MOLINA HEALTHCARE, INC. (MOH)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

Management’s discussion and analysis of financial condition and results of operations as of and for the years ended December 31, 2024 and 2023, are presented in the sections that follow. Our MD&A as of and for the year ended December 31, 2022, may be found in our 2023 Annual Report on Form 10-K, which prior disclosure is incorporated by reference herein. The following discussion and analysis does not include certain items related to the year ended December 31, 2022, including year-to-year comparisons between the year ended December 31, 2023 and the year ended December 31, 2022. For a comparison of our results of operations for the fiscal years ended December 31, 2023 and December 31, 2022, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 13, 2024.

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”). We served approximately 5.5 million members as of December 31, 2024, located across 21 states.

2024 HIGHLIGHTS

Highlights of our full-year 2024 results included the following:

•Net income of $1,179 million, or $20.42 per diluted share, compared to $1,091 million, or $18.77 per diluted share in 2023;

•Membership of 5.5 million at December 31, 2024, mainly reflecting the impact of our growth initiatives, which partially offset the impact of Medicaid redeterminations;

•Total revenue of $40.7 billion, which increased 19% compared to 2023;

•Premium revenue of $38.6 billion, which increased 19% compared to 2023;

•Consolidated medical care ratio (“MCR”) of 89.1%, compared to 88.1% in 2023;

•General and administrative expense ratio (“G&A ratio”) of 6.7%, which decreased from 7.2% in 2023;

•Investment income of $452 million, which increased 5% compared to 2023; and

•After-tax margin of 2.9%, compared to 3.2% in 2023.

Growth Initiatives

In addition to delivering strong 2024 financial results, we continued to execute on our profitable growth strategy. To recap the growth milestones achieved in 2024 and early 2025:

•Effective January 1, 2024, we closed our acquisition of Bright Health’s California Medicare business (Brand New Day and Central Health Plan of California);

•On January 1, 2024, we successfully launched our Nebraska health plan and launched our expanded California Medicaid platform, including Los Angeles county, which approximately doubled the size of our business in the state;

•Our new contracts with New Mexico started on July 1, 2024, Texas STAR+PLUS started on September 1, 2024 and Michigan started on October 1, 2024;

•Successfully defended RFPs for Medicaid contracts in Florida, Michigan, Mississippi, Texas, and Wisconsin and procured Medicare contracts in Idaho, Massachusetts, Michigan, and Ohio;

•Effective February 1, 2025, we closed on our acquisition of ConnectiCare and expect approximately $1.2 billion of revenue, mostly in our Marketplace segment.

Collectively, newly reported RFP successes and acquisitions in 2024 represent nearly $7 billion of incremental annual premium revenue, which will be partially realized in 2025, is expected to be mostly realized in 2026 and is expected to be fully realized in 2027 and 2028.

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FINANCIAL RESULTS SUMMARY

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(1)MCR represents medical care costs as a percentage of premium 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 amounted to $1,179 million, or $20.42 per diluted share in 2024, compared with net income of $1,091 million, or $18.77 per diluted share, in 2023.

Operating income was $1,707 million in 2024, compared with $1,573 million in 2023. The increase in operating income was mainly due to the impact of increased premiums and medical margin stemming from our membership growth, improved G&A expense ratio, and increased investment income, partially offset by an increase in the consolidated MCR. In addition, the 2023 results reflect a $41 million credit loss related to 2022 Marketplace risk adjustment receivables.

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PREMIUM REVENUE

Premium revenue increased $6.1 billion, or 19%, in 2024, when compared with 2023. The higher premium revenue reflects the impact of a balanced combination of the new Medicaid contract wins, acquisitions, and growth in our current footprint, partially offset by the impact of Medicaid redeterminations.

MEDICAL CARE RATIO

The consolidated MCR increased to 89.1% in 2024, compared with 88.1% in 2023, or 100 basis points, and was slightly above our long-term range. The increase is driven mainly by our Medicaid segment, mainly reflecting the continued impact of redetermination-related acuity shifts, higher utilization among our continuing population, particularly in the second half of 2024, and higher initial MCRs related to new contracts, expansion and the My Choice acquisition, partially offset by minimum MLRs and medical cost corridors, continued disciplined medical cost management and year-over-year improvement in our Medicaid and Marketplace segments. See further discussion in “Reportable Segments—Segment Financial Performance,” below.

Prior year reserve development has been favorable in 2024, but its impact on earnings has been mostly absorbed by minimum MLRs and medical cost corridors.

PREMIUM TAX REVENUE AND EXPENSES

The premium tax ratio increased to 3.7% in 2024, compared with 3.2% in 2023, due mainly to the reinstatement of the California MCO tax by the state’s Department of Health Care Services effective April 1, 2023, and changes in business mix.

INVESTMENT INCOME

Investment income increased to $452 million in 2024, compared with $394 million in 2023. The increase was primarily driven by an increase in invested assets.

OTHER REVENUE

Other revenue increased slightly to $85 million in 2024, compared with $80 million in 2023. Other revenue mainly includes service revenue associated with long-term services and supports consultative services we provide in Wisconsin.

GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSES

The G&A ratio was 6.7% in 2024, compared to 7.2% in 2023. The G&A ratio in 2024 reflects operating discipline, including labor cost management and vendor management, and the continued benefit of fixed cost leverage as we grow our business, partially offset by new business implementation costs associated with the Nebraska and California Medicaid contracts that started in January 2024 and the New Mexico Medicaid contract that started on July 1, 2024.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization was $186 million in 2024, compared with $171 million in 2023. The increase is due to impacts of the My Choice Wisconsin and Bright Health Medicare acquisitions.

OTHER OPERATING EXPENSES

Other operating expenses totaled $100 million in 2024, compared with $128 million in 2023. The change is primarily due to the $41 million credit loss on 2022 Marketplace risk adjustment receivables recorded in the third quarter of 2023. This was partially offset by increases in non-recurring costs associated with acquisitions. Other operating expenses also include service costs associated with long-term services and supports consultative services we provide in Wisconsin, as noted above.

INTEREST EXPENSE

Interest expense was $118 million in 2024, compared with $109 million in 2023. The increase is due to borrowings under the Credit Facility occurring in the third quarter of 2024 and the new $750 million 6.250% Notes due 2033 that were issued in November 2024.

INCOME TAXES

Income tax expense amounted to $410 million in 2024, or 25.8% of pretax income, compared with income tax expense of $373 million in 2023, or 25.5% of pretax income. The difference in the effective tax rate is primarily due to an increase in state and local income taxes and differences in discrete tax benefits recognized in the respective periods, net of a decrease in nondeductible expenses.

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REPORTABLE SEGMENTS

As of December 31, 2024, we served approximately 5.5 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.

We currently have reportable segments consisting 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 long-term services and supports consultative services in Wisconsin.

See "Item 1. Business,” for further description of our segments.

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, who is our chief operating decision maker, 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 16, “Segments.”

TRENDS AND UNCERTAINTIES

For a discussion of the trends, uncertainties and other developments that affected our reportable segments, refer to “Item 1. Business—Our Business,” “—Trends and Uncertainties,” “—Legislative and Political Environment,” “—Operations—Medical Management,” and “—Regulation.”

SEGMENT FINANCIAL PERFORMANCE

The following table summarizes our membership by segment as of the dates indicated:

The tables below summarize premium revenue, medical margin, and MCR by segment for the periods indicated (dollars in millions):

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Medicaid

Key factors affecting results for this segment include:

•Our growth initiatives, including acquisitions and expansion into new states, drove an increase in member months during the year, despite the impact of redeterminations, and changes in membership mix;

•Impact of redetermination, including the loss of approximately 675,000 members, and a moderate impact from the effect of acuity shifts, net of the beneficial impact of risk corridors; and

•Continued focus on managing medical costs amid higher-than-expected utilization, particularly in LTSS, pharmacy and behavioral health services.

Medicaid premium revenue increased $4.3 billion, or 16% in 2024, when compared with 2023. The higher premium revenue reflects new contract wins in Iowa (commenced in July 2023), Nebraska (commenced in January 2024), and New Mexico (commenced in July 2024), expansions in California and Texas that commenced in January 2024, and September 2024, respectively, and the My Choice acquisition that closed in September 2023. These increases were partially offset by the impact of Medicaid redetermination.

The medical margin of our Medicaid program increased $6 million in 2024, when compared with 2023. The change was driven by the impact of increased premium revenues associated with the membership growth discussed above, partially offset by an increase in the MCR, as discussed below.

The Medicaid MCR increased 160 basis points to 90.3% in 2024, from 88.7% in 2023. The increase was mainly attributable to the continued impact of redetermination-related acuity shifts, higher utilization among our continuing population, particularly in the second half of the year, and a temporal dislocation between premium rates and medical trend. Also, approximately 30 basis points of the increase is driven by the higher initial MCR associated with the start of new contracts and the My Choice acquisition, and approximately 20 basis points was due to a prior year retroactive premium rate reduction in our California business. The increase was partially offset by minimum MLR and medical cost corridors, and medical cost management. Excluding new contracts and the My Choice acquisition, our legacy Medicaid MCR for the year ended December 31, 2024 is above our long-term target range.

Medicare

Key factors affecting results for this segment include:

•Pricing and benefit design changes implemented in 2024;

•Increased utilization of LTSS benefits, high-cost drugs, and outpatient services; and

•The impact of risk-adjusted premiums that are more commensurate with the acuity of our membership.

Medicare premium revenue increased $1.4 billion, or 33%, in 2024 compared to 2023. The increase was primarily due to the Bright Health Medicare acquisition that closed on January 1, 2024, the impact of MAPD and D-SNP membership expansion and organic membership growth in existing states, and increased premiums that are more commensurate with the acuity of our population.

The medical margin for Medicare increased $215 million in 2024 compared to 2023. The increase was mainly due to the year-over-year growth in membership and premium revenues combined with the decrease in MCR discussed below.

The Medicare MCR decreased to 89.1% in 2024, from 90.7% in 2023, or 160 basis points, primarily driven by higher risk adjustment premiums that are commensurate with the acuity of our membership, pricing and benefit design changes implemented in 2024 and operational improvements, partially offset by elevated LTSS and pharmacy costs and higher outpatient utilization within our D-SNP population. The Medicare MCR for the year ended December 31, 2024 is above our long-term target range.

Marketplace

Key factors affecting results for this segment include:

•Execution of our product and pricing strategy, to achieve growth and repositioning in the metallic tier membership mix, while maintaining target margins; and

•Achievement of member risk scores and associated risk-adjusted premium that are commensurate with the health status, or acuity, of our Marketplace members.

Marketplace premium revenue increased $483 million in 2024 compared to 2023. The increase was mainly due to an increase in membership. Our Marketplace membership as of December 31, 2024, amounted to 403,000 members, representing an increase of 122,000 members compared to December 31, 2023, which is in line with our

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product and pricing strategy to achieve growth, while maintaining target margins in this segment, and membership gained from redeterminations this year.

The Marketplace medical margin increased $118 million in 2024, primarily due to the growth in premiums and margin associated with the higher membership and the impact of MCR changes discussed below.

The Marketplace MCR was 75.4% in 2024 and 75.3% in 2023. The MCR in each year reflects our product and pricing strategy to achieve growth and maintain target margins, changes in membership mix, risk adjustment premiums that are more commensurate with the acuity of our membership, and continued operational improvements. Our 2024 Marketplace MCR was well below our long-term target range.

Other

The Other segment includes service revenues and costs associated with the long-term services and supports consultative services we provide in Wisconsin, and also includes certain corporate amounts not allocated to the Medicaid, Medicare, or Marketplace segments. Such amounts were immaterial to our consolidated results of operations for 2024 and 2023.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

LIQUIDITY

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

We maintain liquidity at two levels: 1) the regulated health plan subsidiaries; and 2) the parent company.

Our regulated health plan subsidiaries’ primary liquidity requirements include payment of medical claims and other health care services; payment of certain settlements with our state and federal customers, such as minimum medical loss ratio and risk corridors and Marketplace risk transfers on behalf of CMS; general and administrative costs directly incurred or paid through an administrative services agreement to the parent company; and federal tax payments to the parent company under an intercompany tax sharing agreement. Our regulated health plan subsidiaries meet their liquidity needs by generating cash flows from operating activities, primarily from premium revenue; cash flows from investing activities, including investment income and sales of investments; and capital contributions received from our parent company.

Our regulated health plan subsidiaries are each subject to applicable state regulations that, among other things, require the maintenance of minimum levels of capital and surplus. We continue to maintain levels of aggregate excess statutory capital and surplus in our regulated health plan subsidiaries that we believe are appropriate. See further discussion under “Regulatory Capital and Dividend Restrictions” below. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. The regulated health plan subsidiaries paid dividends to the parent company amounting to $997 million in 2024 and $705 million in 2023.

Parent company liquidity requirements generally consist of payment of administrative costs not directly incurred by our regulated operations, including, but not limited to, staffing costs, lease payments, branding and certain information technology services; capital contributions paid to our regulated health plan subsidiaries, including funding for newer health plans; capital expenditures; debt service; funding for common stock purchases, acquisitions and other growth-related activities; and federal tax payments. The parent company contributed capital of $490 million and $221 million in 2024 and 2023, respectively, to our regulated health plan subsidiaries to satisfy statutory capital and surplus requirements. The higher contributions in 2024 were mainly attributed to fund our California, Iowa, Nebraska, and Wisconsin health plans. Our parent company normally meets its liquidity requirements from administrative services fees earned under administrative services agreements; dividends received from our regulated subsidiaries; federal tax payments collected from the regulated subsidiaries; proceeds received from the issuance of debt and equity securities; and cash flows from investing activities, including investment income and sales of investments.

Cash, cash equivalents and investments at the parent company amounted to $445 million and $742 million as of December 31, 2024, and 2023, respectively. The decrease in 2024 was primarily due to funding of our Bright Health Medicare acquisition for $441 million and the purchase of approximately 3.1 million shares of our stock for $1.0 billion in the third and fourth quarter of 2024, partially offset by the $740 million net proceeds from issuing the new 6.250% Notes, net inflows from dividends received from and capital contributions made to our regulated health plan subsidiaries, and the timing of corporate payments.

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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 15 years, or less than 15 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.

The overall rating of our portfolio is 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, U.S. Treasury securities, and corporate debt securities; we have the ability to hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets.

Cash Flow Activities

Our cash flows are summarized as follows:

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 was $644 million in 2024, compared with $1,662 million in 2023. The $1,018 million decrease in 2024 cash flow was due to timing differences in government receivables and payables, including the receipt of Medicare and Medicaid 2024 premium prepayments in the 2023 period, and increased risk corridor settlement activity in 2024.

Investing Activities

Net cash used in investing activities was $464 million in 2024, compared with $744 million in 2023. The change in cash flow was primarily due to a $295 million net cash outflow related to the Bright Health Medicare acquisition in January 2024, and $49 million for final purchase consideration paid for the My Choice Wisconsin acquisition, offset by the net activity of proceeds and purchases of investments, which were net purchases of $21 million in 2024 and net purchases of $661 million in 2023.

Financing Activities

Net cash used in financing activities was $347 million in 2024, compared with $58 million in 2023, a decrease in year-over-year cash flow of $289 million. In 2024, financing activity included $740 million of net proceeds from the issuance of the $750 million 6.250% Notes due 2033, offset by common stock purchases of $1,000 million and $300 million in gross borrowings and payments under the Credit Facility. In 2024 and 2023, cash outflows included $57 million and $60 million, respectively, for common stock withheld to settle employee tax obligations.

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FINANCIAL CONDITION

We believe that our cash resources, borrowing capacity available under our 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, as of December 31, 2024, our working capital was $4.9 billion compared with $4.4 billion as of December 31, 2023. At December 31, 2024, our cash and investments amounted to $9.3 billion, compared with $9.4 billion of cash and investments at December 31, 2023. A significant portion of our portfolio is held in cash and cash equivalents and we do not anticipate the fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position since we intend to hold our securities to maturity. Net unrealized losses on our investments classified as current and available for sale decreased to $75 million at December 31, 2024 compared to $108 million at December 31, 2023. We have determined that the unrealized losses primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers.

Because of the statutory restrictions that inhibit the ability of our health plan subsidiaries to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by our unregulated parent. For more information, see the “Liquidity” discussion presented above.

Regulatory Capital and Dividend Restrictions

Each of our regulated, 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 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 requirement for these subsidiaries was estimated to be approximately $2.6 billion at December 31, 2024 and $2.3 billion at December 31, 2023. The aggregate capital and surplus of our wholly owned subsidiaries was in excess of these minimum capital requirements as of both dates.

Under applicable regulatory requirements, the amount of dividends that may be paid by our wholly owned subsidiaries without prior approval by regulatory authorities as of December 31, 2024, was approximately $400 million in the aggregate. 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 December 31, 2024, management believes that our regulated 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 minimum statutory capital and surplus requirements.

Capital Structure

In October 2024, our board of directors authorized the purchase of up to $1 billion of our common stock. This new program supersedes the stock purchase program previously approved by our board of directors in September 2023 and extends through December 31, 2025.

As debt held by the parent company comes due, we typically engage in a new private offering of debt to retire and replace the prior issuance. In addition, on November 18, 2024 (the “Settlement Date”), we completed a private offering of $750 million aggregate principal amount of our 6.250% Senior Notes due 2033 (the “6.250% Notes”) pursuant to an indenture, dated as of the Settlement Date with U.S. Bank Trust Company and National Association, as trustee. The 6.250% Notes bear interest at a rate of 6.250% per year. Interest on the 6.250% Notes is payable semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2025. Interest accrues from the Settlement Date. The 6.250% Notes will mature on January 15, 2033.

For several years we saw a continued decline in interest rates, which benefited our overall cost of capital during that time. However, interest rates have increased since we issued our 3.875% Notes due 2032 in 2021, as we experienced with our most recent issuance of our 6.250% Notes in 2024. Accordingly, future refinancing may occur at a higher rate than those we have achieved historically. This would increase our cost of capital in the future or may cause us to pursue alternative financing sources, should the need arise.

We are not a party to any off-balance sheet financing arrangements.

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Debt Ratings

Each of our senior notes is rated “BB” by Standard & Poor’s, and “Ba2” by Moody’s Investor Service, Inc. A downgrade in our ratings could adversely affect our borrowing capacity and increase our borrowing costs.

Financial Covenants

Our Credit 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.

In addition, the indentures governing each of our outstanding 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 December 31, 2024, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt.

FUTURE SOURCES AND USES OF LIQUIDITY

Future Sources

Our 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.

Dividends from Subsidiaries. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plans is generally paid in the form of dividends to our unregulated parent company to be used for general corporate purposes. For more information on our regulatory capital requirements and dividend restrictions, refer to Notes to Consolidated Financial Statements, Note 15, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions,” and Note 17, “Condensed Financial Information of Registrant—Note C - Dividends and Capital Contributions.”

Credit Agreement Borrowing Capacity. On September 20, 2024, we entered into a Second Amendment to our Credit Agreement, which, among other things, increased available commitments under our revolving credit facility (“Credit Facility”) to $1.25 billion, and extended the termination date of lending commitments to September 20, 2029. The Credit Agreement also 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 $800 million, plus an unlimited amount of such term loans as long as we maintain a minimum consolidated net leverage ratio. As of December 31, 2024, we had available borrowing capacity of $1.25 billion under the Credit Agreement. See further discussion in the Notes to Consolidated Financial Statements, Note 11, “Debt.”

Future Uses

Common Stock Purchases. In October 2024, our board of directors authorized the purchase of up to $1 billion of our common stock. This new program extends through December 31, 2025 and supersedes the stock purchase program previously approved by our board of directors in September 2023. The exact timing and amount of any repurchase is determined by management based on market conditions and share price, in addition to other factors, and repurchases generally will be made in accordance with the volume, price, and timing parameters under Rule 10b-18 of the Securities Exchange Act of 1934, as amended. As of February 11, 2025, $500 million remained available to purchase our common stock under this program through December 31, 2025. See further information in the Notes to Consolidated Financial Statements, Note 13, “Stockholders' Equity.”

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, 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 on our acquisitions, refer to the Notes to Consolidated Financial Statements, Note 4, “Business Combinations.”

Connecticut Acquisition—Marketplace and Medicare. Effective February 1, 2025, we closed on our acquisition of 100% of the issued and outstanding capital stock of ConnectiCare Holding Company, Inc. The purchase price for the transaction was $350 million.

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 minimum statutory capital requirements.

The Molina Healthcare Charitable Foundation. In 2020, we announced our formation of The Molina Healthcare Charitable Foundation (the “Foundation”), an independent not-for-profit charitable foundation. We have contributed

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$20 million to the Foundation on a cumulative basis as of December 31, 2024. Since 2021, the Molina Healthcare Charitable Foundation has funded over 800 grants to local community organizations in 27 states that address social determinants of health, disaster relief, behavioral health, maternal child health, and other health-related concerns that our afflicting our communities in need.

Contractual Obligations. We are party to various contractual obligations that we will be required to satisfy over the short and long term. The majority are discussed in the Notes to Consolidated Financial Statements and primarily include the following:

•Medical claims and benefits payable. See Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” and Note 10, “Medical Claims and Benefits Payable,” for further detail.

•Amounts due government agencies. See Notes to Consolidated Financial Statements, Notes 2, “Significant Accounting Policies,” for further detail.

•Debt obligations. See Notes to Consolidated Financial Statements, Note 11, “Debt,” for further detail of our long-term debt and the timing of expected future payments. Interest payments are paid semi-annually.

•Leases. See Notes to Consolidated Financial Statements, Note 8, “Leases,” for further detail of our finance and operating lease obligations and the timing of expected future payments.

Some items are based on management’s estimates and assumptions about obligations, including duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the contractual obligations we will actually pay in future periods may vary. Additionally, we have a variety of other contractual agreements related to acquiring services used in our operations. However, we believe these other agreements do not contain material non-cancelable commitments.

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, and some differences could be material. Our most significant accounting estimates, which include a higher degree of judgment and/or complexity, include the following:

•Medical costs, claims and benefits payable. See discussion below, and refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” and Note 10, “Medical Claims and Benefits Payable” for more information.

•Premium Revenue Recognition and Amounts Due Government Agencies: Risk Adjustment. For a discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

•Business Combinations, and Goodwill and intangible assets, net. For a comprehensive discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” Note 4, “Business Combinations,” and Note 9, “Goodwill and Intangible Assets, Net.”

MEDICAL CARE COSTS, MEDICAL CLAIMS AND BENEFITS PAYABLE

Medical care costs are recognized in the period in which services are provided and include fee-for-service claims, pharmacy benefits, capitation payments to providers, and various other medically-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date (“IBNP”). Pharmacy benefits represent payments for members' prescription drug costs, net of rebates from drug manufacturers. We estimate pharmacy rebates based on historical and current utilization of prescription drugs and contractual provisions. Capitation payments represent monthly contractual fees paid to providers, who are responsible for providing medical care to members, which could include medical or ancillary costs like dental, vision and other supplemental health benefits. Such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates. Other medical care costs include all medically-related administrative costs, amounts due to providers pursuant to risk-sharing or other incentive arrangements, provider claims, claim overpayment recoveries, and other healthcare expenses. Examples of medically-related administrative costs include expenses relating to health education, quality assurance, case management, care coordination, disease management, and 24-hour on-call nurses. Additionally, we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability.

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The following table illustrates consolidated medical care costs by type for the periods indicated:

Medical claims and benefits payable consist mainly of fee-for-service IBNP, unpaid pharmacy claims, capitation costs, other medical costs, including amounts payable to providers pursuant to risk-sharing or other incentive arrangements, and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk. IBNP includes the costs of claims incurred as of the balance sheet date which have been reported to us, and our best estimate of the cost of claims incurred but not yet reported to us. When more complete claims payment information and healthcare cost trend data becomes available, we reflect changes in these estimates as an increase or decrease to medical care costs in the consolidated results of operations in the period in which they are determined.

The estimation of the IBNP liability requires a significant degree of judgment in applying actuarial methods, determining the appropriate assumptions and considering numerous factors. Of those factors, we consider estimated completion factors (measures the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical payment patterns) and the assumed healthcare cost trend (the year-over-year change in per-member per-month medical care costs) to be the most critical assumptions. Other relevant factors also include, but are not limited to, healthcare service utilization trends, claim inventory levels, changes in membership, product mix, seasonality, benefit changes or changes in fee schedules, provider contract changes, prior authorizations and the incidence of catastrophic or pandemic cases.

For claims incurred more than three months before the financial statement date, we mainly use estimated completion factors to estimate the ultimate cost of those claims. Completion factors measure the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical claims payment patterns. We analyze historical claims payment patterns by comparing claim incurred dates to claim payment dates to estimate completion factors. The estimated completion factors are then applied to claims paid through the financial statement date to estimate the ultimate claims cost for a given month’s incurred claim activity. The difference between the estimated ultimate claims cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the financial statement date and is included in our IBNP liability.

For claims incurred within three months before the financial statement date, actual claims paid are a less reliable measure of our ultimate cost since a large portion of medical claims are not submitted to us until several months after services have been provided. Accordingly, we estimate our IBNP liability for claims incurred during these months based on a blend of estimated completion factors and assumed medical care cost trend. The assumed medical care cost trend represents the year-over-year change in per-member per-month medical care costs, which can be affected by many factors including, but not limited to, our ability and practices to manage medical and pharmaceutical costs, changes in level and mix of services utilized, mix of benefits offered, including the impact of co-pays and deductibles, changes in medical practices, changes in member demographics, catastrophes and epidemics, and other relevant factors.

Actuarial standards of practice generally require a level of confidence such that our overall best estimate of the IBNP liability has a greater probability of being adequate versus being insufficient, where the liability is sufficient to account for moderately adverse conditions. Accordingly, our reserving practice is to consistently recognize the actuarial best estimate including a provision for moderately adverse conditions for each current period. This provision is reported as part of “Components of medical care costs related to: Current year” in the table presented in Note 10, “Medical Claims and Benefits Payable.” Adverse conditions are situations that may cause actual claims to be higher than the otherwise estimated value of such claims at the time of the estimate, such as changes in the magnitude or severity of claims, uncertainties related to our entry into new geographical markets or provision of

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services to new populations, changes in state-controlled fee schedules, and modifications or upgrades to our claims processing systems and practices. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.

When subsequent actual claims payments are less than we estimated, we recognize a benefit for favorable prior period development that is reported as part of “Components of medical care costs related to: Prior years” in the table presented in Note 10. Assuming stability in the size of our membership, the use of this consistent methodology, during any given period, usually results in the replenishment of reserves at a level that generally offsets the benefit of favorable prior period development in that period. In the case of material growth or decline of membership, replenishment can exceed or fall short of the favorable development, assuming all other factors remain unchanged.

Because of the significant degree of judgment involved in estimation of our IBNP liability, there is considerable variability and uncertainty inherent in such estimates. The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2024 that would result if we change our completion factors for the fourth through the twelfth months preceding December 31, 2024, by the percentages indicated. A reduction in the completion factor results in an increase in medical claims liabilities. Dollar amounts are in millions.

The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2024 that would result if we alter our assumed medical care cost trend factors by the percentages indicated. An increase in the PMPM costs results in an increase in medical claims liabilities. Dollar amounts are in millions.

There are many related factors working in conjunction with one another that determine the accuracy of our estimates, some of which are qualitative in nature rather than quantitative. Therefore, we are seldom able to quantify the impact that any single factor has on a change in estimate. Given the variability inherent in the reserving process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” for a discussion of recent accounting pronouncements that affect us.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

Management’s discussion and analysis of financial condition and results of operations as of and for the years ended December 31, 2023 and 2022, are presented in the sections that follow. Our MD&A as of and for the year ended December 31, 2021, may be found in our 2022 Annual Report on Form 10-K, which prior disclosure is incorporated by reference herein. The following discussion and analysis does not include certain items related to the year ended December 31, 2021, including year-to-year comparisons between the year ended December 31, 2022 and the year ended December 31, 2021. For a comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 13, 2022.

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”). We served approximately 5.0 million members as of December 31, 2023, located across 20 states.

2023 HIGHLIGHTS

Highlights of our full-year 2023 results included the following:

•Net income of $1,091 million, or $18.77 per diluted share, compared to $792 million, or $13.55 per diluted share in 2022;

•Membership of 5.0 million at December 31, 2023, mainly reflects the impact of our growth initiatives, which partially offset the impact of Medicaid redeterminations;

•Total revenue of $34.1 billion, which increased 7% compared to 2022;

•Premium revenue of $32.5 billion, which increased 5% compared to 2022;

•Consolidated medical care ratio (“MCR”) of 88.1%, compared to 88.0% in 2022;

•General and administrative expense ratio (“G&A ratio”) of 7.2%, equal to 7.2% in 2022;

•Investment income of $394 million, which more than doubled compared to 2022; and

•After-tax margin of 3.2%, which improved compared to 2.5% in 2022.

Growth Initiatives

In addition to delivering strong 2023 financial results, we continued to execute on our profitable growth strategy. To recap the growth milestones achieved in 2023 and early 2024:

•In January, we successfully re-procured our contract in Texas for the state’s STAR+PLUS program, retaining all eight regions and expecting to grow our market share;

•In July, we successfully launched our Iowa Medicaid plan which we won in a highly competitive process in late 2022;

•In August, we announced that we were awarded a contract to once again serve Medicaid beneficiaries in the state of New Mexico;

•In September, we closed on the My Choice Wisconsin acquisition, further expanding on our market leading LTSS franchise;

•Effective January 1, 2024, we closed our acquisition of Bright Health’s California Medicare business (Brand New Day and Central Health Plan of California);

•On January 1, 2024, we successfully launched our Nebraska health plan; and finally,

•On January 1, 2024, we launched our expanded California Medicaid platform, including Los Angeles county, which approximately doubled the size of our business in the state.

Collectively, these acquisitions and requests for proposal (“RFP”) successes represent $7 billion of annual premium, which was partially realized in 2023, is expected to be mostly realized in 2024 and is expected to be fully realized in 2025.

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FINANCIAL RESULTS SUMMARY

__________________

(1)MCR represents medical care costs as a percentage of premium 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 amounted to $1,091 million, or $18.77 per diluted share in 2023, compared with net income of $792 million, or $13.55 per diluted share, in 2022.

Operating income was $1,573 million in 2023, compared with $1,173 million in 2022. The increase in operating income was mainly due to higher premium revenues and medical margin, increased investment income, and the impact of the real estate impairment recognized in 2022.

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PREMIUM REVENUE

Premium revenue increased $1.6 billion, or 5%, in 2023, when compared with 2022, driven by the impact of our growth initiatives and changes in business and membership mix in our Medicaid and Medicare segments, which partially offset the impacts of Medicaid redetermination and the expected decline in the Marketplace segment.

MEDICAL CARE RATIO

The consolidated MCR increased to 88.1% in 2023, compared with 88.0% in 2022. The results include an increase in the Medicaid and Medicare segments, including a modest acuity impact from Medicaid redetermination and the impact of changes in business mix, partially offset by certain rate actions, a decrease in the Marketplace MCR, and continued strong operating performance and medical cost management. See further discussion in “Reportable Segments—Segment Financial Performance,” below.

Prior year reserve development has been favorable for 2023, but its impact on earnings has been mostly absorbed by minimum MLRs and medical cost corridors.

PREMIUM TAX REVENUE AND EXPENSES

The premium tax ratio increased to 3.2% in 2023, compared with 2.7% in 2022, due mainly to the reinstatement of the California managed care organization (“MCO”) tax by the state’s Department of Health Care Services in the fourth quarter of 2023, on a retroactive basis effective April 1, 2023. Accordingly, we recorded $376 million of premium tax expense and corresponding premium tax revenue in the fourth quarter of 2023. The California MCO tax was previously in effect for the entire year ended 2022.

INVESTMENT INCOME

Investment income increased to $394 million in 2023, compared with $143 million in 2022. The increase was mainly driven by higher levels of invested assets and higher interest rates.

OTHER REVENUE

Other revenue increased slightly to $80 million in 2023, compared with $75 million in 2022. Other revenue mainly includes service revenue associated with long-term services and supports consultative services we provide in Wisconsin.

GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSES

The G&A ratio was 7.2% in 2023, which is equal to 7.2% in 2022. The G&A ratio in 2023 reflects deployment costs for new business implementation associated with the Iowa Medicaid contract win that started in July 2023, and the Nebraska and California Medicaid contract wins that started in January 2024, and was partially offset by the benefits of scale produced by our growth and continued disciplined cost management.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization was $171 million in 2023, compared with $176 million in 2022. The decrease was due to the impairment discussed below offset by intangible assets recorded from recent acquisitions.

IMPAIRMENT

In 2022, we recognized an impairment of $208 million on right-of-use (“ROU”) lease assets and related property and equipment in connection with the reduction in leased space to accommodate the move to a permanent remote work environment. Approximately $192 million of the impairment is directly associated with the reduction in leased space used in our business operations. We assessed ROU assets for impairment based on a valuation and recoverability analysis, which was determined with the assistance of a third-party real estate specialist. The remaining $16 million of the impairment relates to leasehold improvements and other property and equipment associated with the reduction in leased space.

OTHER OPERATING EXPENSES

Other operating expenses totaled $128 million in 2023, compared with $58 million in 2022. The increase in 2023 reflects a $41 million credit loss on 2022 Marketplace risk adjustment receivables due to the insolvency of an issuer in the Texas risk pool, and expense related to litigation dating back to 2013. See Notes to Consolidated Financial Statements, Note 15, “Commitments and Contingencies,” for additional information. Other operating expenses also include service costs associated with long-term services and supports consultative services we provide in Wisconsin, as noted above.

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INTEREST EXPENSE

Interest expense was $109 million in 2023, compared with $110 million in 2022.

INCOME TAXES

Income tax expense amounted to $373 million in 2023, or 25.5% of pretax income, compared with income tax expense of $271 million in 2022, or 25.5% of the pretax income.

REPORTABLE SEGMENTS

As of December 31, 2023, we served approximately 5.0 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.

We currently have reportable segments consisting 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 long-term services and supports consultative services in Wisconsin.

See "Item 1. Business,” for further description of our segments.

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 16, “Segments.”

TRENDS AND UNCERTAINTIES

For a discussion of the trends, uncertainties and other developments that affected our reportable segments, refer to “Item 1. Business—Our Business,” “—Trends and Uncertainties,” “—Legislative and Political Environment,” “—Operations—Medical Management,” and “—Regulation.”

SEGMENT FINANCIAL PERFORMANCE

The following table summarizes our membership by segment as of the dates indicated:

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The tables below summarize premium revenue, medical margin, and MCR by segment for the periods indicated (dollars in millions):

Medicaid

Key factors affecting results for this segment include:

•Our growth initiatives, including acquisitions and expansion into new states, drove an increase in member months during the year, despite the impact of redeterminations, and changes in membership mix;

•Impact of redetermination, including the loss of approximately 500,000 members, and a moderate impact from the effect of acuity shifts, net of the beneficial impact of risk corridors; and

•Improved operating performance, including medical cost management, and prospective and retrospective rates.

Medicaid premium revenue increased $1.5 billion, or 6% in 2023, when compared with 2022. The increase was mainly due to the impact of our growth initiatives, changes in business and membership mix, and the beneficial impact of risk corridors in several states. We benefited from membership growth related to the suspension of redeterminations through the end of the first quarter of 2023. Additionally, membership increased due to the AgeWell acquisition that closed in the fourth quarter of 2022, the commencement of the Iowa Medicaid contract in July 2023, and the impact from the My Choice Wisconsin acquisition that closed on September 1, 2023. These increases were partially offset by the net membership impact of redetermination. By the end of the third quarter of 2023, all states within our Medicaid footprint had begun disenrolling members, which is expected to continue through the first half of 2024.

The medical margin of our Medicaid program decreased $8 million in 2023, when compared with 2022. The year-over-year change was driven by an increase in MCR, partially offset by the increased premium revenues discussed above.

The Medicaid MCR increased 70 basis points to 88.7% in 2023, from 88.0% in 2022. The increase was mainly attributable to changes in business and membership mix, including acquisitions and commencement of the Iowa contract, and a modest acuity impact from redetermination, partially offset by prospective and retrospective rates, the beneficial impact of risk corridor offsets in several states, and improved operating performance. The Medicaid MCR for the year ended December 31, 2023 is consistent with our long-term target range.

Medicare

Key factors affecting results for this segment include:

•Increased utilization of supplemental benefits, in-home services, and high-cost drugs;

•Our continued expansion in MAPD and D-SNP membership; and

•The impact of lower risk-adjusted premiums associated with the new MAPD and D-SNP members, partially offset by higher risk scores on renewing members.

Medicare premium revenue increased $384 million, or 10%, in 2023 compared to 2022. The increase was primarily due to the impact of MAPD and D-SNP membership expansion, including organic membership growth in existing states and the closing of My Choice Wisconsin on September 1, 2023.

The medical margin for Medicare decreased $49 million in 2023 compared to 2022. The year-over-year decrease was mainly due to the increase in MCR discussed below, partially offset by the increase in the premium revenues.

The Medicare MCR increased to 90.7% in 2023, from 88.5% in 2022, or 220 basis points. The MCR increase was primarily driven by increased utilization of supplemental benefits, in-home services, and high-cost drugs, and the impact of lower risk-adjusted premiums associated with new MAPD and D-SNP members, partially offset by higher

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risk scores on renewing members that more closely reflect the acuity of our membership. The Medicare MCR for the year ended December 31, 2023 is above our long-term target range.

Marketplace

Key factors affecting results for this segment include:

•Execution of our product and pricing strategy, which resulted in an overall reduction in membership, repositioning in the metallic tier membership mix, and returning the business to target margins; and

•Achievement of member risk scores and associated risk-adjusted premium that are commensurate with the health status, or acuity, of our Marketplace members.

Marketplace premium revenue decreased $238 million in 2023 compared to 2022. The decrease was mainly due to an expected decrease in membership in line with our product and pricing strategy, partially offset by an increase in premium revenue PMPM. Our Marketplace membership as of December 31, 2023, amounted to 281,000 members, representing a decrease of 67,000 members compared to December 31, 2022. The increase in premium revenue PMPM was due to higher silver metal tier product mix consistent with the product and pricing strategy and higher risk adjustment premiums.

The Marketplace medical margin increased $209 million in 2023, primarily due to the decrease in MCR discussed below, partially offset by the decrease in membership and premiums.

The Marketplace MCR decreased to 75.3% in 2023, compared to 87.2% in 2022, or 1,190 basis points. The decrease in 2023 resulted mainly from our product and pricing strategy to achieve our target margins, including higher risk adjustment premium on silver metal tier and renewal members, commensurate with the acuity profile of those members. In addition, the comparison reflects a favorable change in the 2022 risk adjustment payable recognized in 2023 compared to an unfavorable change in the 2021 risk adjustment payable recognized in 2022. Silver metal tier products incur less MCR seasonality than bronze metal tier products due to lower deductibles. These impacts were partially offset by changes in membership mix discussed above. Our 2023 Marketplace MCR was well below our long-term target range.

Other

The Other segment includes service revenues and costs associated with the long-term services and supports consultative services we provide in Wisconsin, and also includes certain corporate amounts not allocated to the Medicaid, Medicare, or Marketplace segments. Such amounts were immaterial to our consolidated results of operations for 2023 and 2022.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

LIQUIDITY

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

We maintain liquidity at two levels: 1) the regulated health plan subsidiaries; and 2) the parent company.

Our regulated health plan subsidiaries’ primary liquidity requirements include payment of medical claims and other health care services; payment of certain settlements with our state and federal customers, such as minimum medical loss ratio and risk corridors and Marketplace risk transfers on behalf of CMS; general and administrative costs directly incurred or paid through an administrative services agreement to the parent company; and federal tax payments to the parent company under an intercompany tax sharing agreement. Our regulated health plan subsidiaries meet their liquidity needs by generating cash flows from operating activities, primarily from premium revenue; cash flows from investing activities, including investment income and sales of investments; and capital contributions received from our parent company.

Our regulated health plan subsidiaries are each subject to applicable state regulations that, among other things, require the maintenance of minimum levels of capital and surplus. We continue to maintain levels of aggregate excess statutory capital and surplus in our regulated health plan subsidiaries that we believe are appropriate. See further discussion under “Regulatory Capital and Dividend Restrictions” below. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. The regulated health plan subsidiaries paid dividends to the parent company amounting to $705 million in 2023 and $668 million in 2022.

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Parent company liquidity requirements generally consist of payment of administrative costs not directly incurred by our regulated operations, including, but not limited to, staffing costs, lease payments, branding and certain information technology services; capital contributions paid to our regulated health plan subsidiaries, including funding for newer health plans; capital expenditures; debt service; funding for common stock purchases, acquisitions and other growth-related activities; and federal tax payments. The parent company contributed capital of $221 million and $159 million in 2023 and 2022, respectively, to our regulated health plan subsidiaries to satisfy statutory capital and surplus requirements. The higher contributions in 2023 were mainly attributed to fund growth in our Wisconsin and Iowa health plans. Our parent company normally meets its liquidity requirements from administrative services fees earned under administrative services agreements; dividends received from our regulated subsidiaries; federal tax payments collected from the regulated subsidiaries; proceeds received from the issuance of debt and equity securities; and cash flows from investing activities, including investment income and sales of investments.

Cash, cash equivalents and investments at the parent company amounted to $742 million and $375 million as of December 31, 2023, and 2022, respectively. The increase in 2023 was primarily due to the dividends received from our regulated health plan subsidiaries, partially offset by the timing of corporate payments, capital contributions to regulated health plan subsidiaries and net cash paid for acquisitions. On January 1, 2024, we closed on our acquisition of 100% of the issued and outstanding capital stock of Brand New Day and Central Health Plan of California for $441 million. See Notes to Consolidated Financial Statements, Note 4, “Business Combinations,” for further information.

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 15 years, or less than 15 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.

The overall rating of our portfolio is A+. 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, U.S. Treasury securities, and corporate debt securities; we have the ability to hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets.

Cash Flow Activities

Our cash flows are summarized as follows:

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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 was $1,662 million in 2023, compared with $773 million in 2022. The $889 million increase in 2023 cash flow was due to the growth in operations and net earnings from organic and new RFP starts and acquisitions, accompanied by the net impact of timing differences in government receivables and payables.

Investing Activities

Net cash used in investing activities was $744 million in 2023, compared with $790 million in 2022. The change in cash flow was primarily due to the net activity of proceeds and purchases of investments, which were net purchases of $661 million in 2023 and net purchases of $515 million in 2022. In 2023 and 2022, net cash outflow related to acquisitions was $3 million and $134 million, respectively.

Financing Activities

Net cash used in financing activities was $58 million in 2023, compared with $441 million in 2022, an increase in year-over-year cash flow of $383 million. In 2023, cash outflows included $60 million for common stock withheld to settle employee tax obligations. In 2022, cash outflows included common stock purchases of $400 million and $54 million for common stock withheld to settle employee tax obligations. Additionally, we paid $20 million in 2022 to settle contingent consideration liabilities.

FINANCIAL CONDITION

We believe that our cash resources, borrowing capacity available under our 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, as of December 31, 2023, our working capital was $4.4 billion compared with $3.2 billion as of December 31, 2022. At December 31, 2023, our cash and investments amounted to $9.4 billion, compared with $7.7 billion of cash and investments at December 31, 2022. A significant portion of our portfolio is held in cash and cash equivalents and we do not anticipate the fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position since we intend to hold our securities to maturity. Net unrealized losses on our investments classified as current and available for sale decreased to $108 million at December 31, 2023 compared to $210 million at December 31, 2022. We have determined that the unrealized losses primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers.

Because of the statutory restrictions that inhibit the ability of our health plan subsidiaries to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by our unregulated parent. For more information, see the “Liquidity” discussion presented above.

Regulatory Capital and Dividend Restrictions

Each of our regulated, 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 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 requirement for these subsidiaries was estimated to be approximately $2.3 billion at both December 31, 2023 and December 31, 2022. The aggregate capital and surplus of our wholly owned subsidiaries was in excess of these minimum capital requirements as of both dates.

Under applicable regulatory requirements, the amount of dividends that may be paid by our wholly owned subsidiaries without prior approval by regulatory authorities as of December 31, 2023, was approximately $380 million in the aggregate. The subsidiaries may pay dividends over this amount, but only after approval is granted by the regulatory authorities.

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Based on our cash and investments balances as of December 31, 2023, management believes that our regulated 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 minimum statutory capital and surplus requirements.

Capital Structure

In September 2023, our board of directors authorized the purchase of up to $750 million of our common stock. This new program supersedes the stock purchase program previously approved by our board of directors in November 2022 and extends through December 31, 2024.

As debt held by the parent company comes due, we typically engage in a new private offering of debt to retire and replace the prior issuance. For several years we saw a continued decline in interest rates, which benefited our overall cost of capital during that time. However, interest rates have increased since we issued our 3.875% Notes due 2032 in 2021. Accordingly, future refinancing may occur at a higher rate than those we have achieved historically. This would increase our cost of capital in the future or may cause us to pursue alternative financing sources, should the need arise.

We are not a party to any off-balance sheet financing arrangements.

Debt Ratings

Each of our 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.

In addition, the indentures governing each of our outstanding 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 December 31, 2023, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt.

FUTURE SOURCES AND USES OF LIQUIDITY

Future Sources

Our 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.

Regulatory Developments. Excluding acquisitions and our exit from Puerto Rico, we estimate we added approximately one million 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. The Consolidated Appropriations Act of 2023 authorized states to resume redeterminations and terminate coverage for ineligible enrollees starting on April 1, 2023, irrespective of the status of the PHE. Consequently, during the third quarter of 2023, all states in which we operate had begun disenrolling members. In 2023, we estimate we lost approximately 500,000 members due to redeterminations, offset by new enrollment and expect to lose an additional 100,000 members in 2024. Given the high number of procedural terminations and increasing interventions by CMS and various states, we expect reconnects will likely continue, decreasing currently reported losses. Although the medical cost profile of members who have been disenrolled is more favorable than the Medicaid segment average, when combined with the beneficial impact of corridor offsets in several states, our Medicaid MCR for the year ended December 31, 2023 was within our expectations. Based on the experience to date, we expect that we will ultimately retain approximately 40% of the membership gained since March 31, 2020.

Dividends from Subsidiaries. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plans is generally paid in the form of dividends to our unregulated parent company to be used for general corporate purposes. For more information on our regulatory capital requirements and dividend restrictions, refer to Notes to Consolidated Financial Statements, Note 15, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions,” and Note 17, “Condensed Financial Information of Registrant—Note C - Dividends and Capital Contributions.”

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Credit Agreement Borrowing Capacity. As of December 31, 2023, we had available borrowing capacity of $1 billion under the Credit Facility. 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 we maintain a minimum consolidated net leverage ratio. See further discussion in the Notes to Consolidated Financial Statements, Note 11, “Debt.”

Future Uses

Common Stock Purchases. In September 2023, our board of directors authorized the purchase of up to $750 million of our common stock. This new program supersedes the stock purchase program previously approved by our board of directors in November 2022 and extends through December 31, 2024. The exact timing and amount of any repurchase 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. As of February 13, 2024, $750 million remained available to purchase our common stock under this program through December 31, 2024. See further information in the Notes to Consolidated Financial Statements, Note 13, “Stockholders' Equity.”

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, 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 on our acquisitions, refer to the Notes to Consolidated Financial Statements, Note 4, “Business Combinations.”

On January 1, 2024, we closed on our acquisition of 100% of the issued and outstanding capital stock of Brand New Day and Central Health Plan of California for $441 million.

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 minimum statutory capital requirements.

The Molina Healthcare Charitable Foundation. In 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 have contributed $20 million to the Foundation on a cumulative basis as of December 31, 2023. In the first three years of its existence, our Charitable Foundation funded nearly 700 grants to local community organizations in 25 states that address social determinants of health, disaster relief, mental health, maternal child health and other health-related concerns afflicting our communities in need.

Contractual Obligations. We are party to various contractual obligations that we will be required to satisfy over the short and long term. The majority are discussed in the Notes to Consolidated Financial Statements and primarily include the following:

•Medical claims and benefits payable. See Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” and Note 10, “Medical Claims and Benefits Payable,” for further detail.

•Amounts due government agencies. See Notes to Consolidated Financial Statements, Notes 2, “Significant Accounting Policies,” for further detail.

•Debt obligations. See Notes to Consolidated Financial Statements, Note 11, “Debt,” for further detail of our long-term debt and the timing of expected future payments. Interest payments are paid semi-annually.

•Leases. See Notes to Consolidated Financial Statements, Note 8, “Leases,” for further detail of our finance and operating lease obligations and the timing of expected future payments.

Some items are based on management’s estimates and assumptions about obligations, including duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the contractual obligations we will actually pay in future periods may vary. Additionally, we have a variety of other contractual agreements related to acquiring services used in our operations. However, we believe these other agreements do not contain material non-cancelable commitments.

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, and some differences could be material. Our most significant accounting estimates, which include a higher degree of judgment and/or complexity, include the following:

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•Medical costs, claims and benefits payable. See discussion below, and refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” and Note 10, “Medical Claims and Benefits Payable” for more information.

•Premium Revenue Recognition and Amounts Due Government Agencies: Risk Adjustment. For a discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

•Business Combinations, and Goodwill and intangible assets, net. For a comprehensive discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” Note 4, “Business Combinations,” and Note 9, “Goodwill and Intangible Assets, Net.”

MEDICAL CARE COSTS, MEDICAL CLAIMS AND BENEFITS PAYABLE

Medical care costs are recognized in the period in which services are provided and include fee-for-service claims, pharmacy benefits, capitation payments to providers, and various other medically-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date (“IBNP”). Pharmacy benefits represent payments for members' prescription drug costs, net of rebates from drug manufacturers. We estimate pharmacy rebates based on historical and current utilization of prescription drugs and contractual provisions. Capitation payments represent monthly contractual fees paid to providers, who are responsible for providing medical care to members, which could include medical or ancillary costs like dental, vision and other supplemental health benefits. Such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates. Other medical care costs include all medically-related administrative costs, amounts due to providers pursuant to risk-sharing or other incentive arrangements, provider claims, and other healthcare expenses. Examples of medically-related administrative costs include expenses relating to health education, quality assurance, case management, care coordination, disease management, and 24-hour on-call nurses. Additionally, we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability.

The following table illustrates consolidated medical care costs by type for the periods indicated:

Medical claims and benefits payable consist mainly of fee-for-service IBNP, unpaid pharmacy claims, capitation costs, other medical costs, including amounts payable to providers pursuant to risk-sharing or other incentive arrangements and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk. IBNP includes the costs of claims incurred as of the balance sheet date which have been reported to us, and our best estimate of the cost of claims incurred but not yet reported to us. When more complete claims payment information and healthcare cost trend data becomes available, we reflect changes in these estimates as an increase or decrease to medical care costs in the consolidated results of operations in the period in which they are determined.

The estimation of the IBNP liability requires a significant degree of judgment in applying actuarial methods, determining the appropriate assumptions and considering numerous factors. Of those factors, we consider estimated completion factors (measures the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical payment patterns) and the assumed healthcare cost trend (the year-over-year change in per-member per-month medical care costs) to be the most critical assumptions. Other relevant factors also include, but are not limited to, healthcare service utilization trends, claim inventory levels, changes in

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membership, product mix, seasonality, benefit changes or changes in fee schedules, provider contract changes, prior authorizations and the incidence of catastrophic or pandemic cases.

For claims incurred more than three months before the financial statement date, we mainly use estimated completion factors to estimate the ultimate cost of those claims. Completion factors measure the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical claims payment patterns. We analyze historical claims payment patterns by comparing claim incurred dates to claim payment dates to estimate completion factors. The estimated completion factors are then applied to claims paid through the financial statement date to estimate the ultimate claims cost for a given month’s incurred claim activity. The difference between the estimated ultimate claims cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the financial statement date and is included in our IBNP liability.

For claims incurred within three months before the financial statement date, actual claims paid are a less reliable measure of our ultimate cost since a large portion of medical claims are not submitted to us until several months after services have been submitted. Accordingly, we estimate our IBNP liability for claims incurred during these months based on a blend of estimated completion factors and assumed medical care cost trend. The assumed medical care cost trend represents the year-over-year change in per-member per-month medical care costs, which can be affected by many factors including, but not limited to, our ability and practices to manage medical and pharmaceutical costs, changes in level and mix of services utilized, mix of benefits offered, including the impact of co-pays and deductibles, changes in medical practices, changes in member demographics, catastrophes and epidemics, and other relevant factors.

Actuarial standards of practice generally require a level of confidence such that our overall best estimate of the IBNP liability has a greater probability of being adequate versus being insufficient, where the liability is sufficient to account for moderately adverse conditions. Accordingly, our reserving practice is to consistently recognize the actuarial best estimate including a provision for moderately adverse conditions for each current period. This provision is reported as part of “Components of medical care costs related to: Current year” in the table presented in Note 10, “Medical Claims and Benefits Payable.” Adverse conditions are situations that may cause actual claims to be higher than the otherwise estimated value of such claims at the time of the estimate, such as changes in the magnitude or severity of claims, uncertainties related to our entry into new geographical markets or provision of services to new populations, changes in state-controlled fee schedules, and modifications or upgrades to our claims processing systems and practices. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.

When subsequent actual claims payments are less than we estimated, we recognize a benefit for favorable prior period development that is reported as part of “Components of medical care costs related to: Prior years” in the table presented in Note 10. Assuming stability in the size of our membership, the use of this consistent methodology, during any given period, usually results in the replenishment of reserves at a level that generally offsets the benefit of favorable prior period development in that period. In the case of material growth or decline of membership, replenishment can exceed or fall short of the favorable development, assuming all other factors remain unchanged.

Because of the significant degree of judgment involved in estimation of our IBNP liability, there is considerable variability and uncertainty inherent in such estimates. The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2023 that would result if we change our completion factors for the fourth through the twelfth months preceding December 31, 2023, by the percentages indicated. A reduction in the completion factor results in an increase in medical claims liabilities. Dollar amounts are in millions.

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The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2023 that would result if we alter our assumed medical care cost trend factors by the percentages indicated. An increase in the PMPM costs results in an increase in medical claims liabilities. Dollar amounts are in millions.

There are many related factors working in conjunction with one another that determine the accuracy of our estimates, some of which are qualitative in nature rather than quantitative. Therefore, we are seldom able to quantify the impact that any single factor has on a change in estimate. Given the variability inherent in the reserving process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” for a discussion of recent accounting pronouncements that affect us.

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

Management’s discussion and analysis of financial condition and results of operations as of and for the years ended December 31, 2022 and 2021, are presented in the sections that follow. Our MD&A as of and for the year ended December 31, 2020, may be found in our 2021 Annual Report on Form 10-K, which prior disclosure is incorporated by reference herein.

OVERVIEW

Molina Healthcare, Inc., a FORTUNE 500 company (currently ranked 125), provides managed healthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). We served approximately 5.3 million members as of December 31, 2022, located across 19 states.

2022 HIGHLIGHTS

Highlights of our 2022 results included the following:

•Net income of $792 million, or $13.55 per diluted share, compared to $659 million, or $11.25 per diluted share, in 2021;

•Total revenue of $32.0 billion, which increased 15% compared to 2021;

•Premium revenue of $30.9 billion, which increased 15% compared to 2021;

•Consolidated medical care ratio (“MCR”) of 88.0%, compared to 88.3% in 2021;

•Membership increased 59,000 members year over year to 5.3 million at December 31, 2022;

•General and administrative expense ratio (“G&A ratio”) improved to 7.2%, compared to 7.4% in 2021; and

•After-tax margin of 2.5%, compared to 2.4% in 2021.

Net Effect Of COVID

The net effect of COVID decreased 2022 net income per diluted share by $2.50 and decreased 2021 net income per diluted share by $3.50. The net effect of COVID impacted all three lines of business and increased the 2022 consolidated MCR by approximately 60 basis points, compared to an increase of approximately 90 basis points to the consolidated MCR in 2021. The net effect of COVID reflects COVID-related inpatient costs and COVID-related risk corridors enacted by a number of our state customers beginning in the second quarter of 2020, partially offset by a decrease in medical costs due to COVID-related utilization curtailment.

Real Estate Impairment

In the fourth quarter of 2022, we recognized an impairment charge of $208 million, or $2.72 per diluted share, on right-of-use lease assets and related property and equipment in connection with the reduction in leased space used in our business operations, to accommodate the move to a permanent remote work environment.

Growth Initiatives

Our growth initiatives, including accretive acquisitions, state Medicaid procurement awards and other organic growth priorities, are driving increases in our current and expected future premium revenue base and operating income. The acquisitions of Affinity Health Plan, Inc.’s New York Medicaid business in October 2021, Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan contracts in January 2022, and AgeWell New York’s Medicaid Long Term Care business in October 2022 are all contributing to our 2022 results of operations. The commencement of Nevada Medicaid operations in January 2022 also contributed to our 2022 results of operations. Our recent Medicaid procurement wins in California, Iowa and Nebraska demonstrate our ability to win new state contracts and, along with the acquisition of My Choice Wisconsin’s LTSS business that we expect to close in mid-2023, will contribute to our expected growth in premium revenues and results of operations in 2023 and 2024. We expect our future results of operations will also be impacted by organic membership growth in Medicare, partially offset by the impact of known pharmacy carve-outs in Medicaid, the resumption of Medicaid redeterminations beginning in April 2023, the impact of lower Marketplace membership, and 2022 Medicaid premium revenue for directed payments in Texas that we don’t expect to recur in 2023.

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FINANCIAL RESULTS SUMMARY

__________________

(1)MCR represents medical care costs as a percentage of premium 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 amounted to $792 million, or $13.55 per diluted share in 2022, compared with net income of $659 million, or $11.25 per diluted share, in 2021. We estimate that the net effect of COVID decreased net income by approximately $2.50 per diluted share in 2022 and by approximately $3.50 per diluted share in 2021.

Operating income was $1,173 million in 2022, compared with $1,020 million in 2021. The improvement in operating income was mainly due to membership growth and higher premium revenues, and a year-over-year decrease in the

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MCR, partially offset by the impact of the $208 million impairment charge that we recognized in connection with the reduction in leased space.

Net income per share in 2022 was favorably impacted by the reduction in common shares outstanding as a result of our share repurchase programs in the second and fourth quarters of 2022. Net income per share in 2021 was favorably impacted by the reduction in common shares outstanding as a result of our share repurchase programs in 2020. See further discussion and information in “Liquidity and Financial Condition,” below.

PREMIUM REVENUE

Premium revenue increased $4.0 billion, or 15%, in 2022, when compared with 2021. The higher premium revenue reflects the impact of acquisitions, and increased organic membership in the Medicaid and Medicare segments, partially offset by a decline in the Marketplace segment.

MEDICAL CARE RATIO

The consolidated MCR decreased to 88.0% in 2022, compared with 88.3% in 2021. The improvement relates to improved operating performance in our Medicaid segment, partially offset by an increase in the Medicare and Marketplace segments. The results also reflect a favorable year-over-year change in the net effect of COVID, which impacted all of our segments and increased the consolidated MCR by approximately 60 basis points in 2022, compared to approximately 90 basis points in 2021. The year-over-year change in the net effect of COVID mainly reflects lower COVID-related risk corridors and COVID inpatient costs, partially offset by lower COVID-related utilization curtailment.

The prior year reserve development in 2022 was favorable, but its impact on earnings was partially absorbed by the COVID-related risk corridors.

PREMIUM TAX REVENUE AND EXPENSES

The premium tax ratio decreased to 2.7% in 2022, compared with 2.8% in 2021. The current year ratio decrease was mainly due to changes in business mix.

INVESTMENT INCOME

Investment income increased to $143 million in 2022, compared with $52 million in 2021. The improvement was driven by recent increases in market interest rates and higher invested assets. Additionally, investment income was lower in the first half of 2021 due to a temporary allocation in shorter-term invested assets due to the COVID-19 pandemic, which was ended in the second quarter of 2021.

OTHER REVENUE

Other revenue decreased slightly to $75 million in 2022, compared with $77 million in 2021. Other revenue mainly includes service revenue associated with long-term services and supports consultative services we provide in Wisconsin.

GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSES

The G&A expense ratio decreased slightly to 7.2% in 2022 compared with 7.4% in 2021, which reflects the benefits of scale produced by our increase in revenue and disciplined cost management.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased to $176 million in 2022, compared with $131 million in 2021. The increase was due primarily to amortization associated with acquisitions completed in the fourth quarter of 2021 and the year ended December 31, 2022.

IMPAIRMENT

In the fourth quarter of 2022, we recognized an impairment of $208 million on right-of-use lease assets and related property and equipment in connection with the reduction in leased space to accommodate the move to a permanent remote work environment. Approximately $192 million of the impairment is directly associated with the reduction in leased space used in our business operations. We assessed ROU assets for impairment based on a valuation and recoverability analysis, which was determined with the assistance of a third-party real estate specialist. The remaining $16 million of the impairment relates to leasehold improvements and other property and equipment associated with the reduction in leased space.

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OTHER OPERATING EXPENSES

Other operating expenses decreased slightly to $58 million in 2022, compared with $61 million in 2021. Other operating expenses mainly include service costs associated with long-term services and supports consultative services we provide in Wisconsin, as noted above.

INTEREST EXPENSE

Interest expense decreased to $110 million in 2022, compared with $120 million in 2021. The decrease resulted from our early redemption of $700 million aggregate principal amount of our 5.375% senior notes due 2022 in the fourth quarter of 2021, partially offset by interest related to the private offering of $750 million aggregate principal amount of the 3.875% Notes due 2032 in the same period.

OTHER EXPENSES, NET

In 2021, we recognized a loss on debt repayment of $25 million in connection with early redemption of our 5.375% Notes.

INCOME TAXES

Income tax expense amounted to $271 million in 2022, or 25.5% of pretax income, compared with income tax expense of $216 million in 2021, or 24.7% of the pretax income. The difference in the effective tax rate is primarily due to an increase in nondeductible expenses and state and local income taxes, and differences in discrete tax benefits recognized in the respective periods.

REPORTABLE SEGMENTS

As of December 31, 2022, we served approximately 5.3 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.

We currently have reportable segments consisting 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 long-term services and supports consultative services in Wisconsin.

See Part I, Item 1. Business for further description of our segments.

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 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 16, “Segments.”

TRENDS AND UNCERTAINTIES

For a discussion of the trends, uncertainties and other developments that affected our reportable segments during the year, refer to “Item 1. Business—Our Business,” “—COVID-19 Pandemic,” “—Legislative and Political Environment,” “—Operations—Medical Management,” and “—Regulation.”

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SEGMENT FINANCIAL PERFORMANCE

The following table summarizes our membership by segment as of the dates indicated:

The tables below summarize premium revenue, medical margin, and MCR by segment for the periods indicated (dollars in millions):

Medicaid

Key factors affecting results for this segment include:

•Membership growth of 425,000 during the year, driven by our growth initiatives, including our acquisitions and expansion into new states;

•The status of the PHE and the associated suspension of membership redeterminations;

•Improved operating performance, including medical cost management; and

•The net effect of COVID, which increased the 2022 MCR by approximately 10 basis points, compared to an increase of 20 basis points in the 2021 MCR.

Medicaid premium revenue increased $4.4 billion, or 21% in 2022, when compared with 2021. The increase was mainly due to the impact from the Affinity, Cigna and AgeWell acquisitions, and state directed payments in our Texas health plan, as well as organic membership growth, including our entry into Nevada. We also benefited from organic membership growth across several other states, driven mainly by the extension of the PHE period and the associated suspension of membership redeterminations due to COVID-19.

As described in “Item 1. Business—COVID-19 Pandemic,” we recognized approximately $197 million in 2022 for the impact of COVID-related risk corridors, enacted by several states in 2020 in response to the lower utilization of medical services resulting from COVID-19. We recognized approximately $323 million in 2021, for the impact of these risk corridors in 2021. The decrease was due to the elimination of most of the COVID-19 risk corridors.

The medical margin of our Medicaid program increased $659 million in 2022, or 28%, when compared with 2021. The increase in margin was driven by the growth in membership and premium revenues discussed above and the MCR decrease discussed below.

The Medicaid MCR decreased 70 basis points to 88.0% in 2022, from 88.7% in 2021. The improvement is mainly attributable to improved operating performance, including medical cost management, and the year-over-year change in the net effect of COVID, partially offset by the impact of state directed payments in our Texas health plan. The year-over-year change in the net effect of COVID for 2022 mainly reflects lower COVID-related risk corridors, partially offset by lower COVID-related utilization curtailment. The 2022 MCR of 88% is at the low end of our long-term target range of 88% to 89% and is consistent with pre-pandemic levels.

Medicare

Key factors affecting results for this segment include:

•Our expansion in MAPD and D-SNP membership;

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•Achievement of member risk scores and associated risk-adjusted premium that are commensurate with the health status, or acuity, of our Medicare members; and

•The net effect of COVID, which increased the 2022 MCR by approximately 300 basis points, compared to an increase of 220 basis points in the 2021 MCR.

Medicare premium revenue increased $434 million, or 13%, in 2022 compared to 2021. The increase was primarily due to the impact of MAPD and D-SNP membership expansion, including organic membership growth in existing states, partially offset by lower premium revenue PMPM from the change in business mix.

The medical margin for Medicare increased $7 million in 2022 compared to 2021. The year-over-year increase is mainly due to the increase in premium revenue, partially offset by the increase in the MCR discussed below.

The Medicare MCR increased to 88.5% in 2022, from 87.2% in 2021, or 130 basis points. The MCR increase was primarily driven by the year-over-year change in the net effect of COVID. COVID-related utilization curtailment and corridor adjustments drove a lower MCR for 2021, and COVID inpatient costs increased in 2022. Additionally, the increase in MCR was driven by higher non-COVID utilization and the impact of lower risk-adjusted premiums associated with first year MAPD members, partially offset by higher risk scores on renewing members that more closely reflect the acuity of our membership, and strong medical cost management. The 2022 MCR of 88.5% was modestly above our long-term target range of 87% to 88% due to the net effect of COVID.

Marketplace

Key factors affecting results for this segment include:

•Our product and pricing strategy, which resulted in an overall reduction in membership and repositioning in the metallic tier membership mix;

•Achievement of member risk scores and associated risk-adjusted premium that are commensurate with the health status, or acuity, of our Marketplace members; and

•The net effect of COVID, which increased the 2022 MCR by approximately 120 basis points, compared to an increase of 430 basis points in the 2021 MCR.

Marketplace premium revenue decreased $772 million in 2022 compared to 2021. The decrease was mainly due to an expected decrease in membership in line with our product and pricing strategy, partially offset by an increase in premium revenue PMPM. Our Marketplace membership as of December 31, 2022, amounted to 348,000 members, representing a decrease of 380,000 members compared to December 31, 2021. The increase in premium revenue PMPM is consistent with the change in metallic tier mix, which reflects an increase of members in the sliver metal tier and a decrease of members in the bronze metal tier, partially offset by an increase in the 2021 risk adjustment payment that was finalized in June 2022.

The Marketplace medical margin decreased $109 million in 2022, primarily due to the net decrease in membership and premiums, and the increase in the MCR described below.

The Marketplace MCR increased to 87.2% in 2022, compared to 86.9% in 2021, or 30 basis points. The increase in 2022 reflects changes in membership mix that includes higher acuity members, the unfavorable change in the 2021 risk adjustment payable recognized in the second quarter of 2022, and the unfavorable impact of settling prior year provider balances, partially offset by the year-over-year change in the net effect of COVID. The 2022 MCR of 87.2% is higher than our long-term target range of 78% to 80% due to these factors. We expect MCR performance in 2023 to be within our target range, as we continue to execute on our product and pricing strategy.

Other

The Other segment includes service revenues and costs associated with the long-term services and supports consultative services we provide in Wisconsin, and also includes certain corporate amounts not allocated to the Medicaid, Medicare, or Marketplace segments. Such amounts were immaterial to our consolidated results of operations for 2022 and 2021.

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.

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Our regulated health plan subsidiaries’ primary liquidity requirements include payment of medical claims and other health care services; payment of certain settlements with our state and federal customers, such as minimum medical loss ratio and risk corridors and Marketplace risk transfers on behalf of CMS; general and administrative costs directly incurred or paid through an administrative services agreement to the parent company; and federal tax payments to the parent company under an intercompany tax sharing agreement. Our regulated health plan subsidiaries meet their liquidity needs by generating cash flows from operating activities, primarily from premium revenue; cash flows from investing activities, including investment income and sales of investments; and capital contributions received from our parent company.

Our regulated health plan subsidiaries generally receive premiums in advance of payments of claims for medical and other health care services; however, cash and cash equivalents in regulated health plan subsidiaries can fluctuate significantly in a particular period depending on the timing of receipts for premiums from our government partners. Any decline or delay in receipt of premium revenue could have a negative impact on our liquidity. We did not experience noticeable delays to, or changes in, the timing or level of premium receipts in 2022 or 2021 as a result of the COVID-19 pandemic, but there can be no assurance that we will not experience such delays in the future. See further discussion below in “Future Sources and Uses of Liquidity—Future Uses—Potential Impact of COVID-19 Pandemic.”

Our regulated health plan subsidiaries are each subject to applicable state regulations that, among other things, require the maintenance of minimum levels of capital and surplus. We continue to maintain appropriate levels of aggregate excess statutory capital and surplus in our regulated health plan subsidiaries. See further discussion under “Regulatory Capital and Dividend Restrictions” below. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. The regulated health plan subsidiaries paid dividends to the parent company amounting to $668 million in 2022 and $564 million in 2021.

Parent company liquidity requirements generally consist of payment of administrative costs not directly incurred by our regulated operations, including, but not limited to, staffing costs, lease payments, branding and certain information technology services; capital contributions paid to our regulated health plan subsidiaries, including funding for newer health plans; capital expenditures; debt service; funding for common stock purchases, acquisitions and other growth-related activities; and federal tax payments. The parent company contributed capital of $159 million and $440 million in 2022 and 2021, respectively, to our regulated health plan subsidiaries to satisfy statutory capital and surplus requirements. The higher contributions in 2021 were mainly attributed to fund growth in our New York and Kentucky health plans. Our parent company normally meets its liquidity requirements from administrative services fees earned under administrative services agreements; dividends received from our regulated subsidiaries; federal tax payments collected from the regulated subsidiaries; proceeds received from the issuance of debt and equity securities; and cash flows from investing activities, including investment income and sales of investments.

Cash, cash equivalents and investments at the parent company amounted to $375 million and $348 million as of December 31, 2022, and 2021, respectively. The increase in 2022 was primarily due to the dividends received from our regulated health plan subsidiaries, partially offset by the share repurchase program and the timing of corporate payments and capital contributions to regulated health plan subsidiaries.

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 15 years, or less than 15 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 is A+. 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, U.S.

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Treasury securities, and corporate debt securities; we have the ability to hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets.

Cash Flow Activities

Our cash flows are summarized as follows:

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 was $773 million in 2022, compared with $2,119 million in 2021. The $1,346 million decrease in 2022 cash flow was mainly due to the net impact of timing differences in government receivables and payables, including larger risk adjustment payments made in 2022 for the Marketplace 2021 plan year and payment for Medicaid minimum MLR and risk corridor settlements related to prior plan years.

Investing Activities

Net cash used in investing activities was $790 million in 2022, compared with $1,653 million in 2021, an increase in year-over-year cash flow of $863 million. This change in cash flow was primarily due to the net impact of proceeds and purchases of investments. In 2022 and 2021, we funded acquisitions in the amounts of $134 million and $129 million, respectively.

Financing Activities

Net cash used in financing activities was $441 million in 2022, compared with $183 million in 2021, a decrease in year-over-year cash flow of $258 million. In 2022, cash outflows included common stock purchases of $400 million and $54 million for common stock withheld to settle employee tax obligations. In 2021, cash inflows included $740 million from the issuance of the 3.875% Notes due 2032, and cash outflows included $723 million in repayment of the 5.375% Notes due 2022, common stock purchases of $128 million and $53 million for common stock withheld to settle employee tax obligations. Additionally, we paid $20 million in each of 2022 and 2021 to settle contingent consideration liabilities relating to our Kentucky Passport acquisition that closed in 2020.

FINANCIAL CONDITION

We believe that our cash resources, borrowing capacity available under our 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, as of December 31, 2022, our working capital was $3.2 billion compared with $3.0 billion as of December 31, 2021. At December 31, 2022, our cash and investments amounted to $7.7 billion, compared with $7.9 billion of cash and investments at December 31, 2021. A significant portion of our portfolio is held in cash and cash equivalents and we do not anticipate the fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position since we intend to hold our securities to maturity. Net unrealized losses on our investments classified as current and available for sale increased to $210 million at December 31, 2022 compared to $6 million at December 31, 2021. We have determined that the unrealized losses primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers.

Because of the statutory restrictions that inhibit the ability of our health plan subsidiaries to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash,

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cash equivalents and investments held by our unregulated parent. For more information, see the “Liquidity” discussion presented above.

Regulatory Capital and Dividend Restrictions

Each of our regulated, 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 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 requirement for these subsidiaries was estimated to be approximately $2.3 billion at December 31, 2022, compared with $2.1 billion at December 31, 2021. The aggregate capital and surplus of our wholly owned subsidiaries was in excess of these minimum capital requirements as of both dates.

Under applicable regulatory requirements, the amount of dividends that may be paid by our wholly owned subsidiaries without prior approval by regulatory authorities as of December 31, 2022, was approximately $210 million in the aggregate. 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 December 31, 2022, management believes that our regulated 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.

Capital Structure

In November 2022, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This new program supersedes the stock purchase program previously approved by our board of directors in September 2021. This new program will be funded with cash on hand and extends through December 31, 2023. During the fourth quarter of 2022, we used $200 million to repurchase 590,000 shares under this program.

As debt held by the parent company comes due, we typically engage in a new private offering of debt to retire and replace the prior issuance. For several years we saw a continued decline in interest rates, which benefited our overall cost of capital during that time. However, interest rates have increased since we issued our 3.875% Notes due 2032 in 2021. Accordingly, future refinancing may occur at a higher rate than those we have achieved historically. This would increase our cost of capital in the future or may cause us to pursue alternative financing sources, should the need arise.

We are not a party to any off-balance sheet financing arrangements.

Debt Ratings

Each of our 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.

In addition, the indentures governing each of our outstanding 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 December 31, 2022, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt.

FUTURE SOURCES AND USES OF LIQUIDITY

Future Sources

Our 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. Excluding acquisitions and our exit from Puerto Rico, we added approximately 750,000 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

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Medicaid eligibility. The recently passed Consolidated Appropriations Act of 2023 authorizes states to resume redeterminations and terminate coverage for ineligible enrollees starting on April 1, 2023, irrespective of the status of the PHE. Consequently, we expect Medicaid enrollment to continue to benefit from the current pause on membership redeterminations through March 31, 2023, and then decline thereafter as states resume normal enrollment and renewal operations on April 1, 2023.

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 could reduce the liquidity of the parent company. For more information on our regulatory capital requirements and dividend restrictions, refer to Notes to Consolidated Financial Statements, Note 15, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions,” and Note 17, “Condensed Financial Information of Registrant—Note C - Dividends and Capital Contributions.”

Credit Agreement Borrowing Capacity. As of December 31, 2022, 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 we maintain a minimum consolidated net leverage ratio. See further discussion in the Notes to Consolidated Financial Statements, Note 11, “Debt.”

Future Uses

Common Stock Purchases. In November 2022, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This new program supersedes the stock purchase program previously approved by our board of directors in September 2021. This new program will be funded with cash on hand and extends through December 31, 2023. The exact timing and amount of any repurchase 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. As of February 13, 2023, $300 million remained available to purchase our common stock under this program through December 31, 2023. See further information in the Notes to Consolidated Financial Statements, Note 13, “Stockholders' Equity.”

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, 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 on our acquisitions, refer to the Notes to Consolidated Financial Statements, Note 4, “Business Combinations.”

On July 13, 2022, we announced a definitive agreement to acquire substantially all the assets of My Choice Wisconsin (“MCW”). The purchase price for the transaction is approximately $150 million, net of expected tax benefits and required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to receipt of applicable federal and state regulatory approvals, and the satisfaction of other customary closing conditions. We currently expect the transaction to close in mid-2023.

Potential Impact of COVID-19 Pandemic. As described in “Item 1. Business—COVID-19 Pandemic,” we have been subject to Medicaid risk corridors as a result of the pandemic. Beginning in 2020, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. We have recognized risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. For the year ended December 31, 2022, we recognized approximately $197 million, in the aggregate, related to such risk corridors, in 2022, and approximately $323 million, in the aggregate, was recognized in 2021.

It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the 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.

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 minimum statutory capital requirements.

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The Molina Healthcare Charitable Foundation. In 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 have contributed $20 million to the Foundation on a cumulative basis as of December 31, 2022.

Contractual Obligations. We are party to various contractual obligations that we will be required to satisfy over the short and long term. The majority are discussed in the Notes to Consolidated Financial Statements and primarily include the following: medical claims and benefits payable, amounts due to government agencies, principal and interest on our debt and leases. Some items are based on management’s estimates and assumptions about obligations, including duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the contractual obligations we will actually pay in future periods may vary. Additionally, we have a variety of other contractual agreements related to acquiring services used in our operations. However, we believe these other agreements do not contain material non-cancelable commitments.

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, and some differences could be material. Our most significant accounting estimates, which include a higher degree of judgment and/or complexity, include the following:

•Medical claims and benefits payable. See discussion below, and refer to the Notes to Consolidated Financial Statements, Notes 2, “Significant Accounting Policies,” and 10, “Medical Claims and Benefits Payable” for more information.

•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 the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

•Quality incentives. For a discussion of this topic, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

•Business Combinations, and Goodwill and intangible assets, net. For a comprehensive discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” Note 4, “Business Combinations,” and Note 9, “Goodwill and Intangible Assets, Net.”

MEDICAL CARE COSTS, MEDICAL CLAIMS AND BENEFITS PAYABLE

Medical care costs are recognized in the period in which services are provided and include fee-for-service claims, pharmacy benefits, capitation payments to providers, and various other medically-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date (“IBNP”). Pharmacy benefits represent payments for members' prescription drug costs, net of rebates from drug manufacturers. We estimate pharmacy rebates based on historical and current utilization of prescription drugs and contractual provisions. Capitation payments represent monthly contractual fees paid to providers, who are responsible for providing medical care to members, which could include medical or ancillary costs like dental, vision and other supplemental health benefits. Such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates. Other medical care costs include all medically-related administrative costs, amounts due to providers pursuant to risk-sharing or other incentive arrangements, provider claims, and other healthcare expenses. Examples of medically-related administrative costs include expenses relating to health education, quality assurance, case management, care coordination, disease management, and 24-hour on-call nurses. Additionally, we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability.

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The following table illustrates consolidated medical care costs by type for the periods indicated:

Medical claims and benefits payable consist mainly of fee-for-service IBNP, unpaid pharmacy claims, capitation costs, other medical costs, including amounts payable to providers pursuant to risk-sharing or other incentive arrangements and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk. IBNP includes the costs of claims incurred as of the balance sheet date which have been reported to us, and our best estimate of the cost of claims incurred but not yet reported to us. We also include an additional reserve to ensure that our overall IBNP liability is sufficient under moderately adverse conditions. We reflect changes in these estimates in the consolidated results of operations in the period in which they are determined.

The estimation of the IBNP liability requires a significant degree of judgment in applying actuarial methods, determining the appropriate assumptions and considering numerous factors. Of those factors, we consider estimated completion factors (measures the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical payment patterns) and the assumed healthcare cost trend (the year-over-year change in per-member per-month medical care costs) to be the most critical assumptions. Other relevant factors also include, but are not limited to, healthcare service utilization trends, claim inventory levels, changes in membership, product mix, seasonality, benefit changes or changes in fee schedules, provider contract changes, prior authorizations and the incidence of catastrophic or pandemic cases.

For claims incurred more than three months before the financial statement date, we mainly use estimated completion factors to estimate the ultimate cost of those claims. Completion factors measure the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical claims payment patterns. We analyze historical claims payment patterns by comparing claim incurred dates to claim payment dates to estimate completion factors. The estimated completion factors are then applied to claims paid through the financial statement date to estimate the ultimate claims cost for a given month’s incurred claim activity. The difference between the estimated ultimate claims cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the financial statement date and is included in our IBNP liability.

For claims incurred within three months before the financial statement date, actual claims paid are a less reliable measure of our ultimate cost since a large portion of medical claims are not submitted to us until several months after services have been submitted. Accordingly, we estimate our IBNP liability for claims incurred during these months based on a blend of estimated completion factors and assumed medical care cost trend. The assumed medical care cost trend represents the year-over-year change in per-member per-month medical care costs, which can be affected by many factors including, but not limited to, our ability and practices to manage medical and pharmaceutical costs, changes in level and mix of services utilized, mix of benefits offered, including the impact of co-pays and deductibles, changes in medical practices, changes in member demographics, catastrophes and epidemics, and other relevant factors.

Actuarial standards of practice generally require a level of confidence such that our overall best estimate of the IBNP liability has a greater probability of being adequate versus being insufficient, where the liability is sufficient to account for moderately adverse conditions. Adverse conditions are situations that may cause actual claims to be higher than the otherwise estimated value of such claims at the time of the estimate, such as changes in the magnitude or severity of claims, uncertainties related to our entry into new geographical markets or provision of services to new populations, changes in state-controlled fee schedules, and modifications or upgrades to our claims processing systems and practices. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.

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When subsequent actual claims payments are less than we estimated, we recognize a benefit for favorable prior period development that is reported as part of “Components of medical care costs related to: Prior years” in the table presented in Note 10, “Medical Claims and Benefits Payable.” Our reserving practice is to consistently recognize the actuarial best estimate including a provision for moderately adverse conditions for each current period. This provision is reported as part of “Components of medical care costs related to: Current year” in the table presented in Note 10. Assuming stability in the size of our membership, the use of this consistent methodology, during any given period, usually results in the replenishment of reserves at a level that generally offsets the benefit of favorable prior period development in that period. In the case of material growth or decline of membership, replenishment can exceed or fall short of the favorable development, assuming all other factors remain unchanged.

Because of the significant degree of judgment involved in estimation of our IBNP liability, there is considerable variability and uncertainty inherent in such estimates. The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2022 that would result if we change our completion factors for the fourth through the twelfth months preceding December 31, 2022, by the percentages indicated. A reduction in the completion factor results in an increase in medical claims liabilities. Dollar amounts are in millions.

The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2022 that would result if we alter our assumed medical care cost trend factors by the percentages indicated. An increase in the PMPM costs results in an increase in medical claims liabilities. Dollar amounts are in millions.

There are many related factors working in conjunction with one another that determine the accuracy of our estimates, some of which are qualitative in nature rather than quantitative. Therefore, we are seldom able to quantify the impact that any single factor has on a change in estimate. Given the variability inherent in the reserving process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” for a discussion of recent accounting pronouncements that affect us.

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

Management’s discussion and analysis of financial condition and results of operations as of and for the years ended December 31, 2021 and 2020, are presented in the sections that follow. Our MD&A as of and for the year ended December 31, 2019, may be found in our 2020 Annual Report on Form 10-K, which prior disclosure is incorporated by reference herein.

OVERVIEW

Molina Healthcare, Inc., a FORTUNE 500 company (currently ranked 155), provides managed healthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). We served approximately 5.2 million members as of December 31, 2021, located across 18 states.

2021 HIGHLIGHTS

Highlights of our 2021 results included the following:

•Net income for 2021 was $659 million, or $11.25 per diluted share, compared to $673 million, or $11.23 per diluted share, in 2020;

•Total revenue of $27.8 billion, which increased 43% compared to 2020;

•Premium revenue of $26.9 billion, which increased 47% compared to 2020;

•Consolidated medical care ratio (“MCR”) of 88.3%, compared to 86.5% in 2020;

•Membership, increased 1.2 million members year-over-year to 5.2 million at December 31, 2021;

•General and administrative expense ratio (“G&A ratio”) improved to 7.4%, compared to 7.6% in 2020; and

•After-tax margin of 2.4%.

The net effect of COVID decreased 2021 net income per diluted share by $3.50 per diluted share and decreased 2020 net income per diluted share by $2.30. The net effect of COVID impacted all three lines of business and increased the 2021 consolidated MCR by approximately 90 basis points, compared to an increase of approximately 50 basis points to the consolidated MCR in 2020. The net effect of COVID reflects COVID-related inpatient costs and COVID-related risk corridors enacted by a number of our state customers beginning in the second quarter of 2020, partially offset by a decrease in medical costs due to COVID-related utilization curtailment.

Growth Initiatives

We have made major strides related to our growth strategy. On October 7, 2021, we signed a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York. On October 25, 2021, we closed on the acquisition of Affinity Health Plan in New York. On January 1, 2022, we closed the acquisition of Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan contracts, along with certain operating assets. Each of these acquisitions involve financially underperforming health plans, but with stable membership and revenue bases. We believe they provide attractive opportunities for margin improvement, operating leverage and membership growth. Our growth initiatives continue to be anchored by our capital allocation priorities: first, organic growth; second, inorganic growth through accretive acquisitions; and third, programmatically returning excess capital to stockholders.

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FINANCIAL RESULTS SUMMARY

__________________

(1)MCR represents medical care costs as a percentage of premium 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.

(4)Approximately 200,000 members, from the Magellan Complete Care acquisition that closed on December 31, 2020, are not included in the totals as of December 31, 2020.

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CONSOLIDATED RESULTS

NET INCOME AND OPERATING INCOME

Net income amounted to $659 million, or $11.25 per diluted share in 2021, compared with net income of $673 million, or $11.23 per diluted share, in 2020. We estimate that the net effect of COVID decreased net income by approximately $3.50 per diluted share in 2021. In 2020, the net effect of COVID decreased net income by approximately $2.30 per diluted share.

Operating income was $1,020 million in 2021, compared with $1,078 million in 2020. The decrease in operating income was mainly due to the increase in MCR, reflecting increases in all our segments, and the $128 million Marketplace risk corridor judgment received in 2020, partially offset by the favorable impact of membership growth and higher premium revenues.

Net income per share in 2021 was favorably impacted by the reduction in common shares outstanding as a result of our share repurchase programs in 2020. See further discussion and information in “Liquidity and Financial Condition,” below, and in the Notes to Consolidated Financial Statements, Note 3, “Net Income Per Share.”

PREMIUM REVENUE

Premium revenue increased $8.6 billion, or 47%, in 2021, when compared with 2020. The higher premium revenue mainly reflects growth in membership across all segments in 2021.

Membership increased by 1.2 million compared with December 31, 2020, which mainly reflected the impact of acquisitions that closed in the second half of 2020, including Magellan Complete Care and the Affinity acquisition that closed in the fourth quarter of 2021, and organic increases in the Medicaid and Marketplace segments. The lower impact of COVID-related risk corridors in 2021, that were enacted in several states beginning in the second quarter of 2020 in response to COVID-related utilization curtailment, also contributed to increase in premium revenue.

MEDICAL CARE RATIO

The consolidated MCR in 2021 increased to 88.3%, compared to 86.5% in 2020, and reflects increases in all our segments. The net effect of COVID increased the consolidated MCR by approximately 90 basis points in 2021, and reflects higher COVID inpatient costs, and lower COVID-related utilization curtailment, partially offset by a lower impact of COVID-related risk corridors. The net effect of COVID impacted all our segments, but the year-over-year change was unfavorable for our Medicare and Marketplace segments. In 2020, the net effect of COVID increased our consolidated MCR by approximately 50 basis points.

The prior year reserve development in 2021 was modestly favorable, but its impact on earnings was mostly absorbed by the COVID-related risk corridors.

PREMIUM TAX REVENUE AND EXPENSES

The premium tax ratio decreased to 2.8% in 2021, compared with 3.4% in 2020. The current year ratio decrease was mainly due to the changes in business mix resulting from the Magellan Complete Care and other acquisitions closed in the second half of 2020.

MARKETPLACE RISK CORRIDOR JUDGMENT

In June 2020, the U.S. Court of Federal Claims granted us judgment in the amount of $128 million for 2014, 2015, and 2016 Marketplace risk corridor claims, following a favorable U.S. Supreme Court decision in April 2020 which held section 1342 of the Affordable Care Act obligated the federal government to pay participating insurers the full Marketplace risk corridor amounts calculated by that statute. We received the judgment in October 2020 and, consistent with the timing of the cash receipt, the gain was recognized in our fourth quarter 2020 financial results and reported in “Marketplace risk corridor judgment” in our consolidated statements of income. The judgment did not create additional Minimum MLR rebates.

INVESTMENT INCOME

Investment income decreased to $52 million in 2021, compared with $59 million in 2020. The year-over-year decrease was due to the continued low interest rate 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.

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OTHER REVENUE

Other revenue increased to $77 million in 2021, compared with $17 million in 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.

GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSES

The G&A expense ratio decreased slightly to 7.4% in 2021 compared with 7.6% in 2020. The year over year decrease reflects the benefits of scale produced by our growth and our disciplined cost management, partially offset by appropriate investments to support our business growth and increased acquisition-related expenses.

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 $131 million in 2021, compared with $88 million in 2020. The increase was due primarily to amortization associated with acquisitions completed in the second half of 2020 and 2021.

OTHER OPERATING EXPENSES

Other operating expenses increased to $61 million in the year ended December 31, 2021, compared with $31 million in the year ended December 31, 2020. Beginning in the first quarter of 2021, other operating expenses include service costs associated with the long-term services and supports consultative services we now provide in Wisconsin, as noted above.

INTEREST EXPENSE

Interest expense increased to $120 million in 2021, compared with $102 million in 2020, mainly due to higher levels of average outstanding debt, resulting from the net impact of financing activities in both 2020 and 2021.

OTHER EXPENSES (INCOME), NET

In 2021, we recognized a loss on debt repayment of $25 million in connection with early redemption of our 5.375% Notes. In 2020, we recognized a loss on debt repayment of $15 million, in connection with repayment of our term loan facility and other financing transactions.

INCOME TAXES

Income tax expense amounted to $216 million in 2021, or 24.7% of pretax income, compared with income tax expense of $288 million in 2020, or 30.0% of the pretax income. The effective tax rate is lower in 2021 mainly because the nondeductible HIF was repealed for years after 2020.

REPORTABLE SEGMENTS

As of December 31, 2021, we served approximately 5.2 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.

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 December 31, 2020.

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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 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 16, “Segments.”

TRENDS AND UNCERTAINTIES

For a discussion of the trends, uncertainties and other developments that affected our reportable segments during the year, refer to “Item 1. Business—Our Business,” “—COVID-19 Pandemic,” “—Legislative and Political Environment,” “—Operations—Medical Management,” and “—Regulation.”

SEGMENT FINANCIAL PERFORMANCE

The following table summarizes our membership by segment as of the dates indicated:

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(1)Approximately 200,000 members, from the Magellan Complete Care acquisition that closed on December 31, 2020, are not included in the totals as of December 31, 2020.

The tables below summarize premium revenue, medical margin, and MCR by segment for the periods indicated (dollars in millions):

Medicaid

Medicaid premium revenue increased $6.2 billion in 2021, when compared with 2020, mainly due to the impact from the Magellan Complete Care, and other acquisitions closed in the second half of 2020, the Affinity acquisition that closed in the fourth quarter of 2021, and organic membership growth. Excluding acquisitions, membership growth occurred across nearly all our states and was mainly driven by the extension of the PHE period and the associated suspension of membership redeterminations. Also contributing to the overall premium revenue increase was a lower impact of COVID-related risk corridors in 2021 compared to 2020.

As described in “Item 1. Business—COVID-19 Pandemic,” we recognized approximately $323 million in 2021, for the impact of COVID-related risk corridors enacted in most states in 2020, mainly related to Medicaid, in response

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to the lower utilization of medical services resulting from COVID-19. We recognized $564 million related to COVID-related risk corridors in 2020, mainly related to Medicaid.

The Medical Margin of our Medicaid program increased $518 million, or 29%, in 2021 when compared with 2020. The increase was driven by increased premium revenues and margin associated with the membership growth discussed above, partially offset by the MCR increase discussed below.

The Medicaid MCR increased to 88.7% in 2021, from 87.4% in 2020, or 130 basis points. The increase in the Medicaid MCR in 2021 was mainly due to business mix changes, partially offset by continued medical cost management and a year-over-year decrease in the net effect of COVID. The year-over-year change in impact of the net effect of COVID reflects the decrease in COVID-related risk corridors discussed above, partially offset by an increase in COVID-related inpatient costs, and lower COVID-related utilization curtailment. The Medicaid MCR is consistent with our long-term target despite the net effect of COVID.

Medicare

Medicare premium revenue increased $849 million in 2021, when compared with 2020, primarily due to the impact of higher membership, mainly from the Magellan Complete Care acquisition, and higher premium revenue PMPM.

The Medical Margin for Medicare increased $79 million, or 23%, in 2021 when compared with 2020. The year-over-year increase in margin is driven by the increase in premium revenue from higher volume, partially offset by the MCR increase discussed below.

The Medicare MCR increased to 87.2% in 2021, from 86.0% in 2020, or 120 basis points. The increase was primarily driven by the net effect of COVID, including higher direct COVID medical costs, resulting from higher infection rates in our Medicare population. The net effect of COVID had a negligible impact on the MCR in 2020. The Medicare MCR is in line with our long-term target despite the net effect of COVID.

Marketplace

Marketplace premium revenue increased $1.5 billion in 2021, when compared with 2020, mainly due to higher membership, partially offset by a decrease in premium revenue PMPM. Our Marketplace membership as of December 31, 2021, amounted to 728,000 members, representing growth of 410,000 members year over year, 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 special 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 increased $75 million in 2021, primarily due to the increase in membership and premiums, mostly offset by an increase in the MCR compared to 2020.

The Marketplace MCR increased to 86.9% in 2021, compared to 78.7% in 2020, or 820 basis points. The increase in MCR resulted mainly from a higher net effect of COVID, due to continued COVID utilization pressure in our largest Marketplace geographies, and increased non-COVID medical costs by members enrolled through the special enrollment period. Special Enrollment Period membership grew to almost 40% of our Marketplace book by the fourth quarter, and many of the new members that we attracted in 2021 were in regions disproportionately affected by COVID, particularly in Texas. Moreover, we attracted a large number of members through the special enrollment period, and those members experienced higher non-COVID utilization in addition to COVID-related costs.

Other

The Other segment includes service revenues and costs associated with the long-term services and supports consultative services we now provide in Wisconsin as a result of our Magellan Complete Care acquisition, and also includes certain corporate amounts not allocated to the Medicaid, Medicare, or Marketplace segments. Such amounts were immaterial to our consolidated results of operations for 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.

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We maintain liquidity at two levels: 1) the regulated health plan subsidiaries; and 2) the parent company.

Our regulated health plan subsidiaries’ primary liquidity requirements include payment of medical claims and other health care services; payment of certain settlements with our state and federal customers, such as MLR and risk corridors and Marketplace risk transfers on behalf of CMS; general and administrative costs directly incurred or paid through an administrative services agreement to the parent company; and federal tax payments to the parent company under an intercompany tax sharing agreement. Our regulated health plan subsidiaries meet their liquidity needs by generating cash flows from operating activities, primarily from premium revenue; cash flows from investing activities, including investment income and sales of investments; and capital contributions received from our parent company.

Our regulated health plan subsidiaries generally receive premiums in advance of payments of claims for medical and other health care services; however, cash and cash equivalents in regulated health plan subsidiaries can fluctuate significantly in a particular period depending on the timing of receipts for premiums from our government partners. Any decline or delay in receipt of premium revenue could have a negative impact on our liquidity. We did not experience noticeable delays to, or changes in, the timing or level of premium receipts in 2021 as a result of the COVID-19 pandemic, but there can be no assurance that we will not experience such delays in the future. See further discussion below in “Future Sources and Uses of Liquidity—Future Uses—Potential Impact of COVID-19 Pandemic.”

Our regulated health plan subsidiaries are each subject to applicable state regulations that, among other things, require the maintenance of minimum levels of capital and surplus. We continue to maintain appropriate levels of aggregate excess statutory capital and surplus in our regulated health plan subsidiaries. See further discussion under “Regulatory Capital and Dividend Restrictions” below. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. The regulated health plan subsidiaries paid dividends to the parent company amounting to $564 million in 2021 and $635 million in 2020.

Parent company liquidity requirements generally consist of payment of administrative costs not directly incurred by our regulated operations, including, but not limited to, staffing costs, lease payments, branding and certain information technology services; capital contributions paid to our regulated health plan subsidiaries, including funding for newer health plans; capital expenditures; debt service; funding for common stock purchases, acquisitions and other growth-related activities; and federal tax payments. The parent company contributed capital of $440 million and $107 million in 2021 and 2020, respectively, to our regulated health plan subsidiaries to satisfy statutory capital and surplus requirements. The increased contributions in 2021 were mainly attributed to fund growth in our New York and Kentucky health plans. Our parent company normally meets its liquidity requirements by earning administrative services fees under administrative services agreements; dividends received from our regulated subsidiaries; collecting federal tax payments from the regulated subsidiaries; proceeds from issuance of debt and equity securities; and cash flows from investing activities, including investment income and sales of investments.

Cash, cash equivalents and investments at the parent company amounted to $348 million and $644 million as of December 31, 2021, and 2020, respectively. The decrease in 2021 was due to cash used for acquisitions and share repurchases, partially offset by dividends received from regulated health plan subsidiaries. In the first quarter of 2021, we purchased an aggregate of approximately 577,000 shares for $122 million, and we also paid $6 million to settle shares purchased in 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.

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We believe that the risks of the COVID-19 pandemic, as they relate to our investments, are minimal. The overall rating of our portfolio is 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.

Cash Flow Activities

Our cash flows are summarized as follows:

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 was $2.1 billion in 2021, compared with $1.9 billion of net cash provided in 2020. The $221 million increase in cash flow was due to the growth in operations and the net impact of timing differences in government receivables and payables.

Investing Activities

Net cash used in investing activities was $1.7 billion in 2021, compared with $400 million of net cash used in 2020, a decrease in year-over-year cash flow of $1.3 billion. This change in cash flow was primarily due to increased purchases of investments in 2021, after a temporarily higher allocation in shorter-term invested assets during the COVID-19 pandemic was rescinded in the second quarter of 2021.

Financing Activities

Net cash used in financing activities was $183 million in 2021, compared with $217 million of net cash provided by 2020, a decrease in year-over-year cash flow of $400 million. In 2021, cash inflows included $740 million from the issuance of the 3.875% Notes due 2032, and cash outflows included $723 million in repayment of the 5.375% Notes due 2022, common stock purchases of $128 million and $53 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 year ended December 31, 2020, financing cash inflows included $1,429 million from the issuance of the 4.375% Notes due 2028 and 3.875% Notes due 2030 and $380 million borrowed under the term loan facility. Cash outflows included the $600 million repayment of the term loan facility, common stock purchases of $606 million, which included $7 million to settle shares purchased in late December 2019, and net cash paid for the senior notes-related transactions amounting to $380 million.

FINANCIAL CONDITION

We believe that our cash resources, borrowing capacity available under our 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, as of December 31, 2021, our working capital was $3.0 billion compared with $2.9 billion as of December 31, 2020. At December 31, 2021, our cash and investments amounted to $7.9 billion, compared with $6.2 billion of cash and investments at December 31, 2020.

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Because of the statutory restrictions that inhibit the ability of our health plan subsidiaries to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by our unregulated parent. For more information, see the “Liquidity” discussion presented above.

Regulatory Capital and Dividend Restrictions

Each of our regulated, 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 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 requirement for these subsidiaries was estimated to be approximately $2.1 billion at December 31, 2021, compared with $1.5 billion at December 31, 2020. The aggregate capital and surplus of our wholly owned subsidiaries was in excess of these minimum capital requirements as of both dates.

Under applicable regulatory requirements, the amount of dividends that may be paid by our wholly owned subsidiaries without prior approval by regulatory authorities as of December 31, 2021, was approximately $197 million in the aggregate. 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 December 31, 2021, management believes that our regulated 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.

Capital Structure

In September 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, 2022.

As debt held by the parent company comes due, we typically engage in a new private offering of debt to retire and replace the prior issuance. Over the last several years we have seen a continued decline in interest rates, which has benefited our overall cost of capital during that time. There is no guarantee that the interest rate environment will continue to see declines in interest rates in the future, and future refinancing may occur at a higher rate than those we have achieved historically. This could increase our cost of capital in the future or cause us to pursue alternative financing sources, should the need arise.

We are not a party to any off-balance sheet financing arrangements.

Debt Ratings

Each of our 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.

In addition, the indentures governing each of our outstanding 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 December 31, 2021, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt.

FUTURE SOURCES AND USES OF LIQUIDITY

Future Sources

Our 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.

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Potential Impact of COVID-19 Pandemic. Excluding acquisitions and our exit from Puerto Rico, we have added approximately 750,000 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-April 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 could reduce the liquidity of the parent company. For more information on our regulatory capital requirements and dividend restrictions, refer to Notes to Consolidated Financial Statements, Note 15, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions,” and Note 17, “Condensed Financial Information of Registrant—Note C - Dividends and Capital Contributions.”

Credit Agreement Borrowing Capacity. As of December 31, 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 we maintain a minimum consolidated net leverage ratio. See further discussion in the Notes to Consolidated Financial Statements, Note 11, “Debt.”

Future Uses

Common Stock Purchases. In September 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, 2022. The exact timing and amount of any repurchase 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. As of February 14, 2022, $500 million remained available to purchase our common stock under this program through December 31, 2022. See further information in the Notes to Consolidated Financial Statements, Note 13, “Stockholders' Equity.”

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, 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 on our acquisitions, refer to the Notes to Consolidated Financial Statements, Note 4, “Business Combinations.”

On October 7, 2021, we announced a definitive agreement to 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 $106 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 by the third quarter of 2022.

Potential Impact of COVID-19 Pandemic. As described in “Item 1. Business—COVID-19 Pandemic,” we have been subject to Medicaid risk corridors as a result of the pandemic. Beginning in 2020, through December 31, 2021, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin, primarily in the Medicaid segment. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. Beginning in the second quarter of 2020, we have recognized retroactive risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. We recognized approximately $323 million, in the aggregate, related to such risk corridors, in 2021, and approximately $564 million, in the aggregate, was recognized in 2020.

It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the 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.

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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 minimum statutory capital 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 contributed $15 million to the Foundation in the fourth quarter of 2020.

Contractual Obligations. We are party to various contractual obligations that we will be required to satisfy over the short and long term. The majority are discussed in the Notes to Consolidated Financial Statements and primarily include the following: medical claims and benefits payable, amounts due to government agencies, principal and interest on our debt and leases. Some items are based on management’s estimates and assumptions about obligations, including duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the contractual obligations we will actually pay in future periods may vary. Additionally, we have a variety of other contractual agreements related to acquiring services used in our operations. However, we believe these other agreements do not contain material non-cancelable commitments.

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, and some differences could be material. Our most significant accounting estimates, which include a higher degree of judgment and/or complexity, include the following:

•Medical claims and benefits payable. See discussion below, and refer to the Notes to Consolidated Financial Statements, Notes 2, “Significant Accounting Policies,” and 10, “Medical Claims and Benefits Payable” for more information.

•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 the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

•Quality incentives. For a discussion of this topic, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

•Business Combinations, and Goodwill and intangible assets, net. For a comprehensive discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” Note 4, “Business Combinations,” and Note 9, “Goodwill and Intangible Assets, Net.”

MEDICAL CARE COSTS, MEDICAL CLAIMS AND BENEFITS PAYABLE

Medical care costs are recognized in the period in which services are provided and include fee-for-service claims, pharmacy benefits, capitation payments to providers, and various other medically-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date (“IBNP”). Pharmacy benefits represent payments for members' prescription drug costs, net of rebates from drug manufacturers. We estimate pharmacy rebates based on historical and current utilization of prescription drugs and contractual provisions. Capitation payments represent monthly contractual fees paid to providers, who are responsible for providing medical care to members, which could include medical or ancillary costs like dental, vision and other supplemental health benefits. Such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates. Other medical care costs include all medically-related administrative costs, amounts due to providers pursuant to risk-sharing or other incentive arrangements, provider claims, and other healthcare expenses. Examples of medically-related administrative costs include expenses relating to health education, quality assurance, case management, care coordination, disease management, and 24-hour on-call nurses. Additionally, we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability.

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The following table illustrates consolidated medical care costs by type for the periods indicated:

Medical claims and benefits payable consist mainly of fee-for-service IBNP, unpaid pharmacy claims, capitation costs, other medical costs, including amounts payable to providers pursuant to risk-sharing or other incentive arrangements and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk. IBNP includes the costs of claims incurred as of the balance sheet date which have been reported to us, and our best estimate of the cost of claims incurred but not yet reported to us. We also include an additional reserve to ensure that our overall IBNP liability is sufficient under moderately adverse conditions. We reflect changes in these estimates in the consolidated results of operations in the period in which they are determined.

The estimation of the IBNP liability requires a significant degree of judgment in applying actuarial methods, determining the appropriate assumptions and considering numerous factors. Of those factors, we consider estimated completion factors (measures the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical payment patterns) and the assumed healthcare cost trend (the year-over-year change in per-member per-month medical care costs) to be the most critical assumptions. Other relevant factors also include, but are not limited to, healthcare service utilization trends, claim inventory levels, changes in membership, product mix, seasonality, benefit changes or changes in fee schedules, provider contract changes, prior authorizations and the incidence of catastrophic or pandemic cases.

For claims incurred more than three months before the financial statement date, we mainly use estimated completion factors to estimate the ultimate cost of those claims. Completion factors measure the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical claims payment patterns. We analyze historical claims payment patterns by comparing claim incurred dates to claim payment dates to estimate completion factors. The estimated completion factors are then applied to claims paid through the financial statement date to estimate the ultimate claims cost for a given month’s incurred claim activity. The difference between the estimated ultimate claims cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the financial statement date and is included in our IBNP liability.

For claims incurred within three months before the financial statement date, actual claims paid are a less reliable measure of our ultimate cost since a large portion of medical claims are not submitted to us until several months after services have been submitted. Accordingly, we estimate our IBNP liability for claims incurred during these months based on a blend of estimated completion factors and assumed medical care cost trend. The assumed medical care cost trend represents the year-over-year change in per-member per-month medical care costs, which can be affected by many factors including, but not limited to, our ability and practices to manage medical and pharmaceutical costs, changes in level and mix of services utilized, mix of benefits offered, including the impact of co-pays and deductibles, changes in medical practices, changes in member demographics, catastrophes and epidemics, and other relevant factors.

Actuarial standards of practice generally require a level of confidence such that our overall best estimate of the IBNP liability has a greater probability of being adequate versus being insufficient, where the liability is sufficient to account for moderately adverse conditions. Adverse conditions are situations that may cause actual claims to be higher than the otherwise estimated value of such claims at the time of the estimate, such as changes in the magnitude or severity of claims, uncertainties related to our entry into new geographical markets or provision of services to new populations, changes in state-controlled fee schedules, and modifications or upgrades to our claims processing systems and practices. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.

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When subsequent actual claims payments are less than we estimated, we recognize a benefit for favorable prior period development that is reported as part of “Components of medical care costs related to: “Prior years” in the table presented in Note 10, “Medical Claims and Benefits Payable.” Our reserving practice is to consistently recognize the actuarial best estimate including a provision for moderately adverse conditions for each current period. This provision is reported as part of “Components of medical care costs related to: Current year” in the table presented in Note 10. Assuming stability in the size of our membership, the use of this consistent methodology, during any given period, usually results in the replenishment of reserves at a level that generally offsets the benefit of favorable prior period development in that period. In the case of material growth or decline of membership, replenishment can exceed or fall short of the favorable development, assuming all other factors remain unchanged.

Because of the significant degree of judgment involved in estimation of our IBNP liability, there is considerable variability and uncertainty inherent in such estimates. The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2021 that would result if we change our completion factors for the fourth through the twelfth months preceding December 31, 2021, by the percentages indicated. A reduction in the completion factor results in an increase in medical claims liabilities. Dollar amounts are in millions.

The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 2021 that would result if we alter our assumed medical care cost trend factors by the percentages indicated. An increase in the PMPM costs results in an increase in medical claims liabilities. Dollar amounts are in millions.

There are many related factors working in conjunction with one another that determine the accuracy of our estimates, some of which are qualitative in nature rather than quantitative. Therefore, we are seldom able to quantify the impact that any single factor has on a change in estimate. Given the variability inherent in the reserving process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” for a discussion of recent accounting pronouncements that affect us.

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