

Under the ACA, the federal government imposes an annual fee, or excise tax, on health insurers for each calendar year (the “HIF”). Public Law No. 115-120 provided for a HIF moratorium in 2019; therefore, there was no HIF incurred or reimbursed in that year. The HIF was reinstated in 2020, but the Further Consolidated Appropriations Act, 2020, repealed the HIF effective for years after 2020. The HIF is allocated to health insurers based on each health insurer's share of net premiums for all U.S. health insurers in the year preceding the assessment. Our HIF liability for 2020 is $277 million, of which $271 million was accrued as of January 1, 2020 and an additional $6 million was accrued in the second quarter, with a corresponding deferred expense asset amortized to expense through December 31, 2020, on a straight-line basis. We settled the 2020 HIF liability in September 2020. The HIF is not deductible for income tax purposes. Due to the reinstatement of the HIF in 2020, our effective tax rate is higher in 2020 compared with 2019.

Under the Medicaid program, we must secure additional reimbursement from our state partners for this added cost. We have obtained a contractual commitment or are receiving payments from all states in which we operate Medicaid programs to reimburse us for the HIF, and such HIF revenue is being recognized ratably throughout the year.

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, and nondeductible expenses such as ~~the HIF,~~ certain compensation and other general and administrative expenses.

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.

Recent Accounting Pronouncements ~~Adopted~~

~~Credit Losses.~~ ~~In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which was subsequently modified by several ASUs issued in 2018 and 2019. We adopted Topic 326 effective January 1, 2020, using the modified retrospective approach. Under this method we recognized the cumulative effect of adopting the standard as an adjustment to the opening balance of retained earnings on January 1, 2020, which was immaterial.

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 13~~

~~Table of Contents~~

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~Reference Rate Reform.~~ ~~In March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by a change in the reference rate from the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued, if certain conditions are met. ASU 2020-04 is effective immediately and expires after December 31, 2022. We are evaluating the effect of reference rate reform and this guidance on our contracts and other transactions.

~~Other~~Various 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 future consolidated financial statements.

3. Net Income per Share

The following table sets forth the calculation of net income per share:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020

		(In millions, except net income per share)									(In millions, except net income per share)
Numerator:	Numerator:									Numerator:
Net income	Net income	$	185	$	175	$	639	$	569	Net income	$	143	$	185	$	556	$	639
Denominator:	Denominator:									Denominator:
Shares outstanding at the beginning of the period	Shares outstanding at the beginning of the period	58.7		62.2		61.9		62.1		Shares outstanding at the beginning of the period	57.8		58.7		58.0		61.9
Weighted-average number of shares issued:	Weighted-average number of shares issued:									Weighted-average number of shares issued:
Stock purchases	Stock purchases	0		0		(2.8)		0		Stock purchases	—		—		(0.5)		(2.8)
Stock-based compensation	Stock-based compensation	0		0		0.1		0.1		Stock-based compensation	—		—		0.3		0.1
Denominator for basic net income per share	Denominator for basic net income per share	58.7		62.2		59.2		62.2		Denominator for basic net income per share	57.8		58.7		57.8		59.2
Effect of dilutive securities: (1)	Effect of dilutive securities: (1)									Effect of dilutive securities: (1)
Warrants		0		0.8		0		1.8
Stock-based compensation	Stock-based compensation	0.9		0.6		0.8		0.6		Stock-based compensation	0.7		0.9		0.7		0.8

Denominator for diluted net income per share	Denominator for diluted net income per share	59.6		63.6		60.0		64.6		Denominator for diluted net income per share	58.5		59.6		58.5		60.0

Net income per share - Basic (2)	Net income per share - Basic (2)	$	3.14	$	2.81	$	10.80	$	9.15	Net income per share - Basic (2)	$	2.49	$	3.14	$	9.63	$	10.80
Net income per share - Diluted (2)	Net income per share - Diluted (2)	$	3.10	$	2.75	$	10.65	$	8.80	Net income per share - Diluted (2)	$	2.46	$	3.10	$	9.51	$	10.65

(1) The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method. ~~All warrants outstanding as of December 31, 2019, were settled in the first quarter of 2020. For more information refer to Note 9, “Stockholders' Equity.”~~

(2) Source data for calculations in thousands.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 1411

Table of Contents

4. Business Combinations

~~In the third quarter of~~On December 31, 2020, we closed on 2our acquisition of 100% of the outstanding equity interests of the Magellan Complete Care line of business ~~combinations in the~~of Magellan Health, ~~Plans segment, consistent with our strategy to grow in our existing markets and expand into new markets. For both transactions, we applied the acquisition method of accounting, where the~~Inc., for total purchase consideration of approximately $1,037 million. In the nine months ended September 30, 2021, we recorded various measurement period adjustments, including a decrease of $7 million to “Receivables,” a decrease of $27 million to “Medical claims and benefits payable,” and an increase of $18 million to “Amounts due government agencies.” In the aggregate, we recorded a net increase of $9 million to goodwill for these measurement period adjustments and various purchase price ~~was allocated, or preliminarily allocated,~~adjustments.

Refer to Note 10, “Segments” for further information regarding the ~~tangible~~allocation of goodwill and intangible assets, acquired and liabilities assumed, based on their fair values as of the acquisition dates. We expect to complete the final determination of the purchase price allocations as soon as practicable, but no later than one year following the closing date in accordance with Accounting Standards Codification Topic 805, ~~Business Combinations. The table below illustrates the intangible assets acquired,~~net, by ~~major class, for the 2 acquisitions. Acquisition-related costs were insignificant.~~

~~New York.~~ On July 1, 2020, we closed on the acquisition of certain assets of YourCare Health Plan, Inc., a Medicaid health plan, for a cash purchase price of $42 million. In connection with this transaction, we added approximately 47,000 Medicaid members in New York. We recorded goodwill of $31 million for this transaction, which is deductible for income tax purposes. The goodwill recorded relates to future economic benefits arising from expected synergies to be achieved, including the use of our existing infrastructure to support the added membership.

~~Kentucky.~~ On September 1, 2020, we closed on the acquisition of certain assets of Passport Health Plan, Inc., a Medicaid health plan. Effective on that same date, the Kentucky Medicaid agency approved the novation of Passport’s Medicaid contract to Molina Healthcare of Kentucky, Inc. As a result, we added approximately 325,000 Medicaid members in Kentucky. As of September 30, 2020, the purchase price allocation was preliminary due to the proximity of the acquisition date to September 30, 2020, and the time and level of effort required to develop fair value measurements for the assets acquired and liabilities assumed.

The estimated total purchase price of $60 million includes our initial cash payment of $20 million in September 2020, plus estimated contingent consideration which consists primarily of an amount due to the seller for members we enroll in the open enrollment period for the 2021 plan year, over a minimum threshold, which resulted in an initial contingent consideration liability of $40 million. We expect to settle this liability in the first quarter of 2021. Contingent consideration liabilities are remeasured to fair value at each quarter until the contingencies are resolved with fair value adjustments, if any, recorded to operations. See further information in Note 5, “Fair Value Measurements.” We recorded goodwill of $27 million for this transaction, which is deductible for income tax purposes. The goodwill recorded relates to future economic benefits arising from the assembled workforce, and the future growth associated with the member contract rights that are incremental to the contract rights identified.

~~The following table presents the intangible assets identified in the transactions described above. The weighted~~-~~average amortization period for the identified intangible assets, in the aggregate, is 10.7 years.~~

Fair Value Life
(In millions) (Years)
Intangible asset by type:
Contract rights - member list $ 24 5 - 10
Trade name 15 16
Provider network 8 10
$ 47
reportable segment.

5. Fair Value Measurements

We generally consider the carrying amounts of current assets and current liabilities 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~~used to: a) estimate the fair value; and b) determine the classification according to the fair value hierarchy for each financial instrument, refer to our ~~2019~~2020 Annual Report on Form 10-K, Note 4,5, “Fair Value Measurements.”

Our financial instruments measured at fair value on a recurring basis at September 30, 2021, were as follows:


			Observable Inputs		Directly or Indirectly Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(In millions)
Corporate debt securities	$	1,705	$	—	$	1,705	$	—
Mortgage-backed securities	610		—		610		—
U.S. Treasury notes	235		—		235		—
Asset-backed securities	224		—		224		—
Municipal securities	97		—		97		—



Other	29		—		29		—
Total assets	$	2,900	$	—	$	2,900	$	—

Contingent consideration liabilities	$	26	$	—	$	—	$	26
Total liabilities	$	26	$	—	$	—	$	26

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 12

Table of Contents

Our financial instruments measured at fair value on a recurring basis at December 31, 2020, were as follows:


			Observable Inputs		Directly or Indirectly Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(In millions)
Corporate debt securities	$	1,256	$	—	$	1,256	$	—
Mortgage-backed securities	392		—		392		—
U.S. Treasury notes	27		—		27		—
Asset-backed securities	132		—		132		—
Municipal securities	68		—		68		—



Total assets	$	1,875	$	—	$	1,875	$	—

Contingent consideration liabilities	$	46	$	—	$	—	$	46
Total liabilities	$	46	$	—	$	—	$	46

The net changes in fair value of Level 3 financial instruments are reported in “Other” operating expenses in our consolidated statements of income. In the nine months ended September 30, 2021, we recognized a loss of $3 million for the increase in the fair value of the contingent consideration liabilities described below.

Contingent Consideration Liabilities

As of September 30, ~~2020,~~2021, our Level 3 financial instruments recorded at fair value on a recurring basis included contingent consideration liabilities of ~~$40~~$26 million, in connection with our 2020 acquisition of certain assets of Passport Health Plan, Inc., a Medicaid health plan in Kentucky. In the ~~Kentucky acquisition described~~first quarter of 2021, the contingent purchase consideration relating to 2021 member enrollment was finalized and half the consideration due, or $23 million, was paid to the seller. The portion of the contingent purchase consideration paid in ~~Note 4, “Business Combinations.~~the first quarter of 2021 has been presented primarily in “Financing activities” in the accompanying consolidated statements of cash flows for the nine months ended September 30, 2021, with the balance reflected in “Operating activities.” ~~Such~~We expect to pay the remaining balance of the liabilities, ~~are~~ reported in “Accounts payable, accrued liabilities and other” in the accompanying consolidated balance ~~sheets. The fair value of the contingent consideration was estimated using a~~

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 15~~

~~Table of Contents~~

~~simulation-based option pricing model through~~sheets, by the end of the measurement period of approximately 5 months, and included certain non-observable inputs. The key assumptions included a U.S. Treasury based risk-free rate of return, expected asset volatility of 35%, expected revenue volatility of 9%, forecasted membership enrollment, and other estimated revenue, asset and payment correlations and discount rates. The model produced an estimated range of undiscounted amounts Molina could pay under the contingent consideration arrangement of $25 million to $75 million.

~~Our financial instruments measured at fair value on a recurring basis at September 30, 2020, were as follows:~~

Observable Inputs Directly or Indirectly Observable Inputs Unobservable Inputs
Total (Level 1) (Level 2) (Level 3)
(In millions)
Corporate debt securities $ 1,041 $ 0 $ 1,041 $ 0
Mortgage-backed securities 417 0 417 0
Municipal securities 168 0 168 0
Asset-backed securities 136 0 136 0
Certificates of deposit 5 0 5 0
U.S. Treasury notes 2 0 2 0
Total assets $ 1,769 $ 0 $ 1,769 $ 0
Contingent consideration liabilities $ 40 $ 0 $ 0 $ 40
Total liabilities $ 40 $ 0 $ 0 $ 40

~~Our financial instruments measured at fair value on a recurring basis at December 31, 2019, were as follows:~~

Observable Inputs Directly or Indirectly Observable Inputs Unobservable Inputs
Total (Level 1) (Level 2) (Level 3)
(In millions)
Corporate debt securities $ 1,178 $ 0 $ 1,178 $ 0
Mortgage-backed securities 420 0 420 0
Municipal securities 78 0 78 0
Asset-backed securities 127 0 127 0
Certificates of deposit 1 0 1 0
U.S. Treasury notes 86 0 86 0
GSEs 49 0 49 0
Other 7 0 7 0
Subtotal 1,946 0 1,946 0
Call option derivative asset 29 0 0 29
Total assets $ 1,975 $ 0 $ 1,946 $ 29
Conversion option derivative liability $ 29 $ 0 $ 0 $ 29
Total liabilities $ 29 $ 0 $ 0 $ 29

~~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, 2020.~~

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 16~~

~~Table of Contents~~

~~Derivatives~~

~~The following table summarizes the fair values and the presentation of our derivative financial instruments in the accompanying consolidated balance sheets:~~

Balance Sheet Location September 30,
2020 December 31,
2019
(In millions)
Derivative asset:
Call option Current assets: Prepaid expenses and other current assets $ 0 $ 29
Derivative liability:
Conversion option Current liabilities: Accounts payable, accrued liabilities and other $ 0 $ 29

~~For additional information regarding our derivative financial instruments, see Note 11, “Debt,” and Note 12, “Derivatives,” in our 2019 Annual Report on Form 10-K.~~

~~In the~~ first quarter of 2020, we received $27 million for the settlement of the call option derivative asset, and we paid $39 million to settle the outstanding $12 million principal amount of the 1.125% Convertible Notes, and settle the related conversion option. For more information, refer to Notes 8, “Debt,” and 9, “Stockholders' Equity.”2022.

Fair Value Measurements – Disclosure Only

The carrying amounts and estimated fair values of our 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.

September 30, 2020 December 31, 2019
Carrying
Amount Fair Value Carrying
Amount Fair Value
(In millions)
4.375% Notes $ 789 $ 816 $ 0 $ 0
5.375% Notes 697 731 696 745
4.875% Notes 327 337 327 340
Term loan facility (1)
0 0 220 220
1.125% Convertible Notes (1)
0 0 12 42
Total $ 1,813 $ 1,884 $ 1,255 $ 1,347

~~______________________~~

~~(1)For more information on financing activities, refer to Note 8, “Debt.”~~


	September 30, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(In millions)
4.375% Notes	$	790	$	835	$	789	$	843
5.375% Notes	698		725		697		742
3.875% Notes	642		688		641		691
Total	$	2,130	$	2,248	$	2,127	$	2,276

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 13

Table of Contents

6. Investments

Available-for-Sale

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


		September 30, 2020									September 30, 2021
		Amortized Cost		Gross Unrealized				Estimated Fair Value			Amortized Cost		Gross Unrealized				Estimated Fair Value
				Gains		Losses							Gains		Losses

		(In millions)									(In millions)
Corporate debt securities	Corporate debt securities	$	1,007	$	35	$	1	$	1,041	Corporate debt securities	$	1,688	$	19	$	2	$	1,705
Mortgage-backed securities	Mortgage-backed securities	408		10		1		417		Mortgage-backed securities	607		4		1		610
U.S. Treasury notes										U.S. Treasury notes	235		—		—		235
Asset-backed securities										Asset-backed securities	223		1		—		224
Municipal securities	Municipal securities	166		2		0		168		Municipal securities	96		1		—		97
Asset-backed securities		133		3		0		136
Certificates of deposit		5		0		0		5
U.S. Treasury notes		2		0		0		2

Other										Other	29		—		—		29
Total	Total	$	1,721	$	50	$	2	$	1,769	Total	$	2,878	$	25	$	3	$	2,900

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 17~~

~~Table of Contents~~


		December 31, 2019									December 31, 2020
		Amortized Cost		Gross Unrealized				Estimated Fair Value			Amortized Cost		Gross Unrealized				Estimated Fair Value
				Gains		Losses							Gains		Losses

		(In millions)									(In millions)
Corporate debt securities	Corporate debt securities	$	1,174	$	5	$	1	$	1,178	Corporate debt securities	$	1,220	$	36	$	—	$	1,256
Mortgage-backed securities	Mortgage-backed securities	420		1		1		420		Mortgage-backed securities	383		10		1		392
U.S. Treasury notes										U.S. Treasury notes	27		—		—		27
Asset-backed securities										Asset-backed securities	130		2		—		132
Municipal securities	Municipal securities	78		0		0		78		Municipal securities	66		2		—		68
Asset-backed securities		126		1		0		127
Certificates of deposit		1		0		0		1
U.S. Treasury notes		86		0		0		86
GSEs		49		0		0		49
Other		7		0		0		7

Total	Total	$	1,941	$	7	$	2	$	1,946	Total	$	1,826	$	50	$	1	$	1,875

The contractual maturities of our available-for-sale investments as of September 30, ~~2020~~2021 are summarized below:


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value

		(In millions)					(In millions)
Due in one year or less	Due in one year or less	$	193	$	195	Due in one year or less	$	555	$	557
Due after one year through five years	Due after one year through five years	943		975		Due after one year through five years	1,530		1,546
Due after five years through ten years	Due after five years through ten years	160		165		Due after five years through ten years	296		298
Due after ten years	Due after ten years	425		434		Due after ten years	497		499
Total	Total	$	1,721	$	1,769	Total	$	2,878	$	2,900

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 amounted to $6 million and $7 million for the three and nine months ended September 30, 2021, respectively. Gross realized investment gains were insignificant for ~~the~~ three months ended September 30, 2020, and amounted to $6 million for the nine months ended September 30, 2020. Gross realized investment ~~gains amounted to $11 million for the three and nine months ended September 30, 2019. Gross realized investment~~ losses were insignificant for the three and nine months ended September 30, ~~2020,~~2021, and ~~2019.~~2020.

We have determined that unrealized losses at September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers. Therefore, we determined that an allowance for credit losses was not necessary. 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.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 14

Table of Contents

The following table ~~segregates~~summarizes those available-for-sale investments that have been in a continuous loss position for less than 12 ~~months as of September 30, 2020 and December 31, 2019:~~

September 30, 2020 December 31, 2019
Estimated
Fair
Value Unrealized
Losses Total
Number of
Positions Estimated
Fair
Value Unrealized
Losses Total
Number of
Positions
(Dollars in millions)
Corporate debt securities $ 35 $ 1 18 $ 222 $ 1 167
Mortgage-backed securities 104 1 7 143 1 72
Total $ 139 $ 2 25 $ 365 $ 2 239

~~None of our available-for-sale~~months. No investments ~~were~~have been in a continuous loss position for 12 months or more as of September 30, ~~2020, or~~2021, and December 31, ~~2019.~~2020.


	September 30, 2021					December 31, 2020
	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	$	2	174	$	—	$	—	—
Mortgage-backed securities	270		1		94	77		1		21






Total	$	779	$	3	268	$	77	$	1	21

Held-to-Maturity

Pursuant to the regulations governing our ~~Health Plans segment~~state health plan subsidiaries, we maintain statutory deposits and deposits required by government authorities primarily in cash, cash equivalents, and U.S. Treasury securities. We also maintain restricted investments as protection against the insolvency of certain capitated providers. The use of these funds is limited as required by regulations in the various states in which we operate, or as needed in the event

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 18~~

~~Table of Contents~~

of insolvency of capitated providers. Therefore, such investments are reported as “Restricted investments” in the accompanying consolidated balance sheets.

We have the ability to hold these restricted investments until maturity, and as a result, we would not expect the value of these investments to decline significantly due to a sudden change in market interest rates. Our held-to-maturity restricted investments are carried at amortized cost, which approximates fair value. Such investments amounted to ~~$93~~$156 million at September 30, ~~2020,~~2021, of which ~~$91~~$148 million will mature in one year or less, and $2$8 million will mature in after one through five years.

7. Medical Claims and Benefits Payable

The following table provides the details of our medical claims and benefits payable as of the dates indicated:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020

		(In millions)					(In millions)
Fee-for-service claims incurred but not paid (“IBNP”)	Fee-for-service claims incurred but not paid (“IBNP”)	$	1,615	$	1,406	Fee-for-service claims incurred but not paid (“IBNP”)	$	2,246	$	1,647
Pharmacy payable	Pharmacy payable	148		126		Pharmacy payable	209		157
Capitation payable	Capitation payable	73		55		Capitation payable	86		70
Other	Other	453		267		Other	650		528
Magellan Complete Care acquisition opening balance						Magellan Complete Care acquisition opening balance	—		294
Total	Total	$	2,289	$	1,854	Total	$	3,191	$	2,696

“Other” medical claims and benefits payable includes amounts payable to certain providers for which we act as an intermediary on behalf of various government agencies without assuming financial risk. Such receipts and payments do not impact our consolidated statements of income. Non-risk provider payables amounted to ~~$168~~$301 million and ~~$132~~$235 million as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively.

The following table presents the components of the change in our medical claims and benefits payable for the periods ~~indicated.~~indicated, with the prior period recast to conform to the current year presentation. The amounts presented for “Components of medical care costs related to: Prior years” represent decreases in medical care costs resulting from actual medical care costs being less than we previously estimated in the ~~amounts by which our original estimates~~prior year.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 15

Table of medical claims and benefits payable at the beginning of the year were more than the actual liabilities, based on information (principally the payment of claims) developed since those liabilities were first reported.Contents


		Nine Months Ended September 30,					Nine Months Ended September 30, 2021
		2020		2019			Medicaid		Medicare		Marketplace		Consolidated

		(In millions)					(In millions)
Medical claims and benefits payable, beginning balance	Medical claims and benefits payable, beginning balance	$	1,854	$	1,961	Medical claims and benefits payable, beginning balance	$	2,129	$	392	$	175	$	2,696
Components of medical care costs related to:	Components of medical care costs related to:					Components of medical care costs related to:
Current year	Current year	11,478		10,613		Current year	13,491		2,195		1,872		17,558
Prior years	Prior years	(66)		(253)		Prior years	(158)		(36)		(22)		(216)
Total medical care costs	Total medical care costs	11,412		10,360		Total medical care costs	13,333		2,159		1,850		17,342
Change in non-risk and other provider payables		50		131
Payments for medical care costs related to:	Payments for medical care costs related to:					Payments for medical care costs related to:
Current year	Current year	9,500		8,996		Current year	11,530		1,816		1,534		14,880
Prior years	Prior years	1,527		1,481		Prior years	1,538		340		130		2,008
Total paid	Total paid	11,027		10,477		Total paid	13,068		2,156		1,664		16,888
Change in acquired balances						Change in acquired balances	(19)		(8)		—		(27)
Change in non-risk and other provider payables						Change in non-risk and other provider payables	68		—		—		68
Medical claims and benefits payable, ending balance	Medical claims and benefits payable, ending balance	$	2,289	$	1,975	Medical claims and benefits payable, ending balance	$	2,443	$	387	$	361	$	3,191


	Nine Months Ended September 30, 2020
	Medicaid		Medicare		Marketplace		Consolidated

	(In millions)
Medical claims and benefits payable, beginning balance	$	1,465	$	267	$	122	$	1,854
Components of medical care costs related to:
Current year	9,029		1,588		861		11,478
Prior years	(41)		(25)		—		(66)
Total medical care costs	8,988		1,563		861		11,412
Payments for medical care costs related to:
Current year	7,470		1,316		714		9,500
Prior years	1,193		233		101		1,527
Total paid	8,663		1,549		815		11,027
Change in non-risk and other provider payables	50		—		—		50
Medical claims and benefits payable, ending balance	$	1,840	$	281	$	168	$	2,289

Our estimates of medical claims and benefits payable recorded at December 31, ~~2019,~~2020, and ~~2018~~2019 developed favorably by approximately ~~$66~~$216 million and ~~$253~~$66 million as of September 30, ~~2020,~~2021, and ~~2019,~~2020, respectively.

InThe favorable prior period development recognized in the nine months ended September 30, ~~2020, medical care costs related~~2021 was primarily due to ~~the prior year reflect the release of additional reserves for moderately adverse conditions included in our prior year estimates, partially offset by higher~~lower than expected ~~costs for settling certain claims with certain providers. The differences between~~utilization of medical services by our ~~original estimates for such claims in 2019,~~members and improved operating performance. Consequently, the ultimate costs recognized in ~~2020, were not discernible until additional information was provided to us in 2020 and the effect became clearer over time~~2021, as ~~claim~~claims payments were ~~processed. The release of~~processed, were lower than our previous estimates in 2020.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 1916

Table of Contents

additional reserves for moderately adverse conditions included in our prior year estimates was substantially offset by the replenishment of the reserve recorded in medical care costs related to the current year.

8. Debt

All ~~our~~long-term debt is held at the parent, which is reported in the Other segment. The following table summarizes our outstanding debt obligations, ~~and their classification in~~all of which are non-current as of the ~~accompanying consolidated balance sheets:~~dates reported below:

September 30,
2020 December 31,
2019
(In millions)
Current portion of long-term debt: (1)
Term loan facility $ 0 $ 6
1.125% Convertible Notes, net of unamortized discount 0 12
Total $ 0 $ 18
Non-current portion of long-term debt:
4.375% Notes due 2028 $ 800 $ 0
5.375% Notes due 2022 700 700
4.875% Notes due 2025 330 330
Term loan facility 0 214
Deferred debt issuance costs (17) (7)
Total $ 1,813 $ 1,237

~~______________________~~

~~(1)Reported in “Accounts payable, accrued liabilities and other.”~~


	September 30, 2021		December 31, 2020

	(In millions)




Non-current long-term debt:
4.375% Notes due 2028	$	800	$	800
5.375% Notes due 2022	700		700
3.875% Notes due 2030	650		650
Deferred debt issuance costs	(20)		(23)
Total	$	2,130	$	2,127

Credit Agreement

~~In June 2020, we entered into~~We are party to a credit agreement ~~(the “Credit~~(“Credit Agreement”) that replaced our prior credit agreement. The terms of the Credit Agreement are substantially similar to the terms of the prior agreement. Among various provisions, significant changes incorporated to the Credit Agreement included:

•~~An increase of the~~which includes a revolving credit facility ~~(the “Credit~~(“Credit Facility”) ~~from $500 million to~~of $1.0 ~~billion;~~

•~~A $15 million swingline sub-facility and a $100 million letter of credit sub-facility;~~

•An increase of incremental term loans available to finance certain acquisitions from $150 million to $500 million, plus an unlimited amount as long as our consolidated net leverage ratio is not greater than 3:1;

•~~The ability to engage in acquisitions where the consummation of such acquisitions is not conditioned on the availability of, or on obtaining, third-party financing;~~

•~~Termination of the term loan facility under the prior credit agreement, which was repaid as described below; and~~

•~~LIBOR succession~~billion, among other provisions.

The Credit Agreement has a term of five years, and all amounts outstanding will be due and payable on June 8, 2025. Borrowings under the Credit Agreement bear interest based, at our election, on a base rate or other defined rate, plus in each case, the applicable margin. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Credit Agreement, we are required to pay a quarterly commitment fee.

The Credit Agreement contains customary non-financial and financial covenants. As of September 30, ~~2020,~~2021, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt. As of September 30, ~~2020, 0~~2021, no amounts were outstanding under the Credit Facility.

In the nine months ended September 30, 2020, we recognized losses on debt repayment of $5 million in connection with repayment of our term loan facility and other financing transactions. In the third quarter and 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 connection with convertible senior notes repayment transactions.

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 20~~

~~Table of Contents~~

High-Yield Senior Notes

Our high-yield senior notes are described below. Each of these notes are senior unsecured obligations of Molina Healthcare, and rank equally in right of payment with all existing and future senior debt, and senior to all existing and future subordinated debt of ~~Molina.~~Molina Healthcare. In addition, each of the notes ~~contain~~contains customary non-financial covenants and change of control provisions.

The indentures governing the high-yield senior 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.

4.375% Notes due 2028. ~~On June 2, 2020, we completed the private offering of~~We had $800 million aggregate principal amount of senior notes (the “4.375% Notes”) outstanding as of September 30, 2021, which are due June 15, 2028, unless earlier redeemed. ~~The 4.375% Notes contain optional early redemption provisions, with redemption prices in excess of par.~~ Interest, at a rate of 4.375% per annum, is payable semiannually in arrears on June 15 and December 15 of each year, commencing December 15, 2020. A portion of the net proceeds from the 4.375% Notes offering was used to repay $600 million principal amount outstanding under the term loan facility of our prior credit agreement, and the balance is intended to be used for general corporate purposes. Deferred issuance costs amounted to $11 million.15.

5.375% Notes due 2022. We had $700 million aggregate principal amount of senior notes (the “5.375% Notes”) outstanding as of September 30, ~~2020,~~2021, which are due November 15, 2022, unless earlier redeemed. Interest, at a rate of 5.375% per annum, is payable semiannually in arrears on May 15 and November 15.

~~4.875%~~3.875% Notes due ~~2025.~~2030. We had ~~$330~~$650 million aggregate principal amount of senior notes (the ~~“4.875%~~“3.875% Notes”) outstanding as of September 30, ~~2020,~~2021, which are due ~~June~~November 15, ~~2025,~~2030, unless earlier redeemed. Interest, at a rate of ~~4.875%~~3.875% per annum, is payable semiannually in arrears on ~~June~~May 15 and ~~December~~November 15.

~~1.125% Cash Convertible Senior Notes due 2020~~

For a description of the 1.125% cash convertible senior notes due January 15, 2020 (the “1.125% Convertible Notes”), see Note 11, “Debt,” in our 2019 Annual Report on Form 10-K. In January 2020, we paid $39 million to settle the outstanding $12 million principal amount of the 1.125% Convertible Notes, and settle the related conversion option.

9. Stockholders' Equity

~~Stock Purchase Programs~~

In September ~~2020,~~2021, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This new program immediately supersedes the stock purchase program previously approved by our board of directors in September 2020. This new program will be funded with cash on hand and extends through December 31, ~~2021.~~2022. The exact timing and amount of any repurchase ~~will be~~is determined by management based on market conditions and share price, in addition to other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. NoAs of October 28, 2021, no shares ~~were~~had been purchased under ~~this~~the stock purchase program ~~through October 29, 2020.~~approved in 2021.

In ~~December 2019,~~September 2020, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This program was funded with ~~existing~~ cash on ~~hand and was completed in March 2020.~~hand. Under this program, pursuant to a Rule 10b5-1 trading plan, we purchased approximately 3.4 million shares of our common stock for $446 million in the first quarter of 2020 (average cost of $132.45 per share). In the first quarter of 2020, we also paid $7 million to settle shares purchased in late December 2019.

~~1.125% Warrants~~

For a description of the 1.125% Warrants, refer to our 2019 Annual Report on Form 10-K, Note 12, “Derivatives,” and Note 14, “Stockholders’ Equity.” Approximately 310,000 of the 1.125% Warrants were outstanding at December 31, 2019. In the first quarter of 2020, we entered into privately negotiated termination agreements under which we paid $30 million to the counterparties for the termination of the remaining 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.

~~Share-Based Compensation~~

In connection with our employee stock plans, approximately 192,000 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, 2020.

Share-based compensation is recorded to “General and administrative expenses” in the accompanying consolidated statements of income. Total share-based compensation expense amounted to $15 million and $10

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 2117

Table of Contents

plan, we purchased approximately 577,000 shares for $122 million ~~respectively,~~ in ~~the third quarter~~January and February 2021 (average cost of $211.65). In November and December 2020, we purchased 766,000 shares of our common stock for $159 million (average cost of $208.37), including approximately 29,000 shares purchased for $6 million in late December 2020, and ~~2019. Total share-based compensation expense amounted to $43 million and $29 million, respectively,~~settled in ~~the nine months ended September 30, 2020 and 2019.~~

As of September 30, 2020, there was approximately $76 million of total unrecognized compensation expense related to unvested restricted stock awards (“RSAs”), and performance stock units (“PSUs”), which we expect to recognize over remaining weighted-average periods of 2.4 years and 1.5 years, respectively. This unrecognized compensation cost assumes an estimated forfeiture rate of 11.5% for non-executive employees as of September 30, 2020.

~~As of September 30, 2020, unrecognized stock option expense was insignificant. NaN stock options were granted or exercised in the nine months ended September 30, 2020.~~

~~Activity for RSAs and PSUs is summarized below:~~

RSAs Weighted
Average
Grant Date
Fair Value PSUs Weighted
Average
Grant Date
Fair Value
Unvested balance, December 31, 2019 447,680 $ 102.41 324,078 $ 101.45
Granted 334,233 125.99 187,028 123.09
Vested (166,115) 96.19 (7,368) 68.16
Forfeited (26,439) 114.48 (29,271) 98.72
Unvested balance, September 30, 2020 589,359 $ 116.99 474,467 $ 110.67

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

Nine Months Ended September 30,
2020 2019
(In millions)
Granted:
RSAs $ 42 $ 32
PSUs 23 19
Total granted $ 65 $ 51
Vested:
RSAs $ 21 $ 18
PSUs 1 2
Total vested $ 22 $ 20
early January 2021.

10. Segments

~~We currently have 2~~In the first quarter of 2021, we realigned our reportable ~~segments:~~operating segments to reflect recent changes in our internal operating and reporting structure, which is now organized by government program. The revised reporting structure reflects the ~~Health Plans segment~~reporting and ~~the Other segment. Our reportable segments are~~review process used by our chief executive officer (who is our chief operating decision maker) to assess performance and allocate resources, and is consistent with how we currently manage the business and view the markets we serve.

~~Margin is the appropriate earnings measure for our~~ These reportable segments ~~based~~consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other.

The Medicaid, Medicare, and Marketplace segments represent the government-funded or sponsored programs under which we offer managed healthcare services. The Other segment, which is insignificant to our consolidated results of operations, includes certain corporate amounts not associated with or allocated to the Medicaid, Medicare, or Marketplace segments. Additionally, the Other segment includes service revenues and service costs associated with the long-term services and supports consultative services we now provide in Wisconsin, as a result of the Magellan Complete Care acquisition on ~~how our chief operating decision maker currently reviews results, assesses performance, and allocates resources.~~December 31, 2020.

The key metrics used to assess the performance of our ~~Health Plans segment~~Medicaid, Medicare, and Marketplace segments are premium revenue, medical margin and ~~MCR.~~medical care ratio (“MCR”). MCR represents the amount of medical care costs as a percentage of premium revenue. Therefore, the underlying medical margin, or the amount earned by the ~~Health Plans segment~~Medicaid, Medicare, and Marketplace segments after medical costs are deducted from premium revenue, isrepresents the most important measure of earnings reviewed by ~~management. Margin for~~management, and is used by our ~~Health Plans~~chief executive officer to review results, assess performance, and allocate resources. The key metric used to assess the performance of our Other segment is ~~referred~~service margin. The service margin is equal to ~~as “Medical Margin.”~~service revenue minus cost of service revenue. We do not report total assets by segment because this is not a metric used to assess segment performance or allocate resources.

For all tables presented below, the prior period disclosures have been recast to conform to the current period segment presentation.

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,
	2021		2020		2021		2020

	(In millions)
Total revenue:
Medicaid	$	5,354	$	3,996	$	15,583	$	11,124
Medicare	875		636		2,502		1,909
Marketplace	793		389		2,224		1,155
Other	18		—		53		—
Total	$	7,040	$	5,021	$	20,362	$	14,188

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 2218

Table of Contents

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(In millions)
Total revenue:
Health Plans $ 5,020 $ 4,239 $ 14,181 $ 12,546
Other 1 4 7 9
Consolidated $ 5,021 $ 4,243 $ 14,188 $ 12,555
The following table presents goodwill and intangibles assets, net by segment. For the Magellan Complete Care acquisition completed on December 31, 2020, the total purchase price was preliminarily allocated to tangible and intangible assets acquired, and liabilities assumed, based on their fair values as of the acquisition date. We expect to complete the final determination of the purchase price allocation no later than December 31, 2021, which may result in adjustments to the related goodwill and intangible assets, net.


	September 30,		December 31,
	2021		2020

	(In millions)
Goodwill:
Medicaid	$	387	$	378
Medicare	247		247
Other	67		67
Intangibles assets, net:
Medicaid	135		157
Medicare	65		76
Other	14		16
Total	$	915	$	941

The following table reconciles margin by segment to consolidated income before income ~~taxes:~~taxes.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020

		(In millions)									(In millions)
Margin:	Margin:									Margin:
Health Plans		$	670	$	561	$	2,032	$	1,725

Medicaid										Medicaid	$	532	$	509	$	1,687	$	1,427
Medicare										Medicare	151		91		329		333
Marketplace										Marketplace	68		70		331		272
Other										Other	4		—		11		—
Total margin										Total margin	755		670		2,358		2,032
Add: other operating revenues (1)	Add: other operating revenues (1)	253		159		744		470		Add: other operating revenues (1)	222		253		620		744

Less: other operating expenses (2)	Less: other operating expenses (2)	(634)		(463)		(1,789)		(1,393)		Less: other operating expenses (2)	(756)		(634)		(2,149)		(1,789)
Operating income	Operating income	289		257		987		802		Operating income	221		289		829		987
Other expenses, net	Other expenses, net	27		24		77		52		Other expenses, net	30		27		90		77
Income before income tax expense	Income before income tax expense	$	262	$	233	$	910	$	750	Income before income tax expense	$	191	$	262	$	739	$	910

______________________

(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 other ~~costs.~~operating expenses.

11. Commitments and Contingencies

COVID-19 Pandemic

We continue to monitor and assess the estimated operating and financial impact of the COVID-19 pandemic, and as it evolves, we continue to process, assemble, and assess member utilization information. We believe that our cash resources, borrowing capacity available under the Credit Agreement, and cash flow generated from operations will continue to be sufficient to withstand the financial impact of the pandemic, and will enable us to continue to support our operations, regulatory requirements, debt repayment obligations, and capital expenditures for the foreseeable future.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 19

Table of Contents

Legal Proceedings

The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. ~~Penalties~~Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. The consequences associated with violations of these laws and regulations include significant fines and penalties, exclusion from participating in publicly funded programs, and the repayment of previously collected revenues.

InWe are involved in legal actions in the ordinary course of business ~~we are involved in~~including, but not limited to, various employment claims, vendor disputes and provider claims. Some of these legal actions ~~some of which~~ seek monetary damages, including claims for punitive damages, which ~~are~~may not be covered by insurance. We review legal matters and update our estimates of reasonably possible losses and related disclosures, as necessary. We have accrued liabilities for ~~certain~~legal 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~~estimable. These liability estimates ~~of such losses~~ could ~~be understated, and could also subsequently~~ change as a result of further developments of ~~these~~the matters. For certain pending matters, accruals have not been established because we believe we are not liable or because such matters have not progressed sufficiently through discovery or factual development to enable us to reasonably estimate a rangeThe outcome of ~~possible loss.~~legal actions is inherently uncertain. An adverse determination in one or more of these pending matters could have an adverse effect on our consolidated financial position, results of operations, or cash flows.

Kentucky RFP. On September 4, 2020, Anthem Kentucky Managed Care Plan, Inc. brought an action in Franklin County Circuit Court against the Kentucky Finance and Administration Cabinet, the Kentucky Cabinet for Health and Family Services, and all of the five winning bidder health plans, including Molina Healthcare of Kentucky, Inc., Civil Action No. 20-CI-00719. On October 23, 2020, the Court issued a temporary injunction directing that open enrollment for 2021 proceed with six health plans, including both Molina Healthcare of Kentucky and Anthem. The new Medicaid contracts commenced on January 1, 2021. On April 28, 2021, the Court issued its preliminary Opinion and Order, which Opinion and Order the Court finalized on June 16, 2021. Under the final Order, which the Court indicated is immediately appealable by the parties, the Court, among other things, upheld the validity of the RFP award to Molina, and also upheld the validity of Molina’s acquisition of the assets of Passport in September 2020. Due to various perceived scoring irregularities, however, the Court ordered a new RFP, with the status quo of six health plans serving Kentucky Medicaid members to continue in the interim. On July 15-16, 2021, each of United, Molina, Humana, and Aetna filed notices of appeal. On July 23, 2021, both the Kentucky Finance and Administration Cabinet and the Kentucky Cabinet for Health and Family Services filed notices of cross appeal, and on July 26, 2021, Anthem filed a notice of cross appeal. This matter remains subject to potential additional legal and appellate proceedings, and no assurances can be given regarding the ultimate outcome. Under the Court’s June 16, 2021 final Order, Molina Healthcare of Kentucky will continue to operate for the foreseeable future under its current Medicaid contract and provide care to Kentucky Medicaid members.

Puerto Rico. On August 13, 2021, Molina Healthcare of Puerto, Inc. (MHPR) filed a complaint asserting, among other claims, breach of contract against Puerto Rico Health Insurance Administration (ASES). On September 13, 2021, in addition to filing its answer to MHPR’s complaint, ASES filed a counterclaim and a third-party complaint against MHPR and the Company. The counterclaim alleges that MHPR and the Company breached contractual obligations by failing to pay providers and, in addition to damages, seeks various equitable remedies. On October 8, 2021, MHPR filed its reply to the counterclaim, denying all the allegations. This matter is in its early stages, and no prediction can be made as to the outcome. No gain or loss is probable and reasonably estimable with regard to either MHPR’s complaint or the counterclaim of ASES.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 2320

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, and results of operations within the meaning of Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Securities Exchange Act. Many of the forward-looking statements are located under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “guidance,” “future,” “anticipates,” “believes,” “estimates,” “expects,” “growth,” “intends,” “plans,” “predicts,” “projects,” “will,” “would,” “could,” “can,” “may,” and similar terms. Readers are cautioned not to place undue reliance on any forward-looking statements, as forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly due to numerous known and unknown risks and uncertainties. Those known risks and uncertainties include, but are not limited to, the risk factors identified in the ~~sections~~section titled “Risk Factors” in ~~this Form 10-Q,~~ our 2020 Annual Report on Form 10-K, ~~for the year ended December 31, 2019, and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020,~~ including without limitation the following:

•the impact of the COVID-19 pandemic and its associated or indirect effects on our business, operations, and financial ~~results;~~results, including without limitation the duration of the Public Health Emergency Declaration (“PHE”) and associated suspension in redeterminations, and the potential impact on our workforce or contractors of federal or state vaccine mandates;

•significant budget pressures on state governments from diminished tax revenues incidental to the COVID-19 pandemic and their efforts to reduce rates or limit rate increases, to impose profit caps or risk corridors, or to recoup previously paid premium amounts on a retroactive basis;

•the numerous political, judicial, and market-based uncertainties associated with the Affordable Care Act (the “ACA”) ~~or “Obamacare,” including the ultimate outcome of the Texas et al. v. U.S. et al. matter now pending before the U.S. Supreme Court;~~

•significant budget pressures on state governments from diminished tax revenues and their efforts to curtail current rates, to implement expected rate increases, or to maintain existing benefit packages or membership eligibility thresholds or criteria;;

•the market dynamics surrounding the ACA Marketplaces, including ~~but not limited to uncertainties associated with the elasticity of demand for our products based on our pricing,~~issues impacting enrollment, risk adjustment estimates and results, the potential for disproportionate enrollment of higher acuity members, and the discontinuation of premium tax credits;

•the ~~uncertainties associated~~outcome of the legal proceedings in Kentucky with regard to the ~~November 2020 Presidential~~Medicaid contract award to our Kentucky health plan and ~~Congressional election;~~our acquisition of certain assets of Passport;

•the success of our efforts to retain existing or awarded government contracts, and the success of any bid submissions in response to requests for proposal, including our contracts in California and Texas;

•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;

•~~the availability of adequate financing on acceptable terms to fund and capitalize our expansion and growth, repay our outstanding indebtedness at maturity, and meet our general liquidity needs;~~

•our ability to consummate, integrate, and realize benefits from acquisitions, including the ~~announced~~completed acquisitions of Magellan Complete Care, Passport, and Affinity, and the announced acquisitions of ~~Affinity;~~

•~~the outcome of the protest~~AgeWell New York and ~~appeal proceedings in Kentucky with regard to~~ the Medicaid ~~contract award to our Kentucky health plan;~~assets of Cigna in Texas;

•effective management of our medical costs;

•our ability to predict with a reasonable degree of accuracy utilization rates, including utilization rates associated with ~~the flu or coronavirus;~~COVID-19;

•~~the full reimbursement~~cyber-attacks, ransomware attacks, or other privacy or data security incidents resulting in an inadvertent unauthorized disclosure of ~~the ACA health insurer fee, or HIF;~~

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

•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;

•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;

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 24~~

~~Table of Contents~~

•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 and requirements;

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 21

Table of Contents

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

•the interpretation and implementation of at-risk premium rules and state contract performance requirements regarding the achievement of certain quality measures, and our ability to recognize revenue amounts associated therewith;

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

•the success and renewal of our ~~duals demonstration~~Medicare-Medicaid Plan (“MMP”) programs in California, Illinois, Michigan, Ohio, South Carolina, and Texas;

•the accurate estimation of incurred but not reported or paid medical costs across our health plans;

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

•changes in our annual effective tax rate, due to federal and/or state legislation, or changes in our mix of earnings and other factors;

•complications, member confusion, eligibility ~~re-determinations,~~redeterminations, or enrollment backlogs related to the renewal of Medicaid ~~coverage, as well as the chilling effect of the new so-called public charge rule;~~coverage;

•fraud, waste and abuse matters, government audits or reviews, comment letters, or potential investigations, and any fine, sanction, enrollment freeze, corrective action plan, monitoring program, or premium recovery that may result therefrom;

•our ~~expected~~ exit from Puerto Rico, including the ~~successful transfer~~payment in full of our ~~members to alternative health plans,~~outstanding accounts receivable, the effective run-out of claims, ~~and~~ the return of our ~~capital;~~capital, and the outcome of the claims filed against our Puerto Rico health plan and us by the Puerto Rico Health Insurance Administration, or ASES;

•changes with respect to our provider contracts and the loss of providers;

•approval by state regulators of dividends and distributions by our health plan subsidiaries;

•changes in funding under our contracts as a result of regulatory changes, programmatic adjustments, or other reforms;

•high dollar claims related to catastrophic illness;

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

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

•the failure to comply with the financial or other covenants in the Credit Agreement or the indentures governing our outstanding notes;

•the availability of adequate financing on acceptable terms to fund and capitalize our expansion and growth, repay our outstanding indebtedness at maturity, and meet our general liquidity needs;

•the sufficiency of funds on hand to pay the amounts due upon maturity of our outstanding notes;

•the failure of a state in which we operate to renew its federal Medicaid waiver;

•changes generally affecting the managed care industry;

•increases in government surcharges, taxes, and assessments;

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

•increasing competition and consolidation in the Medicaid industry.

Each of the terms “Molina Healthcare, Inc.” “Molina Healthcare,” “Company,” “we,” “our,” and “us,” as used herein, refers collectively to Molina Healthcare, Inc. and its wholly owned subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Readers should refer to the section entitled “Risk Factors” in ~~this Quarterly Report on Form 10-Q, in~~ our ~~Quarterly Reports on Form 10-Q for the quarters ended March 31,~~ 2020 ~~and June 30, 2020, and in our~~ Annual Report on Form 10-K, ~~for the year ended December 31, 2019,~~ 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 2020 Annual Report on Form ~~10-K for the year ended December 31, 2019.~~

10-K.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 2522

Table of Contents

OVERVIEW

Molina Healthcare, Inc., a FORTUNE 500 company, provides managed healthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). ~~Through our locally operated health plans in 15 states and the Commonwealth of Puerto Rico, we~~We served approximately ~~4.0~~4.8 million members as of September 30, ~~2020. The health plans are generally operated by our respective wholly owned subsidiaries in those states and licensed as health maintenance organizations (“HMO”).~~2021.

THIRD QUARTER ~~2020~~2021 HIGHLIGHTS

We reported net income of $143 million, or $2.46 per diluted share, ~~of $3.10~~ for the third quarter of ~~2020, with net income of $185 million,~~2021, which ~~consisted of~~reflected the following:

•Membership increase of 0.8 million, or 20%, compared with September 30, 2020, and a 142,000 sequential increase compared to June 30, 2021;

•Premium revenue of ~~$4.8~~$6.8 billion, which increased ~~16.8%~~43% compared with the third quarter of ~~2019;~~2020, reflecting increased organic membership in all lines of business, along with the impact of acquisitions;

•Consolidated medical care ratio (“MCR”) was 88.9%, compared with 85.9% for the third quarter of ~~85.9%,~~2020, and increased due to the net effect of COVID, which ~~decreased 40~~increased the MCR by 110 basis points ~~compared with 86.3%~~ in the third quarter of ~~2019;~~2021, but was slightly positive in the third quarter of 2020;

•General and administrative expense (“G&A”) ratio of ~~7.3%~~7.5%, which ~~decreased 30 basis points~~increased compared with ~~7.6%~~7.3% in the third quarter of ~~2019;~~2020, reflecting appropriate investments to support our business growth and increased acquisition-related expenses, partially offset by the benefits of revenue growth and continued discipline in cost management; and

•After-tax margin of ~~3.7%.~~2.0%, which met our expectations.

We note the following factors impacting the 2021 third quarter financial results:

•We estimate that the net effect of COVID ~~Impacts~~

~~Unlike the second quarter of 2020, in which the combined COVID-related impacts temporarily increased our earnings,~~decreased net income by approximately $1.00 per diluted share in the third quarter of ~~2020 the combination~~2021. The net effect of ~~COVID-related impacts netted to a negligible to~~COVID was slightly positive ~~impact on earnings and included:~~

•~~A modest net decrease in medical costs due primarily to COVID-related utilization curtailment;~~

•~~Premium refunds to a number of our state Medicaid customers in response to the COVID-related utilization curtailment, which we experienced in both the second and third quarters of 2020;~~

•~~An increase in our G&A spending on activities related to COVID; and~~

•~~A meaningful increase to our Medicaid membership.~~

As we work through this unprecedented period of the COVID pandemic, we remain focused on executing on the underlying fundamentals of our business to continue to produce solid results, regardless of the short-term COVID-related impacts on our reported financial metrics and results.

~~Growth Initiatives~~

~~We made another major stride~~ in the third quarter of ~~2020 related to~~2020.

•The net effect of COVID reflects higher COVID inpatient costs, lower COVID-related utilization curtailment and the ~~activation~~impact of the COVID risk-sharing corridors, and impacted all our ~~growth strategy. In September 2020, we signed a definitive agreement to purchase~~segments.

•We experienced higher than expected membership increases in Marketplace. This improvement resulted from several factors, including strong product design and competitive pricing, better than expected natural attrition rates, and the ~~net assets of Affinity Health Plan~~extended open enrollment period, as described in ~~New York for approximately $380 million, which we currently expect to close as early as the second quarter of 2021. We believe this purchase is another milestone~~further detail below in a growth-oriented 2020. Our growth initiatives continue to be anchored by our capital allocation priorities: first, organic growth of our core businesses; second, inorganic growth through accretive acquisitions;“Trends and ~~third, programmatically returning excess capital to shareholders.~~Uncertainties.”

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 2623

Table of Contents

CONSOLIDATED FINANCIAL SUMMARY


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019				2021			2020			2021			2020

		(Dollars in millions, except per-share amounts)													(In millions, except per-share amounts)
Premium revenue	Premium revenue	$	4,768		$	4,084		$	13,444		$	12,085		Premium revenue	$	6,800		$	4,768		$	19,689		$	13,444
Less: medical care costs														Less: medical care costs	6,049			4,098			17,342			11,412
Medical margin														Medical margin	751			670			2,347			2,032
MCR (1)														MCR (1)	88.9		%	85.9		%	88.1		%	84.9		%

Other revenues:														Other revenues:
Premium tax revenue	Premium tax revenue	170			119			477			367			Premium tax revenue	204			170			576			477
Health insurer fees reimbursed	Health insurer fees reimbursed	69			—			206			—			Health insurer fees reimbursed	—			69			—			206
Investment income and other revenue		14			40			61			103

Medical care costs		$	4,098		$	3,523		$	11,412		$	10,360
Investment income														Investment income	20			10			39			48
Other revenue														Other revenue	16			4			58			13

General and administrative expenses	General and administrative expenses	368			323			1,030			953			General and administrative expenses	532			368			1,489			1,030
G&A ratio (2)														G&A ratio (2)	7.5		%	7.3		%	7.3		%	7.3		%

Premium tax expenses	Premium tax expenses	170			119			477			367			Premium tax expenses	204			170			576			477
Health insurer fees	Health insurer fees	70			—			209			—			Health insurer fees	—			70			—			209

Depreciation and amortization														Depreciation and amortization	32			23			96			64
Other														Other	2			3			30			9
Operating income	Operating income	$	289		$	257		$	987		$	802		Operating income	221			289			829			987
Interest expense	Interest expense	27			22			72			67			Interest expense	30			27			90			72
Other expense (income), net		—			2			5			(15)
Other expense, net														Other expense, net	—			—			—			5
Income before income tax expense	Income before income tax expense	262			233			910			750			Income before income tax expense	191			262			739			910
Income tax expense	Income tax expense	77			58			271			181			Income tax expense	48			77			183			271
Net income	Net income	185			175			639			569			Net income	$	143		$	185		$	556		$	639
Net income per share - Diluted		$	3.10		$	2.75		$	10.65		$	8.80

Operating Statistics:
Ending total membership		4,033,000			3,346,000			4,033,000			3,346,000
MCR (1)		85.9		%	86.3		%	84.9		%	85.7		%
G&A ratio (2)		7.3		%	7.6		%	7.3		%	7.6		%
Premium tax ratio (1)		3.4		%	2.8		%	3.4		%	2.9		%
Net income per share – Diluted														Net income per share – Diluted	$	2.46		$	3.10		$	9.51		$	10.65

Diluted weighted average shares outstanding														Diluted weighted average shares outstanding	58.5			59.6			58.5			60.0

Other Key Statistics														Other Key Statistics
Ending membership														Ending membership	4.8			4.0			4.8			4.0
Effective income tax rate	Effective income tax rate	29.5		%	24.7		%	29.8		%	24.1		%	Effective income tax rate	24.8		%	29.5		%	24.7		%	29.8		%
After-tax margin (2)		3.7		%	4.1		%	4.5		%	4.5		%
After-tax margin (3)														After-tax margin (3)	2.0		%	3.7		%	2.7		%	4.5		%

________________________

(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) G&A ratio represents general and administrative expenses as a percentage of total revenue.

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

CONSOLIDATED RESULTS

NET INCOME AND OPERATING INCOME

Net income in the third quarter of ~~2020~~2021 amounted to ~~$185~~$143 million, or ~~$3.10~~$2.46 per diluted share, compared with ~~$175~~$185 million, or ~~$2.75~~$3.10 per diluted share, in the third quarter of ~~2019.~~ 2020. We estimate that the net effect of COVID decreased net income by approximately $1.00 per diluted share in the third quarter of 2021. In the third quarter of 2020, the net effect of COVID had a slightly positive impact on earnings.

Operating income of $221 million in the third quarter of 2021, was lower compared with $289 million in the third quarter of ~~2020, was higher compared with $257 million in the third quarter of 2019.~~2020.

Net income in the nine months ended September 30, ~~2020,~~2021 amounted to ~~$639~~$556 million, or ~~$10.65~~$9.51 per diluted share, compared with ~~$569~~$639 million, or ~~$8.80~~$10.65 per diluted share, in the nine months ended September 30, ~~2019.~~2020. Operating

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 24

Table of Contents

income of $829 million in the nine months ended September 30, 2021, was lower compared with $987 million in the nine months ended September 30, ~~2020, was higher compared with $802 million in the nine months ended September 30, 2019.~~2020.

The ~~improvement~~decrease in operating income for both periods was mainly due to the increase in MCR, due primarily to the net effect of COVID, partially offset by membership growth and higher premium ~~revenues~~revenues.

The year-over-year comparison between 2020 and ~~a reduction~~2021 is significantly impacted by the positive net effect of COVID that characterized the relatively early phases of the pandemic in the ~~MCR.~~second and third quarters of 2020.

Net income per share in the third quarter and nine months ended September 30, ~~2020,~~2021 was favorably impacted by the reduction in common shares outstanding as a result of our share ~~repurchase program that began~~repurchases in late ~~2019~~2020 and ~~concluded in the first quarter of 2020.~~early 2021. See further discussion in “Liquidity and Financial Condition,” below.

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 27~~

~~Table of Contents~~

PREMIUM REVENUE

Premium revenue increased ~~$684 million~~$2.0 billion, or 43%, in the third quarter of ~~2020,~~2021, when compared with the third quarter of ~~2019,~~2020, and increased ~~$1,359 million~~$6.2 billion, or 46%, in the nine months ended September 30, ~~2020,~~2021, when compared with the nine months ended September 30, ~~2019.~~2020.

~~In both periods,~~Membership increased by 805,000 compared with September 30, 2020, which mainly reflected organic increases in the ~~higher premium revenue reflected the increase in membership, primarily in~~ Medicaid and ~~included~~Marketplace segments and the impact from the ~~YourCare~~Magellan Complete Care and Passport acquisitions. In the third quarter of 2020, we added 325,000 members from our acquisition of the Kentucky Passport business on September 1, 2020, and 47,000 members from our acquisition of the New York YourCare business on July 1, 2020. The increase in premium revenues from theseother acquisitions ~~was slightly offset by the decline in membership,~~that closed in the ~~third quarter~~second half of ~~2020, associated with our announced exit of operations in Puerto Rico.~~2020. The increase in premium revenue was net of COVID-related ~~premium refunds~~risk corridors that ~~were~~have been enacted in several ~~states.~~states beginning in the second quarter of 2020.

MEDICAL CARE RATIO

The consolidated MCR in the third quarter of ~~2020 decreased to 85.9%~~2021 was 88.9%, compared ~~to 86.3%~~with 85.9% in the third quarter of ~~2019, reflecting improved operating performance in Medicaid and Medicare, partially offset~~2020. The net effect of COVID increased the consolidated MCR by ~~underperformance~~approximately 110 basis points in the ~~Marketplace program. Additionally,~~third quarter of 2021, and reflects higher COVID inpatient costs, lower COVID-related utilization curtailment and the impact of the risk-sharing corridors, and impacted all our segments. In the prior year the net effect of ~~all of the COVID-related impacts, such as the reduced demand for medical services and the premium refunds, profit corridors and related actions,~~COVID had a slightly favorable impact ~~on our overall financial results.~~to the consolidated MCR.

The consolidated MCR in the nine months ended September 30, ~~2020, decreased to 84.9%~~2021 was 88.1%, compared ~~to 85.7%~~with 84.9% in the nine months ended September 30, ~~2019. Reserve~~2020. Similar to the quarter-to-date consolidated MCR, the increase is due to the net effect of COVID; however, the impacts were varied by segment.

The prior year reserve development ~~for~~in the ~~first~~third quarter and nine months ~~of 2020~~ended September 30, 2021 was ~~not material. The comparable period in~~modestly favorable, but its impact on earnings was mostly absorbed by the ~~prior year was positively impacted by 100 basis points of favorable reserve development, primarily in the Medicaid program.~~COVID-related risk corridors.

PREMIUM TAX REVENUE AND EXPENSES

The premium tax ratio (premium tax expense as a percentage of premium revenue plus premium tax revenue) was 2.9% and 3.4% infor the third quarter of 2021 and 2020, ~~compared with~~respectively, and 2.8% ~~the third quarter of 2019;~~ and 3.4% ~~compared with 2.9%~~ for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The current year ratio ~~increase~~decrease was mainly due to changes in business mix resulting from the ~~state~~Magellan Complete Care and other acquisitions closed in the second half of ~~Illinois’ implementation of a managed care organization provider assessment~~2020.

INVESTMENT INCOME

Investment income increased to $20 million in the third quarter of ~~2019.~~

~~INVESTMENT INCOME AND OTHER REVENUE~~

~~Investment income and other revenue decreased to $14~~2021, compared with $10 million in the third quarter of 2020, ~~compared with $40 million in the third quarter of 2019,~~due to higher invested assets and increased realized gains. Investment income decreased to ~~$61~~$39 million in the nine months ended September 30, ~~2020,~~2021, compared with ~~$103~~$48 million in the nine months ended September 30, ~~2019.~~2020. The year-over-year decrease was ~~consistent with our expectation and was~~ due to the continued low interest rate ~~environment.~~environment and a temporarily higher allocation in shorter-term invested assets during the COVID-19 pandemic, which was rescinded effective for the second quarter of 2021.

OTHER REVENUE

Other revenue increased to $16 million in the third quarter of 2021, compared with $4 million in the third quarter of 2020, and increased to $58 million in the nine months ended September 30, 2021, compared with $13 million in the nine months ended September 30, 2020. Beginning in the first quarter of 2021, other revenue includes service revenue associated with the long-term services and supports consultative services we now provide in Wisconsin, as a result of our Magellan Complete Care acquisition.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 25

Table of Contents

G&A EXPENSES

The G&A expense ratio ~~decreased~~increased to 7.5% in the third quarter of 2021, compared with 7.3% in the third quarter of ~~2020, from 7.6% in the third quarter of 2019, and decreased to~~2020. The G&A expense ratio was 7.3% in the nine months ended September 30, ~~2020,~~2021, consistent with the nine months ended September 30, 2020. The year over year comparisons for both periods are impacted by appropriate investments to support our business growth and increased acquisition-related expenses, partially offset by continued discipline in cost management and increased revenues.

HEALTH INSURER FEES (“HIF”)

There were no HIF fees incurred or reimbursed in 2021, because the HIF was repealed effective for years after 2020.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased to $32 million in the third quarter of 2021, compared with ~~7.6%~~$23 million in the third quarter of 2020, and increased to $96 million in the nine months ended September 30, ~~2019. In both periods,~~2021, compared with $64 million in the ~~ratio improved due to increased revenues, partially offset by increased costs associated with the COVID-19 pandemic. The third quarter and~~ nine months ended September 30, ~~2020, reflected approximately $7 million and $38 million, respectively, of net incremental expenses~~2020. The increases in both periods were due primarily to amortization associated with ~~a variety~~acquisitions completed in the second half of ~~new COVID-related operational protocols, technology implementations, and benefits~~2020.

Refer to Notes to Consolidated Financial Statements, Note 10, “Segments,” for ~~our employees.~~further information.

~~HEALTH INSURER FEES (“HIF”)~~OTHER OPERATING EXPENSES

InOther operating expenses decreased to $2 million in the third quarter of 2021, compared with $3 million in the third quarter of 2020, and increased to $30 million in the nine months ended September 30, ~~2020, HIF expense amounted to $70~~2021, compared with $9 million in the nine months ended September 30, 2020. Beginning in the first quarter of 2021, other operating expenses include service costs associated with the long-term services and ~~$209 million, respectively, and HIF reimbursements amounted to $69 million and $206 million, respectively. Public Law No. 115-120 provided for a HIF moratorium~~supports consultative services we now provide in 2019; therefore, there was no HIF incurred or reimbursed in that year. The HIF was reinstated in 2020, but the Further Consolidated Appropriations Act, 2020, repealed the HIF effective for years after 2020.Wisconsin, as noted above.

INTEREST EXPENSE

Interest expense increased to $30 million in the third quarter of 2021, compared with $27 million in the third quarter of 2020, ~~compared with $22~~and to $90 million in the ~~third quarter of 2019, and increased to~~nine months ended September 30, 2021, compared with $72 million in the nine months ended September 30, 2020, ~~compared with $67 million in~~

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 28~~

~~Table of Contents~~

~~the nine months ended September 30, 2019. Additional interest expense relating~~mainly due to the ~~4.375%~~$650 million principal amount of 3.875% Notes issued in ~~June 2020 was partially offset by~~ the ~~decrease in interest expense resulting from the settlement~~fourth quarter of ~~the convertible senior notes in January~~ 2020. As

See further ~~described below in “Liquidity,” a portion of the net proceeds from the 4.375% Notes offering was used to repay $600 million principal amount outstanding under the term loan facility~~details of our ~~prior credit agreement. See further discussion~~financing transactions in Notes to Consolidated Financial Statements, Note 8, ~~“Debt.~~“Debt,”

~~OTHER EXPENSE (INCOME), NET~~

~~In the nine months ended September 30, 2020, we recognized losses on debt repayment of $5 million~~ and below in ~~connection with repayment of our term loan facility~~“Liquidity and other financing transactions. In the third quarter and 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 connection with convertible senior notes repayment transactions.Financial Condition.”

INCOME TAXES

Income tax expense amounted to ~~$77~~$48 million in the third quarter of ~~2020,~~2021, or ~~29.5%~~24.8% of pretax income, compared with income tax expense of ~~$58~~$77 million, or ~~24.7%~~29.5% of pretax income in the third quarter of ~~2019.~~2020. Income tax expense amounted to ~~$271~~$183 million in the nine months ended September 30, ~~2020,~~2021, or ~~29.8%~~24.7% of pretax income, compared with income tax expense of ~~$181~~$271 million, or ~~24.1%~~29.8% of pretax income in the nine months ended September 30, ~~2019.~~2020. The effective tax rate ~~has been higher~~is lower in ~~2020 due to higher nondeductible expenses in 2020, primarily related to~~2021 mainly because the nondeductible ~~HIF. As discussed above, the~~ HIF was ~~not applicable in 2019 and has been~~ repealed for years after 2020.

~~REPORTABLE SEGMENTS~~

We currently have two reportable segments: the Health Plans segment and the Other segment. Our reportable segments are consistent with how we currently manage the business and view the markets we serve.

~~HOW WE ASSESS PERFORMANCE~~

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

The key metrics used to assess the performance of our Health Plans segment are premium revenue, margin and MCR. MCR 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.” Medical Margin amounted to $670 million in the third quarter of 2020, and $561 million in the third quarter of 2019. Medical Margin amounted to $2,032 million in the nine months ended September 30, 2020, and $1,725 million in the nine months ended September 30, 2019. Management’s discussion and analysis of the changes in the individual components of Medical Margin follows.

~~See Notes to Consolidated Financial Statements, Note 10, “Segments,” for more information on our reportable segments.~~

~~HEALTH PLANS~~

As of September 30, 2020, the Health Plans segment consisted of health plans operating in 15 states and the Commonwealth of Puerto Rico, and served approximately 4.0 million members eligible for Medicaid, Medicare, and other government-sponsored healthcare programs for low-income families and individuals, including Marketplace members, most of whom receive government premium subsidies.

TRENDS AND UNCERTAINTIES

COVID-19 ~~Pandemic~~PANDEMIC

As the COVID-19 pandemic continues to evolve, its ~~ultimate~~ongoing impact to our business, results of operations, financial condition, and cash flows is uncertain and difficult to predict. Specific trends and uncertainties related to our ~~Health Plans segment~~Medicaid, Medicare, and Marketplace segments follow.

Federal Economic Stabilization and Other Programs

In addition to various programs enacted in 2020 and described in our 2020 Annual Report on Form 10-K, the $1.9 trillion American Rescue Plan Act of 2021 was enacted on March 11, 2021. This legislation includes several components to assist in COVID-19 vaccine testing and deployment, as well as provisions relating to the opening of schools; direct immediate relief to working families; and additional support for communities struggling in the wake of the pandemic. Among its specific provisions:

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 2926

Table of Contents

~~Federal Economic Stabilization Programs~~•$350 billion in state and local funding;

~~As a result~~•Funding for Medicaid and CHIP COVID-19 vaccines and treatment to be matched at 100% of the ~~pandemic, various stabilization programs were enacted beginning in March 2020, which may impact our business directly or indirectly, including the following:~~

~~Phase 1 - Coronavirus Preparedness and Response Supplemental Appropriations Act.~~ ~~Enacted on March 6, 2020, this legislation provided $8.3 billion in COVID-19 response funding for developing a vaccine and preventing further spread of the virus.~~

~~Phase 2~~ - ~~Families First Coronavirus Response Act. Enacted on March 18, 2020, this legislation provided $100 billion in worker assistance, temporarily increased each qualifying state and territory’s~~ federal medical assistance percentage (“FMAP”) ~~by 6.2% beginning January 1, 2020,~~;

•Incentives for states that have not expanded Medicaid to do so;

•State flexibility to extend Medicaid eligibility to women for 12 months postpartum;

•A temporary 10% FMAP increase for states to improve Medicaid home- and ~~waived cost sharing~~community-based services for ~~COVID-19 testing. The federal government guarantees matching funds~~one year; and

•An increase to ~~states~~the ACA Marketplace premium subsidies for ~~qualifying Medicaid expenditures based on each state’s FMAP.~~2021 and 2022.

~~Effective October 23, 2020,~~In addition, the ~~U.S. Department of Health and Human Services (“HHS”) announced that it~~Biden Administration has extended the ~~COVID public health emergency for another 90 days.~~COVID-19 related PHE. The ~~renewal extends~~Biden Administration has indicated the ~~emergency period until late January 2021. As a result, the enhanced FMAP rate~~PHE will ~~be extended through~~likely remain in place throughout 2021, and that states will receive 60 days’ notice before the end of the ~~first quarter of 2021. The accompanying requirement that bans the loss of coverage from state eligibility redeterminations would be extended through~~PHE to prepare for the end of emergency authorities and the resumption of pre-PHE rules. This extension of the PHE will continue the suspension in state Medicaid eligibility redeterminations.

Also, President Biden’s January 2021 executive order providing for a three-month Marketplace special enrollment period from February 15, 2021 to May 15, 2021, was extended through August 15, 2021. ~~Redetermination is~~This SEP has now ended in all of our states except for California, where the ~~process through which Medicaid enrollees demonstrate whether they continue~~state-run exchange intends to ~~meet the requirements for participation~~keep it in ~~the Medicaid program, in particular maximum household income. This is likely a positive indicator for continued membership gains, and to provide more support for an actuarially sound rate environment.~~

~~Phase 3 - Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)~~. Enacted on March 27, 2020, the CARES Act provided an estimated $2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. This assistance included loans and support to major industries, including airlines and small businesses, direct payments to individuals and families, and $175 billion in relief funds to hospitals and other healthcare providers.

~~Phase 3b - Paycheck Protection Program and Health Care Enhancement Act. Enacted on April 24, 2020, this legislation provided $310 billion~~place for the ~~depleted Paycheck Protection Program, and additional funding for hospitals and testing.~~

~~The Phase 4 stimulus package is currently under consideration by Congress.~~remainder of the 2021 benefit year, which ends on December 31, 2021.

Due to the uncertainty as to the duration and breadth of the ~~COVID-19~~ pandemic, we are unable to reasonably estimate the ultimate impact of the economic stabilization and other programs to our business, financial condition, and operating results.

~~Health Plan~~ Operations

~~The pandemic has impacted~~Enrollment and Premium Revenue

Excluding acquisitions and our ~~business, and~~exit from Puerto Rico, we currently expect it to further impact our business in the areas described below. As noted above, in the third quarter of 2020 the combination of COVID-related impacts netted to a negligible to slightly positive impact on earnings.

~~Medical Care Costs and Demand for Healthcare Services.~~ Beginning in early 2020 the pandemic, along with the related quarantine and social distancing measures, initially reduced demand for certain routine and non-critical medical services, while at the same time increased demand for other medical services, such as COVID-19 testing and emergency services. Early in the second quarter of 2020, we experienced significantly lower utilization in a variety of cost categories, representing approximately two-thirds of our total medical cost spend, with utilization levels increasing slowly as the quarter progressed. We experienced several significant COVID-related impacts on medical care costs in the third quarter of 2020 as follows:

•~~At the beginning of the third quarter of 2020, utilization was still moderately curtailed, but rebounded to more normal levels during the quarter.~~

•~~We attracted approximately 300,000~~have added over 700,000 new Medicaid members since March 31, 2020, when we first began to report on the impacts of the pandemic. We believe this membership increase was mainly due to the suspension of redeterminations for Medicaid eligibility. We expect Medicaid enrollment to continue to benefit from the extension of the PHE period, and the associated pause on membership redeterminations, at least through mid-January 2022.

Marketplace revenue growth is now expected to be over 90% in 2021, and we expect to end 2021 with approximately 680,000 members.

The current rate environment is stable and rational. We continue to believe that the ~~acuity~~risk-sharing corridors previously introduced are related to the declared PHE and will likely be eliminated as the COVID pandemic subsides. However, the risk corridors continue to contribute an added level of ~~that population is lower than~~variability to our ~~average.~~

•~~Direct costs to care for COVID patients totaled $35 million in the third quarter~~results of ~~2020, as a resurgence of COVID infections and episodes has occurred in places such as Texas and California, and also disproportionately impacted certain of our Marketplace members.~~

operations. In the third quarter ~~of 2020, the net effect of these three factors reduced medical care costs~~ and ~~increased pretax earnings by a range of approximately $95 million to $105 million.~~

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 30~~

~~Table of Contents~~

~~Medicaid Premium Actions~~. Various states have implemented temporary premium refunds and related actions in response to the reduced demand for medical services stemming from COVID-19, which are resulting in a reduction of our medical margin. In some cases, these premium actions are retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. In the second quarter of 2020, we recognized approximately $75 million for certain of these retroactive premium actions that we believe to be probable, and where the ultimate premium amount is reasonably estimable. In most of those states, the refund period extended into the third quarter of 2020, and one additional state, Michigan, enacted a premium refund mechanism in the third quarter of 2020. Consequently, we recognized an additional $88 million related to these retroactive premium actions in the third quarter of 2020, resulting in $163 million recognized in the nine months ended September 30, ~~2020.~~2021, we recognized approximately $17 million and $183 million, respectively, for the impact of risk corridors enacted in several states beginning in the second quarter of 2020, in response to the lower utilization of medical services resulting from COVID-19.

~~Our position on rate adequacy has been consistent:~~Medical Care Costs

•We ~~do not intend, nor do we want,~~expect continued uncertainty regarding utilization trends as the pandemic continues. The speed and extent to ~~keep state Medicaid money that was supposed to~~which utilization rebounds will be ~~spent on medical benefits but was not due to utilization curtailment caused by COVID;~~

•~~In many of our Medicaid states, there are already mechanisms in place to protect against a surplus margin, as there are Minimum MLRs in seven of our states and profit caps in two others; and~~

•Once the COVID-19 pandemic abates, we believe that the traditional process of establishing prospective actuarially sound rates based on a credible medical cost baseline and cost trend off that baseline will resume.

~~Member Enrollment~~. We added 625,000 Medicaid members as of September 30, 2020, compared with our Medicaid membership as of March 31, 2020, when we first began to report on the impacts of the pandemic. Included in this total are 325,000 members added from our acquisition of the Kentucky Passport business on September 1, 2020. The 47,000 member increase from our acquisition of the New York YourCare business on July 1, 2020, was offsetgreatly impacted by the ~~decline in membership, in~~economy and consumer behavior, provider capacity, and the ~~third quarter~~potential resurgence of 2020, associated with our announced exit of operations in Puerto Rico. The remaining 300,000 increase in membership was mainly due to the suspension of redeterminations, as we believe that unemployment-related enrollment has not yet materially accessed managed Medicaid.

It remains unclear how high the COVID-related membership peak will be, how quickly it will fall as the economy recovers, and where it will ultimately settle. However it does now appear that since unemployment nationally is now just under 8%, the initial industry estimates of unemployment-related Medicaid membership increases were somewhat overstated. On a related note, the declaration of the extension of the public health emergency period into next year will also likely have an impact. Therefore, we are currently unable to predict the timing or amount of the expected increases in enrollment. Increased membership would increase our premium revenue, but would also likely result in a significant increase in medical care claims and related costs.COVID-19 infection rates. We believe that ~~we have~~some portion of the ~~scalability necessary~~utilization curtailment experienced in the nine months ended September 30, 2021 is likely the result of service deferrals, and so these services will likely be provided to ~~both serve new~~ members ~~and ably partner with our state customers for increases in membership.~~over the remainder of the year.

Capital and Financial Resources~~. Refer to “Liquidity and Financial Condition” below for a discussion of our capital and financial resources.~~

~~Affordable Care Act~~

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 27

Table of Contents

AFFORDABLE CARE ACT

In December 2018, in a case brought by the state of Texas and nineteen other states, a federal judge in Texas held that the ~~ACA’s~~ individual mandate of the ACA is unconstitutional. He further held that since the individual mandate is inseverable from the entire body of the ACA, the entire ACA is unconstitutional. The effect of his ruling was stayed pending the appeal of the ruling to the Fifth Circuit Court of Appeals. In December 2019, a three-judge panel of the Fifth Circuit Court of Appeal, in a two to one decision, affirmed the District Court’s ruling that the individual mandate

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 31~~

~~Table of Contents~~

is unconstitutional, but remanded the case back to the District Court for ~~additional analysis and findings regarding severability and the~~further consideration of ~~additional arguments.~~

the severability issue. The intervenor defendant states led by California subsequently appealed the case to the U.S. Supreme Court, ~~has accepted~~which heard oral arguments in the ~~appeal of the Fifth Circuit Court’s decision. Oral arguments before~~case on November 10, 2020. In June 2021, the Supreme Court ~~are scheduled~~held in a 7-2 opinion that the states and individuals that brought the lawsuit challenging the ACA’s individual mandate did not have standing to ~~take place on November 10, 2020, and a decision is expected in~~challenge the ~~first half of 2021. The ACA remains in effect pending the issuance of the Supreme Court’s opinion.~~

As of September 30, 2020, we served a significant number of members enrolled in programs created by the ACA, including approximately 730,000 Medicaid Expansion members and 325,000 Marketplace members. In the nine months ended September 30, 2020, premium revenue associated with these members amounted to $3,644 million, and contributed Medical Margin of $681 million. A decision bylaw. Although the Supreme Court ~~that~~did not reach the ~~entirety~~merits of the ~~ACA is unconstitutional could have a material adverse effect~~challenge, it vacated the District Court’s judgment and remanded the case with instructions to dismiss—effectively ending the case.

OTHER RECENT DEVELOPMENTS

New York Acquisition—Medicaid. On October 25, 2021, we closed on our ~~business, financial condition, cash flows, or results~~acquisition of ~~operations.~~

~~Other Recent Developments~~

~~New York.~~ ~~In September 2020, we entered into a definitive agreement to acquire~~ substantially all of the assets of Affinity Health Plan, Inc., a Medicaid health plan in New York. The net purchase price for the transaction is approximately $380 million, ~~subject~~net of certain tax benefits and allocation of required regulatory capital, which we funded with cash on hand.

New York Acquisition—Medicaid. On October 7, 2021, we announced a definitive agreement to ~~various adjustments at closing,~~acquire the Medicaid Managed Long Term Care business of AgeWell New York. As of August 31, 2021, AgeWell served approximately 13,000 managed long-term services and supports members, with full-year 2020 premium revenue of approximately $700 million. The purchase price for the transaction is approximately $110 million, net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close ~~as early as~~by the ~~second~~third quarter of ~~2021.~~2022.

Nevada Procurement—Medicaid. On ~~July 1, 2020,~~August 17, 2021, we ~~closed on the acquisition of certain assets of YourCare Health Plan, Inc., a Medicaid~~announced that our Nevada health plan ~~for a cash purchase price of $42 million. In connection with this transaction, we added approximately 47,000 Medicaid members in New York.~~

~~In May 2020, our Kentucky health plan had been~~subsidiary was selected as an awardee ~~pursuant to the statewide Medicaid managed care RFP issued by the Kentucky Cabinet for Health~~in Clark and Family Services, Department for Medicaid Services. On October 23, 2020, pursuant to a protest filing appeal with regard to the RFP awards, a court ordered the addition of a sixth health plan to the Kentucky Medicaid program for 2021. That ruling did not rescind the Medicaid contract award to our Kentucky health plan for 2021, nor did it have any impact on the earlier novation of the Passport Medicaid contract to us. TheWashoe Counties. This new ~~Medicaid~~ contract is ~~currently~~ expected to ~~begin~~commence on January 1, 2022, and will offer health coverage to TANF, CHIP and Medicaid Expansion beneficiaries. The four year contract with a possible two year extension was ratified in September 2021.

~~Acquisition of Magellan Complete Care.~~California Procurement—Medicaid. InThe state currently expects a final RFP to be released in February 2022.

Texas Acquisition—Medicaid and Medicare. On April ~~2020,~~22, 2021, we ~~entered into~~announced a definitive agreement to acquire Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan (“MMP”) contracts, along with certain operating assets. As of December 31, 2020, Cigna served approximately 48,000 members in the ~~MCC line~~Texas ABD program, also known as “STAR+PLUS,” in the Hidalgo, Tarrant and Northeast service areas, and approximately 2,000 MMP members in the Hidalgo service area, with full year 2020 premium revenue of ~~business of Magellan Health, Inc.~~approximately $1.0 billion. The purchase price for the transaction is approximately ~~$820~~$60 million, ~~net of certain tax benefits,~~ which we intend to fund with cash on hand.

MCC is a managed care organization serving members in six states, including Medicaid members in Arizona and statewide in Virginia, and Integrated Acute Care members in Florida. Through its Senior Whole Health branded plans, MCC provides fully integrated plans for Medicaid and Medicare dual beneficiaries in Massachusetts, as well as Managed Long-Term Care in New York. MCC also provides consultative services to participants who self-direct their care through Wisconsin’s long-term services and supports (“LTSS”) program. As of December 31, 2019, MCC served approximately 155,000 members in managed care plans and provided services to 25,000 LTSS program participants in Wisconsin, with full year 2019 revenues over $2.7 billion.

The transaction is subject to the receipt of applicable federal and state regulatory approvals and the satisfaction of other customary closing ~~conditions, and is expected~~conditions. We currently expect the transaction to close ~~around~~in January 2022.

Ohio Procurement—Medicaid. On April 13, 2021, we announced that our Ohio health plan subsidiary was selected as an awardee in all three regions across the ~~end of 2020. In connection with this transaction, Magellan Health, Inc. has agreed~~state pursuant to ~~provide certain transition services following~~ the ~~closing.~~

~~Marketplace Risk Corridor Ruling~~. In April 2020, the United States Supreme Court held that §1342 of the Affordable Care Act obligated the federal government to pay participating insurers the full Marketplace risk corridor amounts calculated by that statute, and that impacted insurers may sue the federal government in the U.S. Court of Federal Claims to recover damagesMedicaid managed care request for breach of that obligation. In June 2020, the Claims Court granted us judgment in the amount of $128.1 million for our 2014, 2015, and 2016 Marketplace risk corridor claims, which we received in October 2020. Since we accounted for the judgment as a gain contingency ataward issued on September 30, 2020, ~~it will be recognized in our fourth quarter 2020 financial results. The judgment does not create additional Minimum MLR rebates.~~

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 32~~

~~Table of Contents~~

~~Puerto Rico~~. We will exit Puerto Rico’s Medicaid program when our current contract expires on October 31, 2020. We are working closely with the regulatory authorities and the provider community to ensure that our members in Puerto Rico have reliable continuity of care. As discussed in the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” we recognized a $10 million premium deficiency reserve at September 30, 2020, in connection with the exit from this business.

~~Update on Status of Significant Medicaid Contracts~~

~~California~~. Our managed care contracts with the California Department of Health Care Services (“DHCS”) cover six regions in central and southern California (including the Los Angeles region covered under a separate subcontract with Health Net, LLC). These contracts are effective through December 31, 2020, which we expect to be renewed annually until the effectiveness of new forms of contract following RFP awards. DHCS has publicly indicated it expects to release the final Medicaid RFP in 2021, for implementation in January 2024.

~~Ohio.~~ ~~Our managed care contract with~~by the Ohio Department of ~~Medicaid (“ODM”)~~Medicaid. This new contract is ~~effective through~~expected to begin July 1, ~~2021. In September 2020,~~2022, and will offer health care coverage to Medicaid beneficiaries through the ~~ODM released the RFP for the Ohio Medicaid program with a due date~~state of ~~November 20, 2020. The program will be regionally based on the current three regions (Central/Southeast, Northeast~~Ohio’s Covered Family and ~~West); plans may bid on one or all regions,~~Children, Expansion, and ~~be awarded one or all regions. The contracts will be awarded on~~

~~January 25, 2021, with a go-live date of January 5, 2022.~~

~~Texas~~. On March 25, 2020, the Texas Health and Human Services Commission (“HHSC”), notified our Texas health plan that HHSC had upheld our protest and had canceled all previously awarded contracts associated with the re-~~procurement awards announced in October 2019 for the~~ ABD program (known in Texas as “STAR+PLUS”). In addition, HHSC canceled the pending re-procurement associated with the TANF and CHIP programs (known in Texas as “STAR/CHIP”). HHSC further indicated that it was deliberating next steps with respect to both re-~~procurements. We do not expect the HHSC to re-issue the RFPs in the near future.~~

~~Update on Status of MMP Contracts~~

Our MMP contracts in California, Illinois and Ohio are effective through December 31, 2022. Updates to our current Michigan, South Carolina and Texas MMP contracts are described below. The Michigan, South Carolina and Texas MMP contracts represented aggregate revenues of approximately $586 million in nine months ended September 30, 2020.

~~Michigan~~. A one-year contract extension has been executed, through December 31, 2021. The state has submitted a formal letter of intent to extend the contract for five years through 2026; the five-year contract extension is under development.

~~South Carolina. A three-year contract extension has been executed, effective through December 31, 2023.~~

~~Texas. A three-year contract extension amendment, through December 31, 2023, is under review and pending full execution.~~programs.

For a discussion of additional ~~Health Plans~~ segment trends, uncertainties and other developments, refer to our ~~2019~~2020 Annual Report on Form 10-K, “Item 1. Business—Our Business,” and “—Legislative and Political Environment.”

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 3328

Table of Contents

REPORTABLE SEGMENTS

As of September 30, 2021, we served approximately 4.8 million members eligible for Medicaid, Medicare, and other government-sponsored healthcare programs for low-income families and individuals, including Marketplace members, most of whom receive government premium subsidies.

In the first quarter of 2021, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting structure, which is now organized by government program. These reportable segments consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other.

HOW WE ASSESS PERFORMANCE

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

The key metrics used to assess the performance of our Medicaid, Medicare, and Marketplace segments are premium revenue, medical margin and medical care ratio (“MCR”). MCR represents the amount of medical care costs as a percentage of premium revenue. Therefore, the underlying medical margin, or the amount earned by the Medicaid, Medicare, and Marketplace segments after medical costs are deducted from premium revenue, represents the most important measure of earnings reviewed by management, and is used by our chief executive officer to review results, assess performance, and allocate resources. The key metric used to assess the performance of our Other segment is service margin. The service margin is equal to service revenue minus cost of service revenue.

Management’s discussion and analysis of the change in medical margin is discussed below under “Segment Financial Performance.” For more information, see Notes to Consolidated Financial Statements, Note 10, “Segments.”

SEGMENT MEMBERSHIP

The following ~~tables set~~table sets forth our ~~Health Plans~~membership by segment ~~membership~~ as of the dates indicated:

September 30,
2020 December 31,
2019 September 30,
2019
Ending Membership by Government Program:
Medicaid 3,595,000 2,956,000 2,955,000
Medicare 113,000 101,000 102,000
Marketplace 325,000 274,000 289,000
Total 4,033,000 3,331,000 3,346,000
Ending Membership by Health Plan:
California 584,000 565,000 580,000
Florida 136,000 132,000 136,000
Illinois 282,000 224,000 224,000
Kentucky (1)
325,000 — —
Michigan 391,000 362,000 361,000
Ohio 348,000 288,000 292,000
South Carolina 153,000 131,000 134,000
Texas 357,000 341,000 350,000
Washington 947,000 832,000 818,000
Other (2)
510,000 456,000 451,000
Total 4,033,000 3,331,000 3,346,000


	September 30,	December 31,	September 30,
	2021 (1)	2020	2020
Medicaid	3,981,000	3,599,000	3,595,000
Medicare	138,000	115,000	113,000
Marketplace	719,000	318,000	325,000
Total	4,838,000	4,032,000	4,033,000

~~_________________________~~____________________

(1)~~On September 1, 2020, we~~Approximately 200,000 members, from the Magellan Complete Care acquisition that closed on the acquisition of certain assets of Passport Health Plan, Inc., a Medicaid health plan. Effective on that same date, the Kentucky Medicaid agency approved the novation of Passport’s Medicaid contract to Molina Healthcare of Kentucky, Inc.

~~(2)“Other” includes the Idaho, Mississippi, New Mexico, New York, Puerto Rico, Utah and Wisconsin health plans, which~~December 31, 2020, are ~~not individually significant to our consolidated operating results.~~

~~FINANCIAL PERFORMANCE~~

~~The tables~~included in the ~~section below summarize premium revenue, Medical Margin, and MCR by state health plan and by government program for the periods indicated (dollars~~totals as of September 30, 2021, but not in ~~millions):~~

~~HEALTH PLANS~~

Three Months Ended September 30,
2020 2019
Premium Revenue Medical Margin MCR Premium Revenue Medical Margin MCR
California $ 554 $ 87 84.3 % $ 567 $ 111 80.3 %
Florida 166 27 83.5 171 19 89.0
Illinois 339 32 90.5 257 25 90.6
Kentucky 169 16 90.7 — — —
Michigan 398 76 80.8 408 72 82.3
Ohio 808 124 84.6 640 58 91.0
South Carolina 158 18 88.8 151 13 91.6
Texas 801 104 87.1 734 89 87.8
Washington 807 116 85.7 688 85 87.7
Other (1)
568 70 87.6 468 89 80.9
Total $ 4,768 $ 670 85.9 % $ 4,084 $ 561 86.3 %
prior periods.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 3429

Table of Contents

Nine Months Ended September 30,
2020 2019
Premium Revenue Medical Margin MCR Premium Revenue Medical Margin MCR
California $ 1,660 $ 280 83.1 % $ 1,682 $ 295 82.4 %
Florida 482 82 83.0 570 115 79.9
Illinois 953 116 87.8 726 94 87.1
Kentucky 169 16 90.7 — — —
Michigan 1,224 256 79.1 1,226 221 81.9
Ohio 2,279 326 85.7 1,914 208 89.2
South Carolina 472 60 87.3 427 49 88.7
Texas 2,273 276 87.9 2,246 292 87.0
Washington 2,351 364 84.5 2,011 223 88.9
Other (1)
1,581 256 83.7 1,283 228 82.2
Total $ 13,444 $ 2,032 84.9 % $ 12,085 $ 1,725 85.7 %
SEGMENT FINANCIAL PERFORMANCE

~~__________________~~

~~(1)“Other” includes the Idaho, Mississippi, New Mexico, New York, Puerto Rico, Utah~~The following tables summarize premium revenue, medical margin, and ~~Wisconsin health plans, which are not individually significant to our consolidated operating results.~~

~~As discussed in “Trends and Uncertainties” above, the combination of all the COVID-19 pandemic-related impacts netted to a negligible to slightly positive impact on our overall financial results~~MCR by segment for the third quarter of 2020. Some of these items increased earnings, such as lower than expected medical costs from the curtailment of utilization that benefited all our state health plans, and a meaningful increaseperiods indicated (dollars in ~~Medicaid membership, while others served to decrease earnings, such as the temporary, retroactive Medicaid premium refunds and related actions enacted by certain states.~~millions):

~~Comments relating to the performance of our health plans in California, Ohio, Texas and Washington, which represent our largest health plans from a premium revenue standpoint, follow:~~


	Three Months Ended September 30,
	2021						2020
	Premium Revenue		Medical Margin		MCR		Premium Revenue		Medical Margin		MCR

Medicaid	$	5,146	$	532	89.6	%	$	3,754	$	509	86.4	%
Medicare	875		151		82.8		632		91		85.6
Marketplace	779		68		91.3		382		70		81.6
Total	$	6,800	$	751	88.9	%	$	4,768	$	670	85.9	%

~~California.~~ For the third quarter and nine months ended September 30, 2020, Medical Margin declined as the lower medical costs from the curtailment of utilization were more than offset by Medicaid premium actions and underperformance in the Marketplace.

~~Ohio.~~ For the third quarter and nine months ended September 30, 2020, Medical Margin was higher when compared with the same periods in 2019 due to higher premiums and improved operating performance in Medicaid. Premium revenues were higher year-over-year, mainly due to increased membership, program changes and rate increases in Medicaid established before COVID-19. In the third quarter of 2020, the combined impacts from COVID-19 were negligible; however, the health plan experienced a modest benefit for the nine months ended September 30, 2020, as lower medical costs from the curtailment of utilization slightly exceeded the impact of retroactive Medicaid premium refunds and related actions.

~~Texas.~~ For the third quarter of 2020, Medical Margin improved compared with the third quarter of 2019, due to a decrease in the MCR in Medicaid, partially offset by underperformance in Marketplace. For the nine months ended September 30, 2020, performance declined year-over-year, with a lower Medical Margin compared with the same period in 2019. The decline resulted mainly from underperformance in Marketplace, due primarily to lower premiums and higher acuity mix for the new members we now serve, partially offset by lower MCRs in Medicaid and Medicare.

~~Washington.~~ For the third quarter and nine months ended September 30, 2020, Medical Margin was higher when compared with the same periods in 2019, mainly driven by improved results in Medicaid. Medicaid premium revenues increased in both the third quarter and nine months ended September 30, 2020, due to membership growth in Medicaid. In addition, results in the nine months ended September 30, 2020, benefited modestly from lower medical costs due to the curtailment of utilization driven by COVID-19, which was partially offset by COVID-related provider payments mandated by the state in the second quarter of 2020.

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 35~~

~~Table of Contents~~

~~PROGRAMS~~

Three Months Ended September 30,
2020 2019
Premium Revenue Medical Margin MCR Premium Revenue Medical Margin MCR
Medicaid $ 3,754 $ 509 86.4 % $ 3,168 $ 378 88.1 %
Medicare 632 91 85.6 559 80 85.6
Marketplace 382 70 81.6 357 103 71.2
Total $ 4,768 $ 670 85.9 % $ 4,084 $ 561 86.3 %


		Nine Months Ended September 30,																			Nine Months Ended September 30,
		2020										2019									2021								2020
		Premium Revenue				Medical Margin		MCR				Premium Revenue		Medical Margin				MCR			Premium Revenue		Medical Margin		MCR				Premium Revenue			Medical Margin			MCR

Medicaid	Medicaid			$	10,415					$	1,427					86.3	%				$	9,239	$	1,088	88.2	%	Medicaid	$	15,020		$	1,687		88.8		%		$	10,415	$	1,427	86.3	%
Medicare	Medicare	1,896				333		82.4				1,682		249				85.2		Medicare	2,488		329		86.8				1,896			333			82.4
Marketplace	Marketplace	1,133				272		76.0				1,164		388				66.7		Marketplace	2,181		331		84.8				1,133			272			76.0
Total	Total	$	13,444			$	2,032	84.9	%			$	12,085	$	1,725			85.7	%	Total	$	19,689	$	2,347	88.1	%			$	13,444		$	2,032		84.9		%

Medicaid

Medicaid premium revenue increased ~~$586~~$1,392 million in the third quarter of ~~2020~~2021, when compared with the third quarter of ~~2019, and~~2020. Medicaid premium revenue increased ~~$1,176~~$4,605 million in the nine months ended September 30, ~~2020,~~2021, when compared with the nine months ended September 30, ~~2019.~~2020. The increase in both periods was mainly due to membership growth and ~~premium increases~~the impact from the Magellan Complete Care and other acquisitions closed in the second half of 2020. Excluding the acquisitions, the membership growth was across several states and was mainly driven by the extension of the PHE period and the associated suspension of membership redeterminations due to COVID-19. The overall increase was partially offset by ~~premium refunds and related actions stemming from COVID-19. The increase in membership includes~~ the impact of ~~the Passport members in Kentucky that we assumed on September 1, and the YourCare membership in New York that we assumed on July 1, as well as the impact~~state risk corridors stemming from ~~suspension of redeterminations due to~~ COVID-19.

As described above in ~~“Health Plans—Trends~~“Trends and Uncertainties,” we recognized approximately ~~$88~~$17 million and ~~$163~~$183 million ~~respectively,~~ in the third quarter and nine months ended September ~~2020,~~30, 2021, respectively, for the impact of ~~premium refunds and related actions~~risk corridors enacted in several states beginning in the second quarter of 2020, in response to the lower utilization of medical services resulting from COVID-19.

The ~~Medical Margin~~medical margin in our Medicaid program increased ~~$131~~$23 million ~~or 35%,~~ in the third quarter of ~~2020~~2021 when compared with the third quarter of ~~2019, and~~2020. The increase in margin was driven by increased ~~$339~~premium revenues, partially offset by the MCR increase discussed below. The medical margin in our Medicaid program increased $260 million ~~or 31%~~ in the nine months ended September 30, ~~2020,~~2021 when compared with the nine months ended September 30, ~~2019.~~2020. The increase ~~in both periods~~ was driven by increased premium revenues and margin associated with the membership growth discussed above, ~~and from a reduction in~~partially offset by the ~~MCR.~~MCR increase discussed below.

The Medicaid MCR ~~decreased~~increased to 89.6% in the third quarter of 2021, from 86.4% in the third quarter of 2020, ~~from 88.1%~~and increased to 88.8% in the ~~third quarter of 2019, or 170 basis points, and decreased to~~nine months ended September 30, 2021, from 86.3% in the nine months ended September 30, 2020. The increase for both periods is mainly driven by the net effect of COVID and changes in business mix. The net effect of COVID increased the MCR for the current year and reflects an increase in COVID-related inpatient costs, lower COVID-related utilization curtailment and the impact of the COVID-related risk corridors enacted in several states as previously disclosed. In the prior year the net effect of COVID decreased the MCR.

Medicare

Medicare premium revenue increased $243 million in the third quarter of 2021 compared to the third quarter of 2020 ~~from 88.2%~~and increased $592 million in the nine months ended September 30, ~~2019, or 190 basis points. The improvements were generally present across all our programs. The year-over-year decrease in the third quarter of 2020 was due~~2021 compared to increases in the premium revenue per member per month (“PMPM”) and improved operating performance, including enhanced medical cost initiatives. The combined impacts from COVID-19 were negligible to slightly positive in the third quarter of 2020. At the beginning of the third quarter of 2020, utilization was still moderately curtailed but reverted more to normal levels by the end of the quarter. For the nine months ended September 30, ~~2020, the MCR benefited from lower medical costs~~2020. The increase was primarily due to ~~the curtailment of utilization from COVID-19, which modestly exceeded~~ the impact of the ~~retroactive Medicaid~~Magellan Complete Care acquisition, including higher membership and higher premium ~~refunds and related actions enacted in several states.~~

In the third quarter of 2020, we recognized a $10 million premium deficiency reserve (“PDR”) associated with the Puerto Rico Medicaid business. As previously announced, we will exit this business when our current contract expires on October 31, 2020. The PDR represents the estimated remaining claims and administrative costs that exceed the estimated remaining premiums associated with the contract.

The MCR for TANF and CHIP was relatively flat in the third quarter of 2020, when compared with the third quarter of 2019, while the MCR for the ABD program decreased 180 basis points, and the MCR for Medicaid Expansion decreased by 440 basis points. The MCR for TANF and CHIP reflected the impact of the Puerto Rico PDRrevenue PMPM.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 3630

Table of Contents

~~discussed above. Excluding the PDR, the MCR in all our Medicaid programs improved year-over-year, mainly from increases~~The medical margin for Medicare increased $60 million in the ~~premium revenue PMPM rates~~third quarter of 2021 and ~~improved operating performance.~~

~~For~~decreased $4 million in the nine months ended September 30, ~~2020, the MCR decreased 40 basis points for TANF and CHIP, decreased 190 basis points for ABD, and decreased 440 basis points for Medicaid Expansion,~~2021, when compared ~~with~~to the same ~~period~~periods in 2020. The year-over-year ~~improvement~~changes in margin are driven by an increase in premium revenue and changes in the MCR.

The Medicare MCR decreased to 82.8% in the third quarter of 2021, from 85.6% in the third quarter of 2020, mainly due to a favorable impact from the net effect of COVID, including utilization curtailment and corridor related adjustments. The Medicare MCR increased to 86.8% in the nine months ended September 30, 2021, compared to 82.4% in the nine months ended September 30, 2020, ~~was due to~~primarily driven by the ~~increase in premium revenue PMPM, operating improvements,~~net effect of COVID, including higher direct COVID medical costs, and the ~~COVID-19 related net impacts. These improvements were partially offset by unfavorable year-over-year changes in prior year reserve development.~~temporary industry-wide challenge of risk scores that do not fully reflect the acuity of our membership. COVID-related utilization curtailment drove a lower MCR for the nine months ended September 30, 2020.

~~Medicare~~Marketplace

~~Medicare~~Marketplace premium revenue increased ~~$73~~$397 million in the third quarter of 2021 compared to the third quarter of 2020 and ~~$214~~increased $1,048 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was mainly due to higher membership, partially offset by a decrease in premium revenue PMPM. Our Marketplace membership as of September 30, 2021, amounted to 719,000 members, representing growth of 81,000 members sequentially compared to June 30, 2021, and substantially exceeding our expectations. This improvement resulted from several factors, including strong product design and competitive pricing, better than expected natural attrition rates, and the extended open enrollment period. The decrease in premium revenue PMPM was mainly driven by changes in business mix, with an increase of members in the bronze metal tier.

The Marketplace medical margin decreased $2 million in the third quarter of 2021 when compared with the third quarter of 2020, due to the increase in the MCR, partially offset by the impact of increased premium revenue. The Marketplace medical margin increased $59 million in the nine months ended September 30, 2021 when compared with the nine months ended September 30, 2020, primarily due to ~~increases~~the increase in ~~premium revenue PMPM~~membership and ~~member months. PMPMs improved due~~premiums, mostly offset by an increase in the MCR compared to ~~increased revenue resulting from risk scores that are more commensurate with the acuity of our population and increases in quality incentive premium revenues.~~2020.

The ~~Medical Margin for Medicare~~Marketplace MCR increased ~~$11 million, or 14%,~~to 91.3% in the third quarter of 2021, compared to 81.6% in the third quarter of 2020, and increased ~~$84 million, or 34%,~~to 84.8% in the nine months ended September 30, ~~2020, when~~2021, compared ~~with the same periods, respectively, in 2019. The year-over-year improvement in both periods was mainly attributed~~ to ~~the increased revenues described above, and to a lesser extent, lower utilization of medical services stemming from COVID-19.~~

~~The Medicare MCR was unchanged at 85.6% in the third quarter of 2020. The 280 basis point year-over-year decrease in the MCR~~76.0% in the nine months ended September 30, ~~2020, was~~2020. The increase for both periods resulted mainly from higher direct COVID medical costs, due to ~~the same factors impacting the year-over-year changes~~continued COVID utilization pressure in ~~Medical Margin as discussed above.~~

~~Marketplace~~

Marketplace premium revenue increased $25 million in the third quarter of 2020, but decreased $31 million in the nine months ended September 30, 2020, mainly due to lower pricing in an effort to be more competitive, and lower risk scores that were not commensurate with the risk of the population. The decrease in the nine months period also resulted from the impact of more health plans being subject to minimum medical loss ratio rebates when compared with the prior year, and the benefit from favorable retrospective adjustments to risk adjustment premiums was higher in the prior year.

The Marketplace Medical Margin decreased $33 million in the third quarter of 2020, and $116 million in the nine months ended September 30, 2020, when compared with the same periods, respectively, in 2019. In both periods, the Medical Margin decrease was primarily due to the decline in premium revenues discussed above, and a higher than expected member acuity mix. Our risk scores continue to lag the acuitymany of our ~~membership,~~Marketplace geographies, and non-COVID utilization by members enrolled through the ~~rebound in utilization for Marketplace has been much more pronounced than our Medicaid and Medicare programs.The COVID-19 related utilization impact was unfavorable to the Marketplace business and contributed to the year-over-year decline.~~special enrollment period.

~~The Marketplace MCR increased in the third quarter and the nine months ended September 30, 2020, attributable to same factors impacting the year-over-year changes in Medical Margin discussed above.~~

~~OTHER~~Other

The Other segment includes service revenues and costs associated with the long-term services and supports consultative services we now provide in Wisconsin, and also includes certain corporate amounts not allocated to the ~~Health Plans segment.~~Medicaid, Medicare, or Marketplace segments. Such amounts ~~are~~were immaterial to our consolidated results of ~~operations.~~operations for the third quarter and nine months ended September 30, 2021 and 2020.

LIQUIDITY AND FINANCIAL CONDITION

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 ~~Health Plans segment~~ regulated subsidiaries generate significant cash flows from premium revenue, which is generally received a short time before related healthcare services are paid. Premium revenue is our primary source of liquidity. Thus, any decline in the receipt of premium revenue, and our profitability, could have a negative impact on

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 37~~

~~Table of Contents~~

our liquidity. In the ~~nine months ended September 30, 2020,~~first half of 2021, we did not experience noticeable delays ~~of,~~to, or changes in, the timing ~~and~~or level of premium receipts as a result of the COVID-19 pandemic, but there can be no assurances that we will not experience such delays in the future. See further discussion below ~~regarding various states’ premium actions~~ in “Future Sources and Uses of Liquidity—Future ~~Uses.~~Uses—Potential Impact of COVID-19 Pandemic.”

A majority of the assets held by our 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

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 31

Table of Contents

general corporate purposes. In the third quarter and nine months ended September 30, ~~2020,~~2021, the parent company received ~~$120~~$127 million and ~~$355~~$346 million, respectively, in dividends and return of capital from the regulated health plan subsidiaries. See further discussion of dividends below in “Future Sources and Uses of Liquidity—Future Sources.”

The parent company may also contribute capital to the regulated health plan subsidiaries to satisfy minimum statutory net worth requirements, including funding for newer health ~~plans with growing enrollment.~~plans. In the third quarter and nine months ended September 30, ~~2020,~~2021, the parent company contributed capital of ~~$10~~ $23 million and ~~$62~~$110 million, respectively, to the regulated health plan subsidiaries.

Cash, cash equivalents and investments at the parent company amounted to ~~$1,286~~$703 million, and ~~$997~~$644 million as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively. The increase as of September 30, ~~2020,~~2021, was mainly due to ~~net proceeds of $789 million for~~ the ~~4.375% Notes issued~~dividends received from the regulated health plan subsidiaries in ~~June 2020, $380 million drawn on~~ the ~~term loan facility in~~nine months ended September 30, 2021, partially offset by the capital contributed to regulated health plan subsidiaries and our share repurchase program. In the first quarter of ~~2020,~~2021, we purchased an aggregate of approximately 577,000 shares for $122 million, and ~~$355~~we also paid $6 million ~~of dividends received from our regulated health plan subsidiaries year~~ to date. The increase was partially offset by the $600 million repayment of the term loan facility, purchases of our common stock amounting to $453 million, $62 million contributed to our health plan subsidiaries (including $42 million for the YourCare acquisition), $63 million for purchases of property, equipment and capitalized software, $42 million net cash paid for the aggregate convertible notes-related transactions, and $20 million for the initial cash payment for the Passport acquisition. As describedsettle shares purchased in ~~Note 2,” Significant Accounting Policies,” we received $128.1 million for the Marketplace risk corridor settlement in October~~late December 2020.

Investments

After considering expected cash flows from operating activities, we generally invest cash of regulated subsidiaries that exceeds our expected short-term obligations in longer term, investment-grade, and marketable debt securities to improve our overall investment return. These investments are made pursuant to board-approved investment policies which conform to applicable state laws and regulations.

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

We believe that the risks of the COVID-19 pandemic, as they relate to our investments, are minimal. The overall rating of our portfolio remains strong and is rated AA. Our investment policy has directives in conjunction with state guidelines to minimize risks and exposures in volatile markets. Additionally, our portfolio managers assist us in navigating the current volatility in the capital markets.

Our restricted investments are invested principally in cash, cash equivalents, and U.S. Treasury securities; we have the ability to hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets.

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 38~~

~~Table of Contents~~

Cash Flow Activities

Our cash flows are summarized as follows:


		Nine Months Ended September 30,							Nine Months Ended September 30,
		2020		2019		Change			2021		2020		Change

		(In millions)							(In millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	591	$	398	$	193	Net cash provided by operating activities	$	1,522	$	599	$	923
Net cash provided by (used in) investing activities		98		(80)		178
Net cash provided by (used in) financing activities		69		(510)		579
Net cash (used in) provided by investing activities								Net cash (used in) provided by investing activities	(1,106)		98		(1,204)
Net cash (used in) provided by financing activities								Net cash (used in) provided by financing activities	(204)		61		(265)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	$	758	$	(192)	$	950	Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	$	212	$	758	$	(546)

Operating Activities

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

Net cash provided by operations for the nine months ended September 30, ~~2020~~2021 was ~~$591~~$1,522 million, compared with ~~$398~~$599 million in the nine months ended September 30, ~~2019.~~2020. The ~~$193~~$923 million increase in cash flow was due to ~~stronger operating results~~the growth in ~~the nine months ended September 30, 2020,~~operations and the net impact of timing differences in government receivables and payables.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 32

Table of Contents

Investing Activities

Net cash ~~provided by~~used in investing activities was ~~$98~~$1,106 million in the nine months ended September 30, ~~2020,~~2021, compared with ~~$80~~$98 million ~~used in~~provided by investing activities in the nine months ended September 30, ~~2019, an increase~~2020, a decrease in cash flow of ~~$178~~$1,204 million. ~~The year over year increase~~This decrease in cash flow was primarily due to ~~decreased~~increased purchases of investments in the nine months ended September 30, ~~2020.~~2021.

Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$69~~$204 million in the nine months ended September 30, ~~2020,~~2021, compared with ~~$510~~$61 million ~~used in~~provided by financing activities in the nine months ended September 30, ~~2019, an increase~~2020, a decrease in cash flow of ~~$579~~$265 million. In the nine months ended September 30, 2021, financing cash outflows included common stock purchases of $128 million and $52 million for common stock withheld to settle employee tax obligations. Additionally, we paid $23 million to settle contingent consideration liabilities relating to our Kentucky Passport acquisition that closed in 2020, $20 million of which has been presented as a financing cash outflow. In the nine months ended September 30, 2020, financing cash inflows included ~~$789 million from the issuance of the 4.375% Notes and~~ $380 million borrowed under the term loan ~~facility. Cash outflows included~~facility and net proceeds of $189 million related to the ~~$600 million~~ repayment of the term loan facility and issuance of senior notes. This was offset by financing cash outflows related to common stock purchases of $453 million, ~~which included $7 million~~common stock withheld to settle ~~shares purchased in late December 2019,~~employee tax obligations of $8 million, and ~~net cash paid for the aggregate convertible senior notes~~‑~~related transactions amounting to $42~~other financing outflows of $47 million. In the nine months ended September 30, 2019, net cash paid for the aggregate convertible senior notes-related transactions amounted to $754 million, partially offset by proceeds of $220 million borrowed under the term loan facility.

FINANCIAL CONDITION

We believe that our cash resources, borrowing capacity available under the Credit 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, ~~2020,~~2021, our working capital was ~~$3,397 million,~~$3.3 billion, compared with ~~$2,698 million~~$2.9 billion at December 31, ~~2019.~~2020. At September 30, ~~2020,~~2021, our cash and investments amounted to ~~$5,058 million,~~$7.4 billion, compared with ~~$4,477 million~~$6.2 billion at December 31, ~~2019.~~2020.

Regulatory Capital and Dividend Restrictions

Each of our regulated, ~~HMO~~wholly owned subsidiaries must maintain a minimum amount of statutory capital determined by statute or regulations. Such statutes, regulations and capital requirements also restrict the timing, payment and amount of dividends and other distributions, loans or advances that may be paid to us as the sole stockholder. To the extent our ~~HMO~~ subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based upon current statutes and regulations, the minimum capital and surplus ~~(net assets)~~ requirement for these subsidiaries was estimated to be approximately ~~$1,300 million~~$1.9 billion at September 30, ~~2020,~~2021, compared with

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 39~~

~~Table of Contents~~

~~$1,110 million~~ $1.5 billion at December 31, ~~2019. Our HMO~~2020. The aggregate capital and surplus of our wholly owned subsidiaries ~~were~~was in ~~compliance with~~excess of these minimum capital requirements as of both dates.

Under applicable regulatory requirements, the amount of dividends that may be paid by our ~~HMO~~wholly owned subsidiaries without prior approval by regulatory authorities as of September 30, ~~2020, is~~2021, was approximately ~~$187~~$182 million in the aggregate. ~~Our HMO~~The subsidiaries may pay dividends over this amount, but only after approval is granted by the regulatory authorities.

Based on our cash and investments balances as of September 30, ~~2020,~~2021, management believes that ~~its~~our regulated ~~health plan~~wholly owned subsidiaries remain well capitalized and exceed their regulatory minimum requirements. 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.

Debt Ratings

Each of our high-yield senior notes is rated “BB-” by Standard & Poor’s, and “Ba3” by Moody’s Investor Service, Inc. A downgrade in our ratings could adversely affect our borrowing capacity and increase our borrowing costs.

Financial Covenants

The Credit Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. Such ratios are computed as defined by the terms of the Credit Agreement. ~~As of September 30, 2020, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt.~~

In addition, the indentures governing ~~the~~each of our outstanding high-yield senior 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, 2021, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 33

Table of Contents

FUTURE SOURCES AND USES OF LIQUIDITY

Future Sources

Our ~~Health Plans segment~~ regulated subsidiaries generate significant cash flows from premium revenue, which is generally received a short time before related healthcare services are paid. Premium revenue is our primary source of liquidity. Thus, any decline in the receipt of premium revenue, and our profitability, could have a negative impact on our liquidity.

Potential Impact of COVID-19 Pandemic. WeExcluding acquisitions and our exit from Puerto Rico, we have added ~~625,000~~over 700,000 new Medicaid members ~~as of September 30, 2020, compared with our Medicaid membership as of~~since March 31, 2020, when we first began to report on the impacts of the pandemic. ~~Included in~~We believe this ~~total are 325,000 members added from our acquisition of the Kentucky Passport business on September 1, 2020. The 47,000 member~~membership increase from our acquisition of the New York YourCare business on July 1, 2020, was offset by the decline in membership, in the third quarter of 2020, associated with our announced exit of operations in Puerto Rico. The remaining 300,000 increase in membership was mainly due to the suspension of redeterminations ~~as we believe that unemployment-related~~for Medicaid eligibility. We expect Medicaid enrollment has not yet materially accessed managed Medicaid. It remains unclear how high the COVID-related membership peak will be, how quickly it will fall as the economy recovers, and where it will ultimately settle. However it does now appear that since unemployment nationally is now just under 8%, the initial industry estimates of unemployment-related Medicaid membership increases were somewhat overstated. On a related note, the declaration ofto continue to benefit from the extension of the ~~public health emergency~~PHE period, ~~into next year will also likely have an impact. Therefore, we are currently unable to predict~~and the ~~timing or amount of the expected increases in enrollment. Increased~~associated pause on membership ~~would increase our premium revenue, but would also likely result in a significant increase in medical care claims and related costs.~~redeterminations, at least through mid-January 2022.

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. As a result of the COVID-19 pandemic, state regulators could restrict the ability of our regulated health plan subsidiaries to pay dividends to the parent company, which would reduce the liquidity of the parent company.

Credit Agreement Borrowing Capacity. As of September 30, ~~2020,~~2021, we had available borrowing capacity of $1 billion under the revolving credit facility of our Credit Agreement. In addition, the Credit Agreement provides for a $15 million swingline sub-facility and a $100 million letter of credit sub-facility, as well as incremental term loans available to finance certain acquisitions up to $500 million, plus an unlimited amount of such term loans as long as

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 40~~

~~Table of Contents~~

~~we maintain a minimum~~ our consolidated net leverage ~~ratio.~~ratio is not greater than a defined maximum. See further discussion in the Notes to Consolidated Financial Statements, Note 8, “Debt.”

Future Uses

Common Stock Purchases. In September ~~2020,~~2021, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This new program immediately supersedes the stock purchase program previously approved by our board of directors in September 2020. This new program will be funded with cash on hand and extends through December 31, ~~2021.~~2022. The exact timing and amount of any repurchase ~~will be~~is determined by management based on market conditions and share price, in addition to other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. ~~No shares were purchased~~As of October 28, 2021, $500 million remained available to purchase our common stock under this program through ~~October 29, 2020.~~December 31, 2022.

Acquisitions. We have a disciplined and steady approach to growth. Organic growth, which includes leveraging our existing health plan portfolio and winning new territories, is our highest priority. In addition to organic growth,On October 25, 2021, we ~~will consider targeted acquisitions that are a strategic fit that we believe will leverage operational synergies, and lead to incremental earnings accretion. For further information~~closed on our ~~acquisitions, refer to the Notes to Consolidated Financial Statements, Note 4, “Business Combinations.”~~

~~In September 2020, we entered into a definitive agreement to acquire~~acquisition of substantially all of the assets of Affinity Health Plan, Inc., a Medicaid health plan in New York. The net purchase price for the transaction is approximately $380 million, ~~subject to various adjustments at closing,~~net of certain tax benefits and allocation of required regulatory capital, which we ~~intend to fund~~funded with cash on hand. ~~We currently expect the transaction to close as early as the second quarter of 2021.~~

~~In September 2020,~~On October 7, 2021, we completed the acquisition of certain assets of Passport Health Plan, Inc. The estimated total purchase price of $60 million includes our initial cash payment of $20 million in September 2020, plus estimated contingent consideration which consists primarily of an amount due to the seller for members we enroll in the open enrollment period for the 2021 plan year, over a minimum threshold, which resulted in an estimated contingent consideration liability of $40 million. We expect to settle this liability in the first quarter of 2021.

~~In April 2020, we entered into~~announced a definitive agreement to acquire the ~~MCC line of~~Medicaid Managed Long Term Care business of ~~Magellan Health, Inc.~~AgeWell New York. As of August 31, 2021, AgeWell served approximately 13,000 managed long-term services and supports members, with full-year 2020 premium revenue of approximately $700 million. The purchase price for the transaction is approximately ~~$820~~$110 million, net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing ~~conditions, and is expected~~conditions. We currently expect the transaction to close ~~around the end of 2020. In connection with this transaction, Magellan Health, Inc. has agreed to provide certain transition services following the closing.~~

~~Outcome of ACA Litigation~~. As described above in “Health Plans Segment—Trends and Uncertainties,” the U.S. Supreme Court has accepted the appeal of the Fifth Circuit Court’s decision regarding the constitutionality and severability of the individual mandate. The ACA remains in effect pending the issuance of the Supreme Court’s opinion. A decision by the ~~Supreme Court that~~third quarter of 2022.

On April 22, 2021, we announced a definitive agreement to acquire Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan (“MMP”) contracts, along with certain operating assets. As of December 31, 2020, Cigna served approximately 48,000 members in the ~~entirety~~Texas ABD program, also known as “STAR+PLUS,” in the Hidalgo, Tarrant and Northeast service areas, and approximately 2,000 MMP members in the Hidalgo service area, with full year 2020 premium revenue of approximately $1.0 billion. The purchase price for the ~~ACA~~transaction is ~~unconstitutional could have a material adverse effect~~approximately $60 million, which we intend to fund with cash on ~~our business, financial condition, cash flows, or results~~hand. The transaction is subject to the receipt of ~~operations.~~applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close in January 2022.

Potential Impact of COVID-19 Pandemic. Beginning in early 2020 the pandemic, along with the related quarantine and social distancing measures, initially reduced demand for certain routine and non-critical medical services, while at the same time increased demand for other medical services, such as COVID-19 testing and emergency services. At the beginning of the third quarter of 2020, utilization was still moderately curtailed, but rebounded to more normal levels during the quarter. Increased demand for medical services, which we are presently unable to predict the timing or magnitude, could result in a significant increase in medical care costs and related provider claims payments.

~~Also, as~~As described above in ~~“Health Plans Segment—Trends~~“Trends and Uncertainties,” we have been subject to Medicaid ~~premium actions~~risk corridors as a result of the pandemic. ~~Various~~Beginning in 2020, through September 30, 2021, various states ~~have implemented~~enacted temporary ~~premium refunds and related actions~~risk corridors in response to the reduced demand for medical services stemming from COVID-19, which ~~are resulting~~have resulted in a reduction of our medical margin. In some cases, these ~~premium actions are~~ risk corridors were

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 34

Table of Contents

retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. InBeginning in the second quarter of 2020, we have recognized ~~approximately $75 million for certain of these~~ retroactive ~~premium actions~~risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. ~~In most of those states,~~For the ~~refund period extended into the third quarter of 2020,~~three and one additional state, Michigan, enacted a premium refund mechanism in the third quarter of 2020. Consequently, we recognized an additional $88 million related to these retroactive premium actions in the third quarter of 2020, resulting in $163 million recognized in the nine months ended September 30, ~~2020.~~2021, we recognized approximately $17 million and $183 million, respectively, related to such risk corridors, primarily in the Medicaid segment.

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 41~~

~~Table of Contents~~

or further developments, which could have an adverse effect on our consolidated financial position, results of operations, or cash flows.

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.

~~The Molina Healthcare Charitable Foundation.~~ In August 2020, we announced our commitment of $150 million to fund The Molina Healthcare Charitable Foundation (the “Foundation”), an independent not-for-profit charitable foundation. We intend to make a sizable contribution to the Foundation in the fourth quarter of 2020.

CONTRACTUAL OBLIGATIONS

A summary of future obligations under our various contractual obligations and commitments as of December 31, ~~2019,~~2020, was disclosed in our 2020 Annual Report on Form ~~10-K for the year ended December 31, 2019.~~10-K.

~~Other than the financing transactions described in Notes to Consolidated Financial Statements, Note 8, “Debt,” there~~There were no significant changes to our contractual obligations and commitments outside the ordinary course of business during the nine months ended September 30, ~~2020.~~2021.

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:

•Medical claims and benefits payable. Refer to Notes to Consolidated Financial Statements, Note 7, “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~~in the nine months ended September 30, ~~2020,~~2021 there have been no significant changes to our disclosure reported in “Critical Accounting Estimates” in our 2020 Annual Report on Form ~~10-K for the year ended December 31, 2019.~~10-K.

•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~~In the nine months ended September 30, ~~2020,~~2021, there have been no significant changes to our disclosure reported in “Critical Accounting Estimates” in our 2020 Annual Report on Form 10-K.

•Business combinations, goodwill, and intangible assets, net. In the first quarter of 2021, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting structure, which is now organized by government program. The revised reporting structure reflects the reporting and review process used by our chief executive officer (who is our chief operating decision maker) to assess performance and allocate resources, and is consistent with how we currently manage the business and view the markets we serve. These reportable segments consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other. Such reportable operating segments also now constitute our reporting units in the annual assessment of goodwill impairment. Refer to Notes to Consolidated Financial Statements, Note 10, “Segments,” for a presentation of goodwill, and intangibles assets, net, by reportable segment, and “Critical Accounting Estimates,” in our 2020 Annual Report on Form 10-K, for ~~the year ended December 31, 2019.~~further information.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 35

Table of Contents

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, ~~2020,~~2021, the fair value of our fixed income investments would decrease by approximately ~~$42~~$67 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 5, “Fair Value Measurements,” and Note 6, “Investments.”

Borrowings under the Credit Agreement bear interest based, at our election, on a base rate or other defined rate, plus in each case, the applicable margin. For further information, see Notes to Consolidated Financial Statements, Note 8, “Debt.”

~~Molina Healthcare, Inc. September 30, 2020 Form 10-Q | 42~~

~~Table of Contents~~

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), 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~~nine months ended September 30, ~~2020,~~2021, 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 11, “Commitments and Contingencies.”

RISK FACTORS

Certain risks may have a material adverse effect on our business, financial condition, cash flows, results of operations, or stock price, and you should carefully consider them before making an investment decision with respect to our securities. In addition to the other information set forth in this report, you should carefully consider the risk factors ~~set forth below and those~~ discussed under the caption “Risk Factors,” in our 2020 Annual Report on Form ~~10‑K for the year ended December 31, 2019, and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.~~10-K. The risk factors ~~below, together with those~~ described in ~~the reports listed above,~~our 2020 Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows, results of operations, or stock price. In addition to the risks relating to the COVID-19 pandemic in the reports listed above, the effects of the COVID-19 pandemic may also have the effect of significantly heightening many of the other risks associated with our business.

~~The May 2020 contract award to our Kentucky Medicaid plan is the subject of a legal challenge.~~

On October 23, 2020, pursuant to the appeal of a protest denial with regard to the May 2020 Kentucky RFP awards, a court ordered the addition of a sixth health plan to the Kentucky Medicaid program for 2021. That ruling did not rescind the Medicaid contract award to our Kentucky health plan for 2021, nor did it impact the earlier novation of the Passport Medicaid contract to us. On October 27, 2020, a different health plan filed an appeal with regard to the court’s October 23rd order. The outcome of litigation and appellate proceedings is inherently unpredictable. In the event the contract award to our Kentucky health plan or the novation of the Passport Medicaid contract is challenged or overturned, the business and revenues of our Kentucky health plan may be materially affected.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 4336

Table of Contents

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 third quarter ~~ended September 30, 2020,~~of 2021, 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 that May Yet Be Purchased Under the Plans or Programs (2)			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 that May Yet Be Purchased Under the Plans or Programs (2)
July 1 - July 31	July 1 - July 31	821	$	179.12	—	$	—	July 1 - July 31	2,000	$	256.05	—	$	219,000,000
August 1 - August 31	August 1 - August 31	—	$	—	—	$	—	August 1 - August 31	—	$	—	—	$	219,000,000
September 1 - September 30	September 1 - September 30	—	$	—	—	$	500,000,000	September 1 - September 30	—	$	—	—	$	500,000,000
Total	Total	821	$	—	—			Total	2,000	$	256.05	—

_______________________

(1)During the ~~three months ended September 30, 2020,~~third quarter of 2021, we withheld ~~821~~approximately 2,000 shares of common stock, to settle employee income tax obligations, for releases of awards granted under the Molina Healthcare, Inc. 2019 Equity Incentive Plan.

(2)For further information on our stock repurchase programs, refer to Note 9, “Stockholders' Equity.”

~~(2)~~In September 2020, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This program will be funded with cash on hand and extends through December 31, 2021. The exact timing and amount of any repurchase will be determined by management based on market conditions and share price, in addition to other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. No shares were purchased under this program through October 29, 2020.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 4437

Table of Contents

INDEX TO EXHIBITS

Exhibit No.

Title

Method of Filing

~~2.1~~10.1

~~Asset Purchase~~

Amended and Restated Employment Agreement, ~~dated~~effective as of September ~~28, 2020,~~8, 2021, by and between Molina Healthcare, Inc. and Affinity Health Plan, Inc.*Joseph M. Zubretsky.

Filed as Exhibit 10.1 to registrant’s Form 8-K filed September 9, 2021.

31.1

Section 302 Certification of Chief Executive Officer

Filed herewith.

31.2

~~31.1~~

Section 302 Certification of Chief ~~Executive~~Financial Officer

Filed herewith.

~~31.2~~

~~Section 302 Certification of Chief Financial Officer~~32.1

~~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

~~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

Inline XBRL Taxonomy Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.

Filed herewith.

~~101.INS~~

~~XBRL Taxonomy Instance Document.~~

~~Filed herewith.~~

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

Filed herewith.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Filed herewith.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Filed herewith.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

Filed herewith.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

104

Cover Page Interactive Data file (formatted as Inline XBRL and embedded within Exhibit 101)

Filed herewith.


*			Certain portions of this agreement have been omitted in accordance with Item 601(b)(10) of Regulation S-K. A copy of any omitted portion will be furnished to the Securities and Exchange Commission upon request.

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 4538

Table of Contents

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:	October ~~29, 2020~~28, 2021	/s/ JOSEPH M. ZUBRETSKY
		Joseph M. Zubretsky
		Chief Executive Officer
		(Principal Executive Officer)

Dated:	October ~~29, 2020~~28, 2021	/s/ ~~THOMAS~~MARK L. ~~TRAN~~KEIM
		~~Thomas~~Mark L. ~~Tran~~Keim
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)

Molina Healthcare, Inc. September 30, ~~2020~~2021 Form 10-Q | 4639


	Fair Value		Life

	(In millions)		(Years)
Intangible asset by type:
Contract rights - member list	$	24	5	-	10
Trade name	15				16
Provider network	8				10
	$	47


	Balance Sheet Location	September 30, 2020		December 31, 2019

		(In millions)
Derivative asset:
Call option	Current assets: Prepaid expenses and other current assets	$	0	$	29
Derivative liability:
Conversion option	Current liabilities: Accounts payable, accrued liabilities and other	$	0	$	29


	RSAs	Weighted Average Grant Date Fair Value		PSUs	Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2019	447,680	$	102.41	324,078	$	101.45
Granted	334,233	125.99		187,028	123.09
Vested	(166,115)	96.19		(7,368)	68.16
Forfeited	(26,439)	114.48		(29,271)	98.72
Unvested balance, September 30, 2020	589,359	$	116.99	474,467	$	110.67


	September 30, 2020	December 31, 2019	September 30, 2019
Ending Membership by Government Program:
Medicaid	3,595,000	2,956,000	2,955,000
Medicare	113,000	101,000	102,000
Marketplace	325,000	274,000	289,000
Total	4,033,000	3,331,000	3,346,000

Ending Membership by Health Plan:
California	584,000	565,000	580,000
Florida	136,000	132,000	136,000
Illinois	282,000	224,000	224,000
Kentucky (1)	325,000	—	—
Michigan	391,000	362,000	361,000
Ohio	348,000	288,000	292,000
South Carolina	153,000	131,000	134,000
Texas	357,000	341,000	350,000
Washington	947,000	832,000	818,000
Other (2)	510,000	456,000	451,000
Total	4,033,000	3,331,000	3,346,000