Player Avatar NetscribeHealthC (64.17) Submitted: 1/24/2007 7:23:44 AM : Underperform Start Price: $21.10 MOH Score: -103.03

Molina Healthcare is a multi-state managed care organization that arranges for the delivery of health care services to persons eligible to receive health care benefits through government-sponsored programs for low-income families and individuals, such as Medicaid and the State Children's Health Insurance Program (SCHIP). The company also operates 21 primary care clinics in California, while managing health plans in six other states. During the year ended December, 2006 nearly 1 million members were enrolled in its health plans.
Managed healthcare enrollment as of year-end 2006 was nearly 210 million, with the commercial sector accounting for 86% of members, Medicare 3%, and Medicaid 11%. As the U.S. population is aging rapidly; 78 million baby boomers will turn 65 by the end of 2010, creating a barrage of legacy costs in the form of obligations for Medicare and Medicaid. Another fundamental problem is that the ratio of workers paying Medicare taxes to retirees drawing benefits is shrinking at the same time when the price of managed healthcare services is increasing. Molina also comes under the shadow of this problem while having to increase memberships, provide service in an increasing cost environment and presence of strong competitors such as Well Point and UnitedHealth.
For the nine months ended September 2006, the company's revenues increased 18.1% reflecting higher premium revenues due to new membership along with the start-up of Indiana and Ohio health maintenance organizations (HMOs) in December 2005. However, higher medical costs in these start-up plans are expected as it would take time to transition these new populations into managed care. Additionally, the Texas HMO which has recently taken-off in September 2006 would find it difficult to gain market share in the near term, coupled with an anticipation of additional capital infusion in the venture.
The company has also been witnessing membership headwinds in California and Michigan due to operational inefficiencies, which have to be taken care of, in line to remain as a strong contender in the Managed Care industry.

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