MOLINA HEALTHCARE, INC. (MOH) FY 2024 MD&A

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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