Molina's exchange cost surge rings 'canary' alarm for individual health market

The Marketplace plans accounted for just 10% of Molina's revenue, but "we continued to experience much higher utilization relative to risk-adjusted revenue," Joe Zubretsky, the company's chief executive officer, said today during a conference call the company held to go over results with securities analysts.

The medical care ratio for the Marketplace plans soared to 95.6%, from 73% in the third quarter of 2024.

The medical care ratio increase was due partly to the impact of acquisitions and an overall increase in health care utilization, but it was also due to federal program rules that imposed tough new "market integrity" requirements, which forced Molina to cancel some Marketplace enrollees' coverage, and other rules that required Molina to cover the medical costs of some of the people who were disenrolled, the company said in the version of its third-quarter report that it filed with the U.S. Securities and Exchange Commission.

The ACA public exchange program runs a risk-adjustment program that uses cash from plans with low-cost enrollees to help the plans with high-cost enrollees, but enrollee costs appeared to be high throughout the industry in the third quarter, Zubretsky said.

Molina was expecting exchange plans to add $3 to earnings per share but now expects it to subtract $2 from earnings per share.

One positive factor for 2026 is that Molina assumed when it priced exchange plan coverage for 2026 that the current, relatively high level of federal ACA premium tax credit subsidies would expire, and that the expiration would hurt enrollment, company executives said.

Molina's 2026 rate increases for exchange plans range from 15% to 45%, with in average of 30%, and the company has reduced the number of U.S. counties within which it sells exchange plan coverage by 20%, according to Mark Kelm, Molina's chief financial officer.

The annual enrollment period for ACA exchange plans is set to start Nov. 1.

What it means: Molina focuses on the Medicaid, Medicare and ACA exchange markets and is not a major provider of employer-sponsored health coverage.

But Molina might be a good health cost increase "canary" for the whole health insurance and health benefits sector.

In the summer, Molina reported shortly after the end of the second quarter that its commercial plan costs were running high. Other health insurers soon reported that their claim costs were also higher than expected.

Some employers are interested in the idea of using individual coverage health reimbursement arrangements or other arrangements to provide cash that employers can use to buy their own individual coverage.

For employers looking at ICHRA plans, the spike in claim costs at Molina raises questions about how well the ACA exchange plan system and the overall individual major medical insurance market can support an employer shift to cash-for-coverage programs.

But executives at a bigger insurer, Elevance Health, sounded comfortable with its ACA exchange plan costs Tuesday when they talked about their company's third-quarter earnings.

Related: Elevance Health unfazed by 'elevated' commercial group medical costs

Mark Kaye, the Elevance chief financial officer, said during a conference call the company held to discuss its results that the company had expected claims to surge and priced accordingly, but that the exchange plans had ended up performing "somewhat favorably" compared to the "prudent expectations" the company had set in July.