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Molina Healthcare Reports Third Quarter 2012 Results

The medical care ratio at the California health plan increased to 96% in the third quarter of 2012 from 89% in the third quarter of 2011. The higher medical care ratio was primarily the result of a shift in member mix to include more ABD members. The medical care ratio for the California health plan’s ABD membership was 110% in the third quarter of 2012, 100% for the nine months ended September 30, 2012, and 84% for the third quarter of 2011. The California Department of Health Care Services has recently solicited health plan input as to whether to conduct a review of the adequacy of ABD premium rates in California. The Company’s California health plan, which believes the ABD premium rates to be inadequate, has provided input supporting such a review. During the fourth quarter of 2012, the Company intends to exit an unprofitable service area in California, reducing enrollment by approximately 6,000 members.

The addition of ABD members to the Washington health plan effective July 1, 2012, increased its medical care ratio to 86% in the third quarter of 2012 compared with 83% in the third quarter of 2011. The higher premium revenue PMPM associated with the ABD membership, however, offset the increased medical care ratio, so that income from operations was consistent between the third quarters of 2012 and 2011. The medical care ratio for the Washington health plan’s new ABD membership was 93% in the third quarter of 2012.

Molina Medicaid Solutions Segment Results

Performance of the Molina Medicaid Solutions segment was as follows:
    Three Months Ended

September 30,
      Nine Months Ended

September 30,
2012   2011 2012   2011
(In thousands)
Service revenue before amortization $ 48,958 $ 39,273 $ 133,193 $ 116,567
Amortization recorded as reduction of service revenue   (536 )   (1,545 )   (842 )   (5,277 )
Service revenue 48,422 37,728 132,351 111,290
Cost of service revenue 37,004 34,584 98,111 105,020
General and administrative costs 1,980 2,069 7,187 6,421
Amortization of customer relationship intangibles recorded as amortization   1,282     1,282     3,846     3,846  
Operating income (loss) $ 8,156   $ (207 ) $ 23,207   $ (3,997 )

Operating income for the Company’s Molina Medicaid Solutions segment improved $8 million and $27 million for the three months and nine months ended September 30, 2012, respectively. This improvement was primarily the result of stabilization of the Company’s newest Medicaid Management Information Systems, or MMIS, in Idaho and Maine. For the quarter ended September 30, 2012, the Molina Medicaid Solutions segment gross profit margin rate was 24%, compared with 12% for the Health Plans segment.

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