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Molina Healthcare investors experience whiplash

June 08, 2012|By Chad Terhune
  • At a Molina Healthcare clinic in Wilmington, Dr. Juan Pena diagnoses Erick Madrigal as his mother, Mariana Jemenez, looks on.
At a Molina Healthcare clinic in Wilmington, Dr. Juan Pena diagnoses Erick… (Bob Chamberlin / Los Angeles…)

Investors in Molina Healthcare Inc. took a wild ride this week.

Shares of the Long Beach-based health insurer plunged 31% Thursday after it withdrew its full-year profit forecast because of sharply higher costs in its Texas business.

Shares rallied Friday nearly 30% after Molina announced that its appeal in Ohio was successful and the state will renew the company’s lucrative Medicaid contract there, which analysts say accounts for more than 20% of the company’s annual earnings.

A spokeswoman for Molina said the new contract in Ohio, set to begin Jan. 1, also marks an expansion for the company in that state.

In afternoon trading, Molina shares were up $4.75, or 27%, to $22.52. The company is still off its 52-week high of $36.83.

This flurry of news shows both the promise and pitfalls as health insurers nationwide pursue more government healthcare business. Medicaid, the government program for the poor and disabled, has been one of the industry's fastest-growing businesses in recent years.

Molina has been at the forefront of this trend for years and it serves exclusively as a managed-care plan for government programs such as Medicaid and Medicare. It covers 1.7 million patients in California and nine other states.

However, these patients in government health plans are often some of the most costly to treat and difficult to manage. In a securities filing, Molina said its costs in Texas for services such as long-term care, personal attendants and adult day care were running much higher than expected.

The company said its medical costs in two areas of Texas were 20% above its premium revenue there. Molina said it will provide more financial guidance when it reports earnings next month.


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