Molina Medicaid Solutions - DHHR

e10vkAs of December 31, 2010, our health plans were located in California, Florida, Michigan, Missouri, New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin.Additionally, we operate three county-owned primary care clinics in Virginia.Molina Medicaid Solutions SegmentOur Molina Medicaid Solutions segment provides design, development, implementation, and business process outsourcing solutions to state governments for theirMedicaid Management Information Systems, or MMIS. Among the principle differences between the Molina Medicaid Solutions segment and the Health Plans segment are:• The Molina Medicaid Solutions segment, unlike the Health Plans segment, does not assume risk for medical costs. We believe that over time the Molina MedicaidSolutions segment will experience less volatility in profits than the Health Plans segment because the costs incurred for the provision of business process outsourcingservices are less volatile than those incurred for the provision of medical care.• Revenue earned by the Molina Medicaid Solutions segment will be much less than that earned by the Health Plans segment. The revenue earned by our Health Planssegment is intended to include the cost of the medical care actually provided to our health plan membership. Such costs typically amount to approximately 85% of therevenue of the health plans segment. The revenue received by the Molina Medicaid Solutions segment is intended only to pay for certain administrative costs (plusprofit) of the Medicaid program — not the actual cost of services provided to Medicaid members.• In general, we expect the operating profit margin percentage generated by the Molina Medicaid Solutions segment to be higher than the operating profit marginpercentage generated by the Health Plans segment. While total profit is likely to be lower for the Molina Medicaid Solutions segment than for the Health Planssegment, the percentage of revenue that we retain as profit is likely to be higher for the Molina Medicaid Solutions segment.• The capital requirements of the Molina Medicaid Solutions segment are — except in the case of new contract start-ups — considerably less than those of our HealthPlans segment.• Regulatory approval is not required for the Molina Medicaid Solutions segment to pay dividends to us.While we believe that the acquisition of the Molina Medicaid Solutions segment diversifies our risk profile, we also believe that the two segments are complementaryfrom strategic and operating perspectives. From a strategic perspective, both segments allow us to participate in an expanding sector of the economy while continuing ourmission to serve low-income families and individuals eligible for government-sponsored health care programs. Operationally, the segments share a common systemsplatform — allowing for efficiencies of scale — and common experience in meeting the needs of state Medicaid programs. We also believe that we have opportunities to marketvarious cost containment and quality practices used by our Health Plans segment (such as care management and care coordination programs) to state MMIS customers who wishto incorporate certain aspects of managed care programs into their own fee-for-service programs.Composition of Revenue and MembershipHealth Plans SegmentPremium revenue is fixed in advance of the periods covered and, except as described in “Critical Accounting Policies” below, is not generally subject to significantaccounting estimates. For the year ended December 31, 2010, we received approximately 94% of our premium revenue as a fixed PMPM amount, pursuant to our Medicaidcontracts with state agencies, our Medicare contracts with the Centers for Medicare and Medicaid Services, or CMS, and our contracts with other managed care organizationsfor which we operate as a subcontractor. These premium revenues are recognized in the month that members are entitled to receive health care services. The state Medicaidprograms and the federal Medicare program periodically adjust premium rates.40Table of ContentsFor the year ended December 31, 2010, we received approximately 6% of our premium revenue in the form of “birth income” — a one-time payment for the delivery ofa child — from the Medicaid programs in all of our state health plans except New Mexico. Such payments are recognized as revenue in the month the birth occurs.The amount of the premiums paid to us may vary substantially between states and among various government programs. PMPM premiums for CHIP members aregenerally among our lowest, with rates as low as approximately $75 PMPM in California. Premium revenues for Medicaid members are generally higher. Among the TANFMedicaid population — the Medicaid group that includes mostly mothers and children — PMPM premiums range between approximately $100 in California to $230 inMissouri. Among our Medicaid ABD membership, PMPM premiums range from approximately $320 in Utah to $1,000 in Ohio. Contributing to the variability in Medicaidrates among the states is the practice of some states to exclude certain benefits from the managed care contract (most often pharmacy and catastrophic case benefits) and retainresponsibility for those benefits at the state level. Medicare premiums are almost $1,100 PMPM, with Medicare revenue totaling $265.2 million, $135.9 million, and$95.1 million, for the years ended December 31, 2010, 2009, and 2008, respectively.41Table of ContentsThe following table sets forth the approximate total number of members by state health plan as of the dates indicated:As of December 31,2010 2009 2008Total Ending Membership by Health Plan:California 344,000 351,000 322,000Florida 61,000 50,000 —Michigan 227,000 223,000 206,000Missouri 81,000 78,000 77,000New Mexico 91,000 94,000 84,000Ohio 245,000 216,000 176,000Texas 94,000 40,000 31,000Utah 79,000 69,000 61,000Washington 355,000 334,000 299,000Wisconsin(1) 36,000 — —Total 1,613,000 1,455,000 1,256,000Total Ending Membership by State for our Medicare Advantage Plans(1):California 4,900 2,100 1,500Florida 500 — —Michigan 6,300 3,300 1,700New Mexico 600 400 300Texas 700 500 400Utah 8,900 4,000 2,400Washington 2,600 1,300 1,000Total 24,500 11,600 7,300Total Ending Membership by State for our Aged, Blind or Disabled Population:California 13,900 13,900 12,700Florida 10,000 8,800 —Michigan 31,700 32,200 30,300New Mexico 5,700 5,700 6,300Ohio 28,200 22,600 19,000Texas 19,000 17,600 16,200Utah 8,000 7,500 7,300Washington 4,000 3,200 3,000Wisconsin(1) 1,700 — —Total 122,200 111,500 94,800(1) We acquired the Wisconsin health plan on September 1, 2010. As of December 31, 2010, the Wisconsin health plan had approximately 3,000 Medicare Advantagemembers covered under a reinsurance contract with a third party; these members are not included in the membership tables herein.42Table of ContentsMolina Medicaid Solutions SegmentOur Molina Medicaid Solutions segment provides technology solutions to state Medicaid programs that include system design, development, implementation, andtechnology outsourcing services. In addition, this segment offers business process outsourcing services such as claims processing, provider enrollment, pharmacy drug rebatehttp://sec.gov/Archives/edgar/data/1179929/000095012311023069/a58840e10vk.htm[1/6/2012 11:08:51 AM]