Molina’s Earnings Disclosure Adds to Worsening Headwinds for Health Insurers

Less than a week after Centene Corp. withdrew its earnings guidance for the year and saw its stock plummet, Molina Healthcare, Inc. on July 7 revealed that its second-quarter earnings will be “modestly below expectations,” citing ongoing medical cost pressures.

Molina also lowered its full-year adjusted earnings per share (EPS) guidance to a range of $21.50 to $22.50, compared with the previous guidance of greater than $24.50.

Some industry experts say Molina’s disclosure offers further evidence of the managed care sector’s mounting troubles.

Brad Ellis, senior director of North American insurance ratings at Fitch Ratings, tells AIS Health, a division of MMIT, that he expects there to be “some pressure in the second quarter” when publicly traded insurers report results starting next week.

“It almost seems like, in a row, people are making comments about higher utilization,” he points out. And when UnitedHealth Group suspended its full-year guidance and announced a CEO change in May, the firm “hinted to higher utilization…across the board,” Ellis observes. Still, he adds that the magnitude of the earnings guidance adjustments made by Centene and Molina was a “bit of a surprise.”

Fitch changed its credit-rating outlook for Centene from stable to negative on July 3, and in June it downgraded its outlook for the U.S. health insurance sector from neutral to deteriorating.

Wall Street analysts pointed out that Molina’s guidance downgrade wasn’t as bad as investors may have feared following Centene’s announcement.

“In our conversations with investors, we believe an EPS hit up to 2x what [Molina] was guided to was feared in Bear Case scenarios,” Cantor Fitzgerald’s Sarah James wrote in a research note.

Other analysts struck a similar chord.

“Given the stock was down ~22% last week after [Centene] withdrew guidance due to individual health exchange market (HIX) risk adjustment transfer revenue headwinds, we view [Molina’s] guidance reduction as better than feared,” Mizuho Securities’ Ann Hynes wrote.

“While cost pressures remain a challenge across the sector, with the stock off 20%+ over the past few days on the heels of recent competitor commentary from Centene…last week, we think a lot is already reflected, view long-term commentary as encouraging and will provide additional detail when the company reports full 2Q results” on July 23, added Truist Securities’ David MacDonald.

In her own note to investors, James pointed out that Molina is the third payer to offer a “negative intra-quarter update,” after Centene’s July 1 disclosure and Elevance Health, Inc. CEO Gail Boudreaux’s comments in late May that indicated Medicaid utilization was “coming down a little bit slower than what we would have originally thought” and that Affordable Care Act exchange utilization rates were rising. Elevance at the time reaffirmed its 2025 guidance, but the company could change that when it reports its second-quarter results on July 17.

In its 8-K filing with the Securities and Exchange Commission, Molina said it now expects its second-quarter EPS to be approximately $5.50. “This preliminary result reflects medical cost pressures in all three lines of business,” Molina wrote, referring to Medicaid, Medicare and the ACA exchanges. The insurer also said it “expects these medical cost pressures to continue into the second half of the year.”

Molina also said that its new 2025 adjusted EPS guidance range, $21.50 to $22.50, reflects a consolidated pre-tax margin of just under 4%, which is at the low end of its long-term guidance range.

“The short-term earnings pressure we are experiencing results from what we believe to be a temporary dislocation between premium rates and medical cost trend which has recently accelerated,” said Molina CEO Joseph Zubretsky. “As we are still performing near our long-term target ranges, nothing, including the potential impacts of the budget bill, has changed our outlook for the long-term performance of the business.”

The massive budget reconciliation package signed by President Donald Trump on July 4 is expected to cause significant coverage losses in both Medicaid and the ACA exchanges as various provisions take effect in the coming years. These include implementing Medicaid work requirements, reducing or eliminating provider taxes that help fund state Medicaid programs, and tightening eligibility rules for ACA exchange enrollees.

“This bill was not framed as a health care reform effort, but it represents the biggest change to the health care system since the Affordable Care Act 15 years ago,” Larry Levitt, KFF’s executive vice president for health policy, said during a July 9 media briefing on the legislation. Preliminary estimates from the Congressional Budget Office suggest the law will increase the uninsured by about 11.8 million over the next decade.

Joseph Paduda, principal of Health Strategy Associates, tells AIS Health that the recent disclosures from Centene and Molina are a “direct and inevitable result of the Republicans' budget bill.”

“While Republicans may have thought they would avoid constituent backlash by post-dating work requirements and other provisions,” which don’t go into effect until 2027, the “reality is health plans and providers alike have to plan today for what is coming later this year and next — and investors will as well,” Paduda contends.

“We are entering uncharted territory — after 10 years of expanding coverage and a shrinking number of uninsured, America is going back in time to when health plan revenues and profits were lower; the pie is shrinking. Couple that with higher costs for unfunded indigent care, and the battles between providers and health plans are going to become ever more brutal.”

But in a July 7 research note, Guggenheim Securities analyst Jason Cassorla suggested that while the “One Big Beautiful Bill Act” may be a headwind for the managed care sector, it is survivable.

“The final bill largely shows no material changes from previously contemplated provisions early last week,” he wrote. “Importantly, most ‘cuts’ as part of the bill come in 2027 and beyond, which gives some opportunity for MCOs and providers to look for areas of adaptation / offsets down the line, and/or for Congress to pass further legislation that could act as offsets to the provisions within the OBBB.”

by Leslie Small

Adapted from the 7/11/25 issue of AIS’s Health Plan Weekly