Molina Healthcare is on a roll. The well being insurer introduced plans Tuesday to purchase Affinity Well being Plan, a small Medicaid firm in New York, which might mark the fifth acquisition deal that Molina has disclosed this yr.
The Lengthy Seaside, Calif.-based Medicaid big can pay $380 million in money for practically the entire property of Affinity, which serves about 284,000 Medicaid beneficiaries in six New York counties and brings in annual premium income of $1.three billion. Molina expects the deal to shut within the second quarter of subsequent yr, following approval from regulators.
The addition of Affinity to Molina’s portfolio offers it extra membership and income. Affinity suits in properly, each geographically and product-wise, with the opposite acquisitions Molina has pursued this yr. Affinity can be Molina’s fourth acquisition in New York, in accordance with one analyst.
For the previous couple of years, Molina has centered on rising its high line by absorbing small Medicaid plans that it could actually fund utilizing money available with out going to the fairness or debt markets. Its targets are often financially underperforming plans that Molina feels it could actually flip round utilizing its operational experience. Molina executed its personal firm overhaul in 2017 and 2018 to remove prices earlier than shifting its sights to rising its enterprise this yr.
Molina’s CEO Joseph Zubretsky generally refers to its purchases as “bolt-on, tuck-in acquisitions,” and regards them as just like natural progress, due to the comparatively low cost costs the corporate pays for the plans.
“Medicaid managed-care lends itself very well to that form of a method,” stated Stephen Tanal, managing director of healthcare companies at SVB Leerink. “There’s loads of smaller personal Medicaid managed-care plans on the market, and understanding the truth that scale issues rather a lot in healthcare, loads of these firms may need one or two contracts on the native degree, however they lack the size to steer with extra modern options.”
The technique has confirmed profitable previously. Centene grew to become the Medicaid behemoth it’s at this time by buying small well being plans over a few years, however Centene is now too huge for these small offers to make a lot of a distinction to its earnings, Tanal defined. Centene served about 12.6 million Medicaid members at June 30, whereas Molina served about three.1 million.
Molina, nonetheless, is simply the suitable dimension—sufficiently small that these acquisitions matter to its backside line, however giant sufficient to fund them, he stated.
Sarah James, senior analysis analyst at funding agency Piper Sandler, stated now’s time to be buying as a result of well being insurers are sitting on loads of money, and the valuation of Medicaid plans is decrease, because of considerations over the longer term make-up of the U.S. Supreme Courtroom and the way that may have an effect on the end result of the pending lawsuit difficult the legality of the Inexpensive Care Act.
Uncertainty over the upcoming presidential election and the price range pressures that states are dealing with amid the pandemic have additionally lowered the worth of Medicaid plans. Including Affinity to its New York footprint ought to cut back Molina’s overhead bills, James stated.
Earlier this yr, Molina closed acquisitions of New York-based YourCare Well being Plan, which catered to 47,000 Medicaid members, and Passport Well being Plan’s Medicaid enterprise serving 315,000 beneficiaries in Kentucky. Molina stated YourCare would add $140 million in income in 2020 and $280 million in 2021. It expects Passport to supply $850 million of income in 2021.
Molina in April introduced plans to purchase Magellan Full Look after $820 million in money. That deal would give Molina an additional 155,000 Medicaid members throughout six states and add $2.eight billion to Molina’s income by 2021, whether it is accomplished by the top of this yr.
The insurer additionally tried a purchase order of Chicago-based Medicaid insurer NextLevel Well being, however known as off the deal in April. In the meantime, the corporate is retreating from Puerto Rico with a sale of its Medicaid enterprise to an on-island competitor.
In complete, Molina expects to usher in $21.5 billion in premium income subsequent yr, a 20% improve over 2020, Zubretsky stated through the firm’s second quarter earnings name in July. It projected that it might herald $17.eight billion in premium income for 2020, a rise of 10% over 2019.
Tanal stated he expects Molina to proceed rolling up small Medicaid plans. His analysis suggests there are 76 Medicaid managed care firms in the USA with lower than 100,000 members. Every of these plans would add about 1% to Molina’s earnings if acquired.