Ohio’s decision to shut out Molina Healthcare Inc. (MOH:US) and two other health plans that contract to manage 1.5 million of the state’s Medicaid patients sent the shares of the companies plummeting.
Molina, based in Long Beach, California, declined the most in almost seven years in intraday trading today while Centene Corp. (CNC:US) fell the most in four years and Amerigroup Corp. (AGP:US) decreased the most in four months.
Ohio is streamlining its Medicaid programs in an effort to save taxpayers $1.5 billion. The health program for the poor is funded jointly by the states and U.S. government. States are responding to high unemployment that has pushed more people into the program and budget shortfalls that have forced cuts.
“Ouch,” said Carl McDonald, an analyst with Citigroup Inc. in a note to clients. “This is unwelcome news for all of the Medicaid plans, but it is particularly problematic for Molina, since Ohio was the company’s most important state.”
Molina plunged 27 percent to $25.65 at the close of New York trading in its biggest decline since July 2005. Centene, based in St. Louis, declined (CNC:US) 15 percent to $42.97, posting its biggest drop in four years. Virginia Beach, Virginia-based Amerigroup fell (ACP:US) 4.9 percent to $64.18.
McDonald called Ohio’s decision not to renew plans, which have contracts running through 2012, “pretty rare.” He said it didn’t signal that other states deciding Medicaid agreements would rule against existing insurers.
“It probably doesn’t have much implication,” he said. “No two states ever seem to be looking for exactly the same thing, and we’ve found it virtually impossible to accurately predict the Medicaid plans that will win a particular” request for proposal.
Ohio told Molina’s local health plan that it was no longer in the running to administer the federal-state program for the poor after the current contract runs out at the end of the year, the company said in an April 6 filing. Ohio was responsible for 22 percent of Molina’s premium revenue and 30 percent of profit, Chris Rigg, an analyst with Susquehanna Financial Group, said in a note to clients.
State Budget Shortfalls
States are still facing budget shortfalls after “bottoming out” in 2010, according to a report by the Center on Budget and Policy Priorities, a research group based in Washington. Thirty states will have deficits totaling $49 billion in fiscal year 2013, according to the report. The elimination of health coverage by employers, as well as wage losses, have put more people into Medicaid, according to the report.
Companies like Molina are paid by states to manage benefits for patients, steering them into cheaper services and helping coordinate their health care.
Ohio will merge eight managed-care regions within the state into three, part of changes that will save taxpayers $1.5 billion, the Job and Family Services Department said in a statement on April 6. Centene and Amerigroup also have contracts with the state that expire at year’s end.
Aetna Inc. (AET:US) and UnitedHealth Group Inc. (UNH:US) are among the companies selected to help administer the programs starting next year. The losing plans are expected to protest the decision, Rigg said in his note.
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