On Thursday, Molina Healthcare (NYSE:MOH) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Molina Healthcare reported adjusted EPS of $2.35 on $10.2 billion of premium revenue for Q1 2026, characterizing the results as solid given the current modest expectations.
The company reaffirmed its full-year 2026 guidance of approximately $42 billion in premium revenue and at least $5 in adjusted EPS, despite a strong Q1 performance due to a cautious approach amid a challenging medical cost environment.
Molina Healthcare observed a 1.6% adjusted pre-tax margin for the quarter in Medicaid, with a medical cost trend favorable to expectations, and expects the 5% medical cost trend assumption for 2026 to hold.
The Marketplace segment ended the first quarter with 305,000 members, slightly higher than prior guidance, and the company aims to reduce exposure in this volatile segment while maintaining stability in the silver tier.
Molina Healthcare highlighted a strategic focus on the duals business in Medicare, with plans to exit the MAPD product in 2027.
The company expressed optimism about potential off-cycle and retro rate updates from states throughout the year, similar to last year.
The capital foundation remains strong with ample cash and access to capital for growth initiatives, and the company plans to update guidance after Q2 to reflect first-half results.
The company is cautious about potential regulatory changes in the Marketplace and expects to provide a detailed financial outlook through 2029 at the upcoming Investor Day.
Molina Healthcare emphasized disciplined medical cost management and a prudent view of the full-year results at this early point in the year.
Full Transcript
OPERATOR
Good morning and welcome to Molina Healthcare's first quarter 2026 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. As a reminder, please limit yourself to one question. I would now like to turn the conference over to Jeffrey Guyer, Vice President, Investor Relations at Molina Healthcare. Please go ahead.
Jeffrey Guyer (Vice President, Investor Relations)
Good morning and welcome to Molina Healthcare's first quarter 2026 earnings call. Joining me today are Molina's President and CEO Joe Zabretsky and our CFO Mark Keim. A press release announcing our first quarter 2026 earnings was distributed after the market closed yesterday and is available on our investor relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks are made as of today, Thursday, April 23, 2026 and have not been updated subsequent to the initial earnings call. On this call we will refer to certain non GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in the earnings release. During the call we will be making certain forward looking statements including but not limited to statements regarding our 2026 guidance the medical cost and utilization trend during the year the political, legislative and regulatory landscape the impact of Medicaid work requirements and redeterminations our expected growth and margin expansion the estimated amount of our embedded earnings power and future earnings realization Medicaid rate adjustments and updates our RFP awards and our acquisitions and MA activity. Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10K annual report filed with the SEC, as well as our risk factors listed in our Form 10Q and Form 8K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zabretsky.
Joe Zabretsky (President and CEO)
Thank you, Jeff and good morning. Today I will discuss several of our reported financial results for the first quarter, our full year 2026 guidance which we reaffirm at approximately $42 billion of premium revenue and at least $5 in adjusted earnings per share. The political and regulatory landscape and a brief glimpse of our investor day agenda and growth outlook. Let me start with our first quarter performance. Last night we reported adjusted earnings per share of $2.35 on $10.2 billion of premium revenue. We would characterize the result as solid under the circumstances, but that characterization is against a backdrop of current modest expectations. Our 91.1% consolidated MCR reflects strong operating performance as we continue to navigate a challenging medical cost environment. We produced a 1.6% adjusted pretax margin in the quarter in Medicaid. In the first quarter the business produced an MCR of 92%. While the January first rate updates came in as expected, our medical cost trend was modestly favorable to our expectations. We continue to work to enhance our medical cost management protocols to address the areas of high cost trend we observed in 2025. Last year we observed a 7.5% medical cost trend that included 250 basis points of acuity shift related to the post pandemic redetermination process. However, the acuity shift in core utilization impacts diminished as the year progressed. Our expectation that the acuity shift trend that we had experienced in 2025 was behind us and would not recur is holding up. We feel confident in our 5% medical cost trend assumption for 2026 in Medicare. We reported a first quarter MCR of 89.8%. At the beginning of the year we successfully completed the transition of MMP members to the new integrated products. Our duals business is the strategic focus for us in Medicare. As previously mentioned, we will exit the mapd product for 2027 in Marketplace. The first quarter MCR was 84%. Membership stands at 305,000 and is slightly higher than our prior guidance, but the profile of our membership is as expected following our decision to reduce our exposure in this highly volatile segment. The majority of our members are renewal members and we remain concentrated in the silver tier which leads to greater stability and predictability in our membership base. Turning now to our 2026 guidance, although the quarter was strong when compared to internal and external expectations, we are merely reaffirming Our full year 2026 adjusted earnings per share guidance of at least $5. Our full year 2026 premium revenue guidance for remains at approximately 42 billion. We note that our forecast for Medicaid membership attrition increased slightly, but the associated revenue loss is projected to be offset by higher revenue in marketplace. We remain optimistic that states may provide off cycle and retro rate updates throughout the year as they did last year. We are keenly aware that medical cost trend and earnings came in modestly favorable and to expectations in the quarter. That being said, merely reaffirming our prior full year guidance is a prudent approach at this early point in the year and in this current environment. When we report second quarter results, we will update our full year 2026 guidance to reflect the first and second quarter results which will provide a time tested base off of which to project the second half of the year. Turning now to the political and legislative landscape in Medicaid, States continue to evaluate their processes on how to implement work requirements and biannual redeterminations. The guidance from CMS affords states some flexibility on how to proceed with these requirements, particularly as it relates to to the timing of these reviews. We are working closely with our state partners on the administrative requirements needed to implement these new policies. We continue to believe that membership impacts will be minor and emerge gradually through 2027 and 2028 and therefore any impact due to changes in the risk pool will. in Medicare, we are pleased with the improvement in the CMS final rate notice compared to the preliminary notice. In addition, the continued progress of states promoting the integration of Medicaid and Medicare supports the long term competitive position of our dual products in marketplace. As we approach the 2027 pricing cycle, we will likely remain cautious as it is still possible for disruptive regulatory changes to occur. We look forward to updating you on our three year outlook at our Investor Day event on Friday, May 8th. We see a clear path to margin expansion through the correction of the rate and trend imbalance that exists today and the revenue growth opportunities continue to be attractive in our businesses. We will provide a detailed financial outlook for premium revenue and earnings per share through 2029 and demonstrate how we will again realize the intrinsic value of the franchise we have built over the past eight years. We will do so with the same level of detail and specificity that has been our hallmark. In summary, we are pleased with our solid first quarter results and continued disciplined approach to medical cost management. Our Reaffirmed full year 2026 guidance reflects a prudent view of full year results at this early point in the year. With that, I will turn the call over to Mark for some additional color on the financials.
Mark Keim (Chief Financial Officer)
Mark thanks Joe and good morning everyone. Today I'll discuss additional details on our first quarter performance, the balance sheet and our 2026 guidance beginning with our first quarter results for the quarter we reported approximately $10.2 billion of premium revenue with adjusted EPS of $2.35. Our first quarter consolidated MCR was 91.1% and reflects continued disciplined medical cost management. In Medicaid, our first quarter reported MCR was 92%. The January 1st rate updates came in as expected. While medical cost trend was modestly favorable to our expectations In Medicare, our first quarter reported MCR was 89.8% in line with our expectations. We remain confident in the pricing and benefit adjustments we implemented for 2026. In particular, our duals products, which now include last year's MMP members, are off to a good start in Marketplace. Our first quarter reported MCR was 84%. Adjusted for prior year risk adjustment and program integrity impacts reduces that metric to approximately 79.5. Given the pricing actions we took in our Marketplace segment this year, we have reduced our exposure and prioritized margin improvement. Our adjusted GA ratio for the quarter was 6.9% and reflects the timing of certain operating expenses with no change to our full year outlook. Turning to the balance sheet, our capital foundation remains strong. In the quarter we harvested approximately $35 million of subsidiary dividends and our parent company cash balance was approximately 213 million at the end of the quarter. Our operating cash flow for the quarter was 1.1 billion and driven by the timing of government payments in Medicaid and Marketplace debt at the end of the quarter was 6.1 times trailing twelve month EBITDA and our debt to cap ratio was about 48. We continue to have ample cash and access to capital to fuel our growth initiatives. Days in claims payable at the end of the quarter was 44, modestly lower than is typical due to the timing of payments at quarter end. We remain confident in the strength and consistency of our actuarial process and our reserve position. Next, a few comments on our 2026 guidance. As Joe mentioned, we continue to expect full year premium revenue to be approximately 42 billion. Within that number are a few moving pieces. We now expect same store membership in Medicaid to decline 6% this year, up from previous guidance of a 2% decline. We expect to end the year with approximately 4.5 million members. Meanwhile, Marketplace saw moderately higher paid renewals ending the first quarter at 305,000. With normal market attrition, we expect membership in our marketplace segment to end the year at approximately 250,000. Renewing members now represent 70% of our book. Lower membership in Medicaid and higher membership in Marketplace results in our premium guidance remaining at approximately 42 billion with low and no utilizers. Now at the lowest level we have seen. We do not expect any acuity shift from additional Medicaid membership declines. Our full year consolidated MCR and each of our segment MCRs are unchanged in Medicaid. The full year MCR of 92.9 includes rate increases of 4% and medical cost trend at 5%. States continue to update their actuarial data to reflect higher observed trend. We remain optimistic. States may provide off cycle and retro rate updates throughout the year as they did last year. Several of our states have already provided off cycle rate increases and these would represent upside to our guidance. Full year medical cost trend guidance remains in line with our previous expectations. States continue to evaluate program design and benefit changes to address medical cost categories with the highest observed trends. Our MCR guidance on Medicare is 94. We remain confident in the performance of our Medicare duals and integrated product business in marketplace. Our full year mcr guidance is 85.5 and includes the normal expected seasonality. We continue to expect the full year G and a ratio to be approximately 6.4 as we drive efficiencies in our operations. The higher ratio reported in the first quarter was simply timing of a few items within the year. We reaffirm our full year EPS guidance of at least $5. We continue to expect earnings seasonality to be front end loaded this year, reflecting the January 1 Medicaid rate cycle in the first half of the year and implementation of the Florida CMS contract in the second half. Turning to Embedded earnings, recall that our definition of embedded earnings is the future incremental contribution of of our new contract wins and acquisitions. Recall that $2.50 a share of embedded earnings is the combination of 2026 MAPD losses and Florida CMS first year implementation costs. Both are certain to be positive impacts to our 2027 performance. Embedded earnings will remain a driver of value in the future. We look forward to providing you with an updated view of this important measure at our Investor Day. This concludes our prepared remarks. Operator we are now ready to take questions.
OPERATOR
We will now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. In the interest of time, please limit yourself to one question at this time. We will pause momentarily to assemble our roster. The first question comes from Andrew Mock with Barclays. Please go Ahead.
Andrew Mock (Equity Analyst at Barclays)
Hi, good morning. Appreciate the updated comments around lower Medicaid membership.
Joe Zabretsky (President and CEO)
Can you help us understand which states are driving that incremental pressure and how that impacts the MLR outlook and cadence for the balance of the year? Thanks. Sure, Andrew. I'll frame it and then kick it to Mark. We are pretty spot on with our membership forecast in Medicaid for about 15 or 17 of our states at about 2%. We underestimated the impact in California, Illinois, New York and somewhat in Texas. And in California it was certainly influenced by by the undocumented immigrant population. I'll take it to Mark to talk about why we don't expect a continued acuity shift here. And it has to do with what we call low and no utilizers and the fact that that's a much smaller component of our population today than it was in the past. Mark?
Mark Keim (Chief Financial Officer)
Yeah, absolutely. Good morning, Andrew. Yes, so the states that Joe mentioned are driving why we're looking for a little bit higher attrition this year. California, Illinois, New York, Texas. Joe mentioned in California, it's the undocumented immigrants, the undocumented immigration status members that are probably very disproportionately driving that state. Now our guidance has membership attrition was 2% for the year. In our new guidance it's now 6%. So certainly on volume that's down. In our prepared remarks we said the revenue would be offset by marketplace. But to Joe's point, the acuity impact, potential acuity impact on a higher attrition assumption for Medicaid, we're really not seeing it. When we look at the low and no users, most of them came out over the last year and a half or two years since the start of redetermination after the pandemic. Right now we're seeing a lower percentage of low users and no users in our Medicaid population than we ever have, at least since we've been recording it. The other point I'd mention is when we look at our stayers leavers analysis on Medicaid, the people that are staying with us versus the people that are leaving us, the leavers at this point are leaving very close to portfolio averages, which is just one more data point that suggests to us that any of this pent up acuity shift is largely behind us. So yes, lower on Medicaid membership, but we don't really see an acuity impact here.
OPERATOR
The next question comes from Steven Baxter with Wells Fargo. Please go ahead.
Steven Baxter (Equity Analyst at Wells Fargo)
Yeah, hi, thank you. Just to kind of follow up on that, I hear your point that low and no Utilizers are at the lowest point you've seen, but I guess enrollment is also being more tightly managed I think probably at any time in the recent history of the Medicaid program. So I guess can you talk a little bit about your confidence level? That that actually is kind of the reasonable baseline for looking at this. And then I hear you on the kind of the acuity narrowing and the leap or stairs narrowing as you got through the second half of the year. But do you think you're actually at the point now where it is truly zero and there is no difference? I'd hope you just be able to expand a little bit more on this assumption.
Joe Zabretsky (President and CEO)
Thanks. A couple of data points. I'll frame it and hand it to Mark. Again, our definition of low and no utilize. We don't actually talk about exactly what it is, but it's a good metric to figure out Whether there are large skews of MCRs in your population that right now is very tight. In fact, in our definition, the percentage of total membership that are low and no users is seven and a half percentage points higher, lower sorry than it was at the peak of the pandemic. And it's actually below pre pandemic levels. So we're really confident that the post pandemic redetermination process eliminated a lot of people who weren't using the system and eliminated them from the Medicaid rolls. Now with respect to membership, yes, the whole eligibility verification process has gotten tighter in states. Right now we're comfortable with our 6% membership attrition assumption for 2026. And when we talk to you at Investor Day on May 8, we'll give you a longer term view of what that might look like for our Medicaid business over a three year period.
OPERATOR
The next question comes from Ann Hines with Mizuho Securities. Please go ahead.
Ann Hines (Equity Analyst at Mizuho Securities)
Great, thanks. Let me talk about free cash flow. Your free cash flow was strong in the quarter after a couple of years that weren't great. What are you expecting for 2026 and then on your debt to cap, I know it's right now 48%. What is the goal? What's the ultimate goal to get that to and maybe the timing. Thank you.
Mark Keim (Chief Financial Officer)
Hey Ann, it's Mark. Good morning. Thanks a lot for that. I get questions on operating cash flow all the time. And as you know, in a regulated business like Molina, what's more important than total company operating cash flow is cash flow at the parent. Right? Operating cash flow swings a lot as we do accruals for risk adjustment for corridors we hold those accruals, maybe we don't pay them down for a year or two. Then if we're not accruing new liabilities, you see those operating cash flows, but they aren't meaningful for the company because again, the cash flow stays in the subs. What is meaningful is the cash flow at the parent. We continue to have a lot of success with dividends moving from our subsidiaries to the parent. We moved cash to the parent once again in the first quarter and our outlook for the rest of the year is pretty good. My cash at the parent is a little over 200 in the first quarter. It'll be more than 600 at the end of the year based on the dividends I expect to take throughout the rest of the year. So very good cash flow to the parent and that's where we can actually use it to redeploy. And that's what's really important. So on debt to cap, we are a little higher than we've been, but still at a very comfortable level. 47, 48% depending on how you measure it. Typically we target something in the low 40s as the more sustaining and enduring level, but with normal net income and the outlook we have for the business, I'm very comfortable with where we are in debt to cap.
OPERATOR
The next question comes from Kevin Fishbeck with Bank of America. Please go ahead.
Kevin Fishbeck
Great, thanks. I understand the desire to kind of reaffirm this early in the year. I think we usually expect a lot more clarity for companies with Q2 results. So that makes sense. But just trying to understand a little bit whether this is that type of normal assumption around. Oh, we just kind of wait for Q2 to raise guidance or whether you believe that there are still meaningful unknowns that aren't quantifiable at this point. If there are where you think that those things that could push the numbers in either direction that are still unknown.
Joe Zabretsky (President and CEO)
Thanks. Are prudent move to not increase guidance after the first quarter, even though the indicators are all positive for all three businesses are for vastly different reasons. In Medicaid, the volatility of the medical medical cost inflection we Experienced in late 2025, we had a very good trend result. In fact, the annualized trend result in the first quarter would indicate we might even come in less than 5% for the year. But we're not yet calling that in marketplace. We want to wait to see the June Wakeley's before truing up our estimate for the full year. And we had a very, very good start in our new integrated products, our fighting and Heidi's and Medicare. But it's 1/4. It's a brand new product. Existing members, but a brand new product. We want to see that develop for another quarter. We use the term time tested because I think it is prudent to see six months of results before updating our guidance. Particularly coming off a highly volatile medical cost inflection environment in 2025, bearing in mind in Medicaid, with a 92% result in the first quarter, a 92.9 indication in our guidance for the full year, we can actually produce loss ratios north of 93% and still hit our guidance for the rest of the year. So cautious perhaps, but in this environment we think it's entirely prudent to do so.
OPERATOR
The next question comes from Justin Lake with Wolf Research. Please go ahead.
Justin Lake (Equity Analyst at Wolf Research)
Thanks. Good morning. Medicaid cost trend Last year you said seven and a half. This year you're saying around five. Appreciate the company's transparency in giving quarterly Medicaid trend. I think you said 1.2% in the first quarter last year and 1.6 in the second. Can you give us the Q3 and Q4 trends that you saw quarterly coming out? What are you seeing in the first quarter? And can you give us the split between trend and acuity each quarter and maybe also tell us what's driving the lower trend? What cost categories driving lower trend this year?
Joe Zabretsky (President and CEO)
Thanks. Sure, Justin. I'll frame it and hand it to Mark. The framing remarks that I'll make is that in 2025 on a reported basis, trend appeared to be accelerating, but as normalized and viewed on a pure period basis, it was actually declining throughout the year. Now, the real key point is that all of the 2025 information is being used by observers to predict what's going to happen in 2026. In 2026, for 1 quarter only the 2.5% acuity shift component of trend for 2025 did not recur and the trend observed in the first quarter annualized would put us at better than 5% for the full year. So despite what it was doing in 2025, it looks like at least for one quarter, our Trend pick for 2026 is holding. Mark, do you want to discuss the quarters?
Mark Keim (Chief Financial Officer)
Sure. Justin, I appreciate your question. And, and the 1.2, the 1.6 you cited, I certainly recall. The way we look at our medical cost expenses is at the time what we report is what we know at the time. The other way we look at medical cost is on a pure period basis, we We go back and look at the full development of medical costs and we put them in the periods of their dates of service. Those dates of service on a pure period basis in retrospect can look different than what we reported at the time. So the seven and a half that we looked at for last year is certainly the number we saw. The evolution of it is a little bit different than we reported at the time. So what we saw is higher trends in the first and second quarters declining when we put the cost into their appropriate time periods, which we call a pure period basis, within that declining overall medical cost. Pmpm, the component of the acuity shift that we've talked about, declined very meaningfully such that by the end of the year it was de minimis, almost gone. And as what Joe said, what gives us great confidence is here in the first quarter we're seeing exactly that bear out; we're seeing the run rate of the 5% we saw last year of the core, but we're not seeing the acuity shift. In fact, as Joe said, we're seeing just a little bit better than that run rate of 5%. But at this point it's too early to really lay that out. I always am reluctant to talk about trends on a quarterly basis because there's seasonality and there's noise. It's a much better annual concept. But I certainly appreciate the question.
OPERATOR
The next question comes from Sarah James with Cancer Fitzgerald. Please go ahead.
Mark Keim (Chief Financial Officer)
Thank you. Dave came in at 44, which is below the 46 to 47 range in the prior three quarters. I know you're attributing that to timing, but is there any way that you can give us a look at normalized DCP ex the timing items and then help us understand how you're thinking about reserve funding for Florida kids given the scale of the contract and typical pressure in the beginning of new contract and then second in your assumption that the sub dividends bring parent cash up to 600 million by the end of the year, would that be possible while your company wide RBC still remains similar to the 305% that you exited 25 with? Thanks. I'll take the Florida. I think your second question is about Florida Kids. Let me frame that, and we'll be talking about this on May 8th as a proof point of the significant amount of new business wins we've had over the last five or six years. The Florida Kids program, Florida cms, the official name, we believe that full run rate is a $6 billion revenue program. We are in full implementation mode currently we are experts at managing high acuity lives, which is what this is. And we also have an unparalleled platform, in our opinion, of managing behavioral costs, both from a clinical and cost perspective, which is a very large component of this program. We're really proud of the RFP proposal that we put forward in one, we have good visibility into the economics of the program now that we're implementation mode. We have all the cost and claim data from our customer, our state regulator, and we have visibility on the 25, 26 program rates. So all that being said, we believe, and we've seen that the financial profile of this program is attractive and we believe will provide for a meaningful. It already has provided for a meaningful addition to our embedded earnings to be harvested over a two year period. Mark, you want to address the reserve stats? Absolutely. Sarah, there was a lot in that question. Let me start with dcp. You were at 44. We were at 44 in the first quarter. Now that was down a day and a half from our recent average. And what we said on the prepared remarks, it was entirely the timing of payments. Now if you wanted to poke on that, you would look at what we call the roll forward of our reserves that was in the earnings release release. You'll see it again in the queue. But if you look at looking at it on a kind of per member per month basis, what you would see is that our medical expenses were tracking like average incurred, but on a paid basis. We just paid faster. And that'll stick out in the pmpms if you do the math. Now the other thing you guys do a lot of times to test our reserves is you look at the growth of premium versus the growth of claims payable. And our premium revenue was actually slightly negative year over year. And our claims payable was actually meaningfully positive year over year, which would certainly give you comfort. Now on top of this, these are just testing balance sheet liabilities. Underlying this are true actuarial picks which remain standard like they always are. I think the last part of your question was can the dividends that I talked about still be possible in the presence of the RBC ratio? Absolutely. We only take dividends when they are above the rbc target of 300. So we would never dividend to get below 300 if that was the point of your question. We'll finish the year well above 300 RBC even with those forecasted dividends.
OPERATOR
The next question comes from A.J. rice with UBS. Please go ahead.
A.J. Rice (Equity Analyst at UBS)
Hi everybody. Maybe just to clarify something on the quarterly trend and then ask about marketplace, you were nicely ahead on MCR relative to consensus. I wondered how that compared to your internal expectation. And is any of your hesitancy on rolling that forward and updating guidance related to unusual items that might have impacted the quarter? I know some of the other companies have called out weather and flu being favorable. I don't know whether that had any impact on the trend you saw. And then my question on the exchange is you're probably the only one that's saying you're seeing silver level continue to be the predominant one. Others are talking about move to bronze. One even said they had some backup into gold. Is that pretty much benefit design that's driving that? Are you seeing something different in the market than perhaps others are seeing? And then finally just comment your 305,000 current membership down to 250. Is that just evenly spread over the back half of the year or do you sort of expect a more material
Joe Zabretsky (President and CEO)
drop at some point? Let me take them in reverse order so I can remember them on 305,000. Think of it as going down to 250. Think of it as 40,000 terminations per quarter and 20,000 SEP adds. So 20,000 decline per quarter for three quarters. That's the easy one. On Hicks product mix, we are still predominantly silver at 50%, but yes, we are in bronze where states allow a pricing regime that bronze can be profitable. And yes, there was a slight shift to gold during the year. And I'll let Mark take that and put some color on that in a minute. And on your question about the Medicaid ncr, we used the word time tested for a very specific reason. There was nothing unusual about the first quarter. Yeah, the flu season, what we call ioi, is coming in slightly better than last year, but within expectations. The weather had an effect here and there in various states, but for a few days here and there, no impact. The quarter was clean coming off of the unprecedented inflection of 2025. We want to see two quarters of information before we declare that the 5% trend is coming down and the 4% rates are going up. It's as simple as that. Mark, anything to add on Hicks?
Mark Keim (Chief Financial Officer)
Yeah, absolutely. On the point of the metallic mixes, the market is certainly up on bronze. A lot of what people call buy downs as the subsidies declined and certainly we have a little bit more. We reported about 20% of our mix was bronze this year, which is up a little bit since last year. We're at silver 50% and gold almost 30%. What's interesting about gold is a lot of states have shifted their metallics such that gold becomes just as attractive as silver. As a result, we have a lot of golds and silver. Now why maybe do we have less buy downs than the market? Remember our renewal rate is 70% so we're keeping a lot of the same people and very often they're staying in the same metallic.
OPERATOR
A reminder, if you'd like to ask a question, press Star then one on your touchtone phone. The next question comes from Scott Fidel with Goldman Sachs. Please go ahead.
Scott Fidel
Thanks. Good morning. Was hoping you could maybe just on the Medicare mlr, just because you have the dynamic of exiting MAPD plan for next year, would you be able to parse out what the sort of continuing operations in Medicare which I guess would be more of the the duals vs the MAPD MLR was in the quarter and any thoughts around maybe sort of giving us those metrics each of this quarter just as we try to think about sort of the run rate on Medicare MLR heading into next year.
Joe Zabretsky (President and CEO)
Thanks. You're right to point out that the Medicare story is a little more complicated than most Medicare stories because it's it's a combination of our D SNP product which has been in force for many many years, our MMP members who are now converted to commercial based Heidi and Fighties and then our MAPD product which we are going to eliminate that product for 2027. We cited a drag on this year's earnings due to the MAPD product I think we cited as producing $1 of earnings per share drag that won't repeat next year and it is tracking to plan. The D-SNPs have always produced a modest profit and they continue to the surprise if there was one. A positive surprise was that we took a very cautious approach to converting 80,000 members and over $2 billion of revenue to Heidi and fighties that are highly competitive. New product, new rating regime. It performed a lot better out of the gate than we had anticipated. But it's one quarter and we're going to be cautious in terms of updating guidance for the full year on that product. So in 2027 and beyond we'll only be talking about duals, we'll be talking about D SNP and we'll be talking about Heidi's and Fighties which will become a dual segment and it'll be a lot easier to follow. But those are the three pieces and they all have different dynamics for different reasons. Mark, anything to add?
Mark Keim (Chief Financial Officer)
Yeah, I'll just put some numbers around that for our guidance for Medicare we have about 6.6 billion in revenue, 6.6 billion and a loss of $1.25. As Joe mentioned, the MAPD component of that is a dollar loss on $1.2 billion of revenue that goes away next year. So with next year just being the duals, the D SNPs, the 5Es, the HY Vees, the current run rate is about 5.5 billion, about a 94% MLR. And we see that only getting better over time. In fact, our stars profile for payment year 2027 has improved. So nice outlook for 2027, but that should give you the jumping off point.
Joe Zabretsky (President and CEO)
We'll give you a good three year outlook for our duals business in a couple weeks at our Investor Day. We're pretty excited about it. As you know, the regulatory regime is favoring the integration of Medicaid and Medicare. And since we have a very deep and wide footprint in Medicaid and a Medicare business that's quite robust, we're quite enthusiastic about the prospects for our duals business.
OPERATOR
The next question comes from John Stancil with JP Morgan. Please go ahead.
John Stancil (Equity Analyst at JP Morgan)
Great. Thanks for taking my question over the last few quarters. Usually in the prepared remarks you spend time talking about an actionable MA pipeline. A little bit less commentary on that today. I just want to understand, we've seen some Medicaid plans announce that they're exiting either in 26 or 27. How are you seeing the pipeline? Has anything changed or anything that's kind of making that more or less actionable right now? Thanks, John. Really the only reason, very practical reason, why we didn't talk about growth this quarter was because we have an investor day coming up in two weeks where we'll talk about all of this. And you're right to cite that as you plumb the depths of what goes on around the country in various states, there are plans that are reportedly in trouble, distressed. We know where they are, we know who they are, We've probably talked to them. And the pipeline, the M and A pipeline, is quite replete with actionable opportunities. We are going to remain disciplined, stick to our knitting on properties that fit into our core strategy. And I'll tell you, Mark and I have this debate with ourselves all the time. While we only paid 22,23% of revenue in the past, you know, book value seems to be the best benchmark that one can look at now. And if you're putting, if you're only paying for regulatory capital, an M and A opportunity is as good, if not better than a new contract win. So we'll talk more about that in two weeks time. The only reason we didn't talk about it here is not because it's less important or not actionable. We'll be talking about it in great detail in two weeks time.
OPERATOR
The next question comes from Erin Wright with Morgan Stanley. Please go ahead.
Erin Wright (Equity Analyst at Morgan Stanley)
Great, thanks. So you mentioned several of those moving pieces a lot throughout the call in terms of the various different books of business where you want better clarity. You mentioned for instance June Wakely data, but what did the latest Wakely data, how did that inform you? And then as we think about all those variables, can you kind of rank them on the level of clarity or how comfortable or vulnerable you are across those segments? And then just as we think about you giving long term growth aspirations or targets on May 8, how do we get comfortable with the baseline? Or could you give us any incremental clarity on the nearer term on May 8th at all? Thanks,
Joe Zabretsky (President and CEO)
Aaron. We are encouraged by the start to the new year. The data points we've laid out are real. As someone suggested before, is there anything in the first quarter of an unusual nature that is creating the caution that you're exhibiting? And the answer is no. We use the word time tested because in this environment we think it is entirely reasonable if not prudent to have two full quarters of information, let the first quarter develop and become fully seasoned book in the second quarter, particularly on businesses where you have new membership in order to update our forecast. So no, there is nothing in the first quarter result that is causing this caution. It is the test of time coming off this unprecedented inflection we experienced last year. Now when we get to Investor Day in two weeks time, all you're going to have at the baseline is our current guidance for 2026 at $5. But we're going to give you a really good view of what this looks like in 2029. We'll show you the building blocks of growth. We'll show you how we expect margins to recover and to what extent. Obviously we'll give you the numbers then. But you will see block by block, brick by brick how we're building a story for 2029 and all three of our businesses. And the 2026 baseline of 42 billion of revenue and $5 is, is going to be the baseline. We're not updating it at Investor Day.
OPERATOR
The next question comes from Ryan Langston with TD Cowan. Please go ahead.
Ryan Langston (Equity Analyst at TD Cowen)
Good morning. Sorry if I missed this, but can you elaborate a little bit more on the Commentary of timing for operating expenses in G and A. Is that for incentive comp or something else? And then on the MAPD business exit, you said in the past that you might have an opportunity to monetize that. Can you give us an update where you're at in that process? Thank you. Sure. I will comment on the second question. Ryan first and kick it to Mark. On the timing of operating expenses. Yes. On the MAPD business, which is mostly in here in the Northeast and in California, we are still working with potential counterparties to transfer that business. We'd rather transfer it to a strategic partner. We're still working with various counterparties to that end. If we feel we won't be successful doing that, we will terminate the business and terminate the product for next year. So either way, we will be out of the traditional MadPD product for 2027. We prefer to warm transfer it to a strategic partner. But if we're not able to do that and we're still in the process of exploring that, we will wind it down. Mark, timing of expenses.
Mark Keim (Chief Financial Officer)
Yeah. Hey Ryan. Full year guidance unchanged. As I said in my prepared remarks. 6 4. We booked a 69 in the first quarter which is entire. There's some IT projects. And separately, as you know, we're gearing up for that very large contract in Florida, the Florida CMS kids contract, which is 6 billion of run rate. You can imagine that's a big lift as we think about that. So it's just some lumpy expenses, quarter to quarter. The emphasis here is that full year is unchanged at 6 4. It's just the lumpiness of how we recognize expense. The next question comes from Michael Ha. Whit Baird, please go ahead.
OPERATOR
Thank you. Just wanted to follow up on Steve's question about low and no utilizers. I understand you're at the lowest level you've seen. You don't expect additional acuity shifts as Medicaid declines and that your low utilizers. I think you said 7.5% below peak and I know Joe, you mentioned you won't provide a definition on that, but is there any way you could provide a bit more color around perhaps what buckets of MLR you consider low utilizer? Is that 0 to 20, 20 to 40% MLR higher? For example, would a 70% MLR member be considered that? Because a 70% MLR member dropping off is still like a 20% delta versus where your book is running at today. So curious if you have more color there, what percent of your members sit in those buckets? How have those cohorts changed over the past couple of years. Also, how do they compare versus your expansion book? Thank you. I'm not sure we actually I'll respect your question and try to answer as best I can without I think we're going to stop short of giving detailed numbers. Let me frame it this way. First of all, over what time period? If somebody doesn't use a service in a 90 day period, is that a no utilizer? Many people don't get a service for three months at a time. So the way I'll frame it is we didn't lock in on the definition. We tested all definitions. We tested time periods, we tested zero utilizers. Very clear, no claims. What's a low utilizer? Is it a PNPM number? Is it a medical loss ratio number? We tested definitions and centered in on one. And to be honest, the fact that low and no utilizers are down substantially even below pre pandemic levels, it almost matters not. It doesn't matter a lot what definition you use. It's down. So we're not giving absolute numbers and we're not giving the model that we're using. But I absolutely assure you that making up a definition to make yourself feel good about it is not what we do here. We tested the definition across a wide range of time frames and PMPM medical costs per that timeframe to test whether it mattered or not. And I will tell you it doesn't matter all that much. It is markedly down and therefore we're not anticipating acuity shift. Mark, you're the architect of all this. Do you have anything to add?
Michael Ha (Equity Analyst at Robert W. Baird)
Yeah, what's important is this is a directional statistic. As Joe mentioned, we've taken a lot of different approaches and directionally the number of low users and no users by all approaches is much lower. The specific numbers in this case are less relevant. The other statistic that I use which just gives us great comfort in what we're seeing is the stairs levers analysis. A year or two ago levers would have left at much lower PMPMs or MLRs whereas now they're leaving at at those ratios being much closer to the average. Which again is one more data point supporting our view on this.
Joe Zabretsky (President and CEO)
Next question please.
Mark Keim (Chief Financial Officer)
The next question comes from Lance Wilkes with Bernstein. Please go ahead.
Lance Wilkes (Equity Analyst at Bernstein)
Can you talk a little bit about
Joe Zabretsky (President and CEO)
the state behaviors you're observing as we're going through this and what I'm interested in? Obviously you commented a little bit on off cycle rate increases and maybe if you can talk about maybe what are the characteristics that help to drive that. But interested in kind of comments on pipeline, how states are approaching implementation, new processes, what types of products, if any, they're looking at kind of given the backdrop and then just as a cleanup. If you could make any comments on the trend favorability in the first quarter, if there is any aspects of trend beyond acuity shift that you're seeing some positive favorability in 1Q that'd be helpful. Thanks. Sure. Lance on state behaviors, it's hard to you can draw some themes across the various states but they're all different. But generally speaking, we're seeing states step up to the reality that a cost inflection has occurred and they are catching up to it. What do they need to catch up to? If you look at the trends we've experienced over the past three years, four and a half, six and a half and 7.5 the cost baseline is 20% higher than it was three years ago. That's what they need to catch up to. Now we believe we are operating 300 basis points, 3 to 400 basis points better than the average market. So as they catch up we should be going back into much more positive territory than we already are. Bearing in mind, our guidance in Medicaid Is for a 1.5% pre tax margin this year eliminating the impact of Florida kids. So we're in good shape there. So states are stepping up on rates. They're also obviously due to the indirect impacts of OB3. They're looking at eligibility, they're looking at carve ins and carve outs, they're wrestling with provider and MCO taxes, they're dealing with all the effects of that. They're looking at helping MCOs reintroduce. Um, on behavioral for instance, during the pandemic a lot of that was relaxed because people weren't using services. So you could go state by state. But those are the general themes. Focusing on eligibility a lot, focusing on program features, supplemental benefits that maybe don't need to be funded and trying to deal with the residual impacts of OB3. That's what we're seeing on first quarter trend. I think your question was is there any more color to put around it? From a medical cost perspective, we're seeing good controls over inpatient and Medicaid. The inpatient trend is flattening and Medicaid, that's pretty obvious. Pharmacy is actually behaving favorably. High cost drugs are still a pressure point, but number of script volume per thousand and unit cost is actually leveling as well. And bh, which has been a trend inflection over the past two or three years is more favorable this year, at least in the early stages than it was in the past due to state controls, client controls and company controls. So those are a few. But it's certainly good news and encouraging news in the first quarter that the first quarter trend in Medicaid annualized would have us slightly better than the 5% trend assumption for the year. Mark, did I miss anything?
Mark Keim (Chief Financial Officer)
No, Joe, I think that's well summarized. The only thing I'd other add on trend is comments that Joe made. Obviously very appropriate. There's always questions about ILI or flu, whatever you want to call it. Pretty much a normal season for us and we're now coming out of that. So I think that's behind us. Thanks, Lance.
OPERATOR
The next question comes from George Hill with Deutsche Bank. Please go ahead.
George Hill (Equity Analyst at Deutsche Bank)
Yeah, good morning guys and thanks for taking the question. Two quick ones. Mark, you talked about I want to follow up on Michael's question. You talked about the decline in zero or low utilizers down to the lowest level. It seems like it moves a lot sequentially from Q4 to Q1. Would love to have you talk a little bit about what drove that.
Joe Zabretsky (President and CEO)
And Joe, as we talked to state administrators on the Medicaid side, we're hearing a lot of worry about the community engagement requirements as we go into 2027. Would love to hear any early thoughts that you guys have had. We know work requirements are an issue, but a lot of states are worried about how to administer the community engagement requirements. We'd love to hear what you think about that. I'll take the second one first and then we'll go back to Low and Omar on community engagement. Every state is different. We're actually fortunate in a way that we have a business in Nebraska, where which is a state that has declared it's going early on work requirements. So we have some insights and I'll tell you they're going to move and they're going to move for the middle of this year. But it is very clear that the rules around what information do you need to terminate someone ex parte procedurally, how does it work? What's the definition of medical frailty that's going to be used? So we are working with each of our states in different ways. Various states allow different levels of intervention with MCOs in terms of whether you can help people find work, whether you can help them fill out the forms. Every state is different. But our community engagement teams nationally, Property by Property, are extremely engaged with each of our state clients on working through these requirements. But I will tell you that it is still a bit unclear given the very general guidance CMS has given what information is going to be required to terminate someone or allow them on ex parte and what are the exceptions, particularly with medical frailty. Mark, you want to take the lower? No User question.
Mark Keim (Chief Financial Officer)
Absolutely. So George, the market is down. Medicaid membership market is down about 20% since its peak in 2023 when redetermination began. As those 20% of the people came out, a lot of them were zero and low utilizers. That is what drove the acuity shift right as they come out. The remaining population is on a weighted average slightly higher cost per member. So what we saw in 24 and 25 were was a component of our trend attributed to that mix shift, which we call acuity shift. Across 24 into 25. Across 25 we saw the percentage of low utilizers and zero utilizers fall to the lowest level. It was a little higher at the beginning of 25 and by the end of 25 it was at its very low level, which gave us confidence that that acuity shift is largely behind us us. So again, the component of low and no utilizers falling 24 and 25, that's what contributes to the acuity shift. And our data shows us that's largely behind us, if not totally behind us.
OPERATOR
Our last question comes from Jason Casola with Guggenheim. Please go ahead.
Jason Casola (Equity Analyst at Guggenheim)
Great. Thanks for squeezing me in. Most of my questions have been asked. Maybe just a quick one. On earnings seasonality. You talked about the majority of earnings in the first half. You have an updated Medicaid enrollment expectation, higher exchange enrollment to start the year. I know there's prudence in your outlook given the unknowns and some timing nuances with the GNA and the ramp up of the Florida cms. Maybe just if you could step back if there's anything more or anything else on the seasonality side you'd be willing to give for us as we sit here today ahead of your Investor Day would be helpful. Thanks, Mark. You want to take what we expect for seasonality this year?
Mark Keim (Chief Financial Officer)
Absolutely. What we had said previously was about 2/3 in the first half, 1/3 in the second half. I'm not going to update that now because if I did, I'd effectively be giving you second quarter earnings. But proportionally we're in the same place. We had a nice first quarter, but I think proportionately we would be in the same front half, second half. What drives that? Well, the Medicaid rate cycle. Remember we're a little bit front end loaded on the Medicaid rate cycle. Remember, seasonality on Marketplace means always first half of the year is a little better than second half. That's baked into our full year guidance. And then lastly, fourth quarter Florida Kids. As Joe mentioned earlier on this Q and A session, Florida Kids will come in pretty high mor in its first quarter, which is typical for new business. That'll be some weight on the fourth quarter, no doubt, but those are the major components, and proportionately higher in the first half, lower in the second half, as we said.
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