UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-31719

MOLINA HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-4204626
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
200 Oceangate, Suite 100
Long Beach,	California	90802
(Address of principal executive offices)		(Zip Code)

(562) 435-3666

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value	MOH	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐ No  ☒

The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of October 21, 2022, was approximately 58,400,000.

MOLINA HEALTHCARE, INC. FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

ITEM NUMBER		Page
PART I
1.	Financial Statements	3
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
3.	Quantitative and Qualitative Disclosures About Market Risk	34
4.	Controls and Procedures	34
PART II
1.	Legal Proceedings	34
1A.	Risk Factors	34
2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
3.	Defaults Upon Senior Securities	Not Applicable.
4.	Mine Safety Disclosures	Not Applicable.
5.	Other Information	Not Applicable.
6.	Exhibits	36
	Signatures	37

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(Dollars in millions, except per-share amounts) (Unaudited)
Revenue:
Premium revenue	$	7,636	$	6,800	$	22,966	$	19,689
Premium tax revenue	223		204		646		576
Investment income	49		20		82		39
Other revenue	19		16		57		58
Total revenue	7,927		7,040		23,751		20,362
Operating expenses:
Medical care costs	6,748		6,049		20,183		17,342
General and administrative expenses	560		532		1,682		1,489
Premium tax expenses	223		204		646		576
Depreciation and amortization	45		32		129		96
Other	16		2		43		30
Total operating expenses	7,592		6,819		22,683		19,533
Operating income	335		221		1,068		829
Other expenses, net:
Interest expense	28		30		83		90
Total other expenses, net	28		30		83		90
Income before income tax expense	307		191		985		739
Income tax expense	77		48		249		183
Net income	$	230	$	143	$	736	$	556
Net income per share - Basic	$	4.00	$	2.49	$	12.74	$	9.63
Net income per share - Diluted	$	3.95	$	2.46	$	12.58	$	9.51

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In millions) (Unaudited)
Net income	$	230	$	143	$	736	$	556
Other comprehensive loss:
Unrealized investment loss	(75)		(13)		(237)		(27)
Less: effect of income taxes	(18)		(4)		(57)		(7)
Other comprehensive loss, net of tax	(57)		(9)		(180)		(20)
Comprehensive income	$	173	$	134	$	556	$	536

See accompanying notes.

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 3

CONSOLIDATED BALANCE SHEETS

	September 30, 2022		December 31, 2021
	(Dollars in millions, except per-share amounts)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,242	$	4,438
Investments	3,639		3,202
Receivables	2,220		2,177
Prepaid expenses and other current assets	391		247
Total current assets	10,492		10,064
Property, equipment, and capitalized software, net	412		396
Goodwill, and intangible assets, net	1,263		1,252
Restricted investments	242		212
Deferred income taxes	198		106
Other assets	186		179
Total assets	$	12,793	$	12,209
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	3,622	$	3,363
Amounts due government agencies	2,139		2,472
Accounts payable, accrued liabilities and other	818		842
Deferred revenue	663		370
Total current liabilities	7,242		7,047
Long-term debt	2,175		2,173
Finance lease liabilities	217		219
Other long-term liabilities	118		140
Total liabilities	9,752		9,579
Stockholders’ equity:
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 58 million shares at September 30, 2022 and December 31, 2021	—		—
Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding	—		—
Additional paid-in capital	289		236
Accumulated other comprehensive loss	(185)		(5)
Retained earnings	2,937		2,399
Total stockholders’ equity	3,041		2,630
Total liabilities and stockholders’ equity	$	12,793	$	12,209

See accompanying notes.

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
	Outstanding	Amount
	(In millions)
	(Unaudited)
Balance at December 31, 2021	58	$	—	$	236	$	(5)	$	2,399	$	2,630
Net income	—	—		—		—		258		258
Other comprehensive loss, net	—	—		—		(76)		—		(76)
Share-based compensation	1	—		(18)		—		—		(18)
Balance at March 31, 2022	59	—		218		(81)		2,657		2,794
Net income	—	—		—		—		248		248
Common stock purchases	(1)	—		(2)		—		(198)		(200)
Other comprehensive loss, net	—	—		—		(47)		—		(47)
Share-based compensation	—	—		35		—		—		35
Balance at June 30, 2022	58	—		251		(128)		2,707		2,830
Net income	—	—		—		—		230		230
Other comprehensive loss, net	—	—		—		(57)		—		(57)
Share-based compensation	—	—		38		—		—		38
Balance at September 30, 2022	58	$	—	$	289	$	(185)	$	2,937	$	3,041

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
	Outstanding	Amount
	(In millions)
	(Unaudited)
Balance at December 31, 2020	59	$	—	$	199	$	37	$	1,860	$	2,096
Net income	—	—		—		—		228		228
Common stock purchases	(1)	—		(2)		—		(120)		(122)
Other comprehensive loss, net	—	—		—		(11)		—		(11)
Share-based compensation	—	—		(27)		—		—		(27)
Balance at March 31, 2021	58	—		170		26		1,968		2,164
Net income	—	—		—		—		185		185
Share-based compensation	—	—		21		—		—		21
Balance at June 30, 2021	58	—		191		26		2,153		2,370
Net income	—	—		—		—		143		143
Other comprehensive loss, net	—	—		—		(9)		—		(9)
Share-based compensation	—	—		14		—		—		14
Balance at September 30, 2021	58	$	—	$	205	$	17	$	2,296	$	2,518

See accompanying notes.

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 5

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2022		2021
	(In millions) (Unaudited)
Operating activities:
Net income	$	736	$	556
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	129		96
Deferred income taxes	(35)		(8)
Share-based compensation	80		49
Other, net	(3)		9
Changes in operating assets and liabilities:
Receivables	(15)		(247)
Prepaid expenses and other current assets	(110)		(43)
Medical claims and benefits payable	251		522
Amounts due government agencies	(360)		810
Accounts payable, accrued liabilities and other	(40)		129
Deferred revenue	293		(374)
Income taxes	59		23
Net cash provided by operating activities	985		1,522
Investing activities:
Purchases of investments	(1,764)		(2,018)
Proceeds from sales and maturities of investments	1,082		965
Net cash paid in business combinations	(134)		—
Purchases of property, equipment and capitalized software	(81)		(56)
Other, net	(41)		3
Net cash used in investing activities	(938)		(1,106)
Financing activities:
Common stock purchases	(200)		(128)
Common stock withheld to settle employee tax obligations	(53)		(52)
Contingent consideration liabilities settled	(20)		(20)
Other, net	15		(4)
Net cash used in financing activities	(258)		(204)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents	(211)		212
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period	4,506		4,223
Cash, cash equivalents, and restricted cash and cash equivalents at end of period	$	4,295	$	4,435

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2022

1. Organization and Basis of Presentation

Organization and Operations

Molina Healthcare, Inc. provides managed healthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). We currently have four reportable segments consisting of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other. Our reportable segments are consistent with how we currently manage the business and view the markets we serve.

As of September 30, 2022, we served approximately 5.2 million members eligible for government-sponsored healthcare programs, located across 19 states.

Our state Medicaid contracts typically have terms of three to five years, contain renewal options exercisable by the state Medicaid agency, and allow either the state or the health plan to terminate the contract with or without cause. Such contracts are subject to risk of loss in states that issue requests for proposal (“RFPs”) open to competitive bidding by other health plans. If one of our health plans is not a successful responsive bidder to a state RFP, its contract may not be renewed.

In addition to contract renewal, our state Medicaid contracts may be periodically amended to include or exclude certain health benefits (such as pharmacy services, behavioral health services, or long-term care services); populations such as the aged, blind or disabled (“ABD”); and regions or service areas.

Recent Developments

New York Acquisition—Medicaid. On October 1, 2022, we closed on our acquisition of the Medicaid Managed Long Term Care business of AgeWell New York. See Note 4, “Business Combinations,” for further information.

Nebraska Procurement—Medicaid. In September 2022, we announced that our Nebraska health plan had been selected by the Nebraska Department of Health and Human Services (DHHS) to provide health care services to Nebraskans under the state’s Medicaid managed care program. The new five-year contract is expected to begin on January 1, 2024, and may be extended for an additional two-years.

Iowa Procurement—Medicaid. In August 2022, we announced that our Iowa health plan had been notified by the Iowa Department of Health and Human Services (HHS) of its intent to award a Medicaid managed care contract pursuant to the Request for Proposal issued by HHS on February 17, 2022. The new four-year contract is expected to begin on July 1, 2023, and may be extended for an additional four years.

California Procurement—Medicaid. In August 2022, we announced that our California health plan had been notified by the California Department of Health Care Services of its intent to award a Medi-Cal contract in each of Los Angeles, Riverside, San Bernardino, Sacramento, and San Diego Counties. The five Medi-Cal contracts are expected to commence on January 1, 2024, which enables us to continue serving Medi-Cal members in our existing counties and expand footprint with the addition of the Los Angeles County contract.

Mississippi Procurement—Medicaid. In August 2022, we announced that our Mississippi health plan had been notified by the Mississippi Division of Medicaid (DOM) of its intent to award a Medicaid Coordinated Care Contract for its Mississippi Coordinated Access Program and Mississippi Children’s Health Insurance Program pursuant to the Request for Qualifications issued by DOM on December 10, 2021. The four-year contract is expected to begin on July 1, 2023, and may be extended for an additional two years. The award enables us to continue serving Medicaid members across the state.

Wisconsin Acquisition — Medicaid and Medicare. On July 13, 2022, we announced a definitive agreement to acquire substantially all the assets of My Choice Wisconsin (“MCW”). The purchase price for the transaction is approximately $150 million, net of expected tax benefits and required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to receipt of applicable federal and state regulatory approvals, and the satisfaction of other customary closing conditions. We currently expect the transaction to close in early 2023.

Texas Procurement—Medicaid. In March 2022, the Texas Health and Human Services Commission posted the ABD program (known in Texas as STAR+PLUS) RFP. We submitted our proposal in June 2022 to continue serving STAR+PLUS members, with awards estimated to be announced in the first quarter of 2023, and start of operations in February 2024. Further, in October 2022, the draft RFP was posted for the TANF and CHIP programs (known as

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 7

the STAR & CHIP programs, and both existing contracts for us), with awards expected in late Q4 2023 or early Q1 2024 and the start of operations in late Q4 2024 or early Q1 2025.

Nevada Procurement—Medicaid. Our new contract in Clark and Washoe Counties commenced on January 1, 2022, and offers health coverage to TANF, CHIP and Medicaid Expansion beneficiaries. This new contract is four years with a potential two-year extension.

Texas Acquisition—Medicaid and Medicare. On January 1, 2022, we closed on our acquisition of Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan (“MMP”) contracts, along with certain operating assets. See Note 4, “Business Combinations,” for further information.

Consolidation and Interim Financial Information

The consolidated financial statements include the accounts of Molina Healthcare, Inc., and its subsidiaries. In the opinion of management, these financial statements reflect all normal recurring adjustments, which are considered necessary for a fair presentation of the results as of the dates and for the interim periods presented. All significant intercompany balances and transactions have been eliminated. The consolidated results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results for the entire year ending December 31, 2022.

The unaudited consolidated interim financial statements have been prepared under the assumption that users of the interim financial data have either read or have access to our audited consolidated financial statements for the fiscal year ended December 31, 2021. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, 2021, audited consolidated financial statements have been omitted. These unaudited consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended December 31, 2021.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

2. Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term, highly liquid investments that are both readily convertible into known amounts of cash and have a maturity of three months or less on the date of purchase. The following table provides a reconciliation of cash and cash equivalents, and restricted cash and cash equivalents reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated statements of cash flows. The restricted cash and cash equivalents presented below are included in “Restricted investments” in the accompanying consolidated balance sheets.

	September 30,
	2022		2021
	(In millions)
Cash and cash equivalents	$	4,242	$	4,357
Restricted cash and cash equivalents	53		78
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows	$	4,295	$	4,435

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 8

Receivables

Receivables consist primarily of premium amounts due from government agencies, which are subject to potential retroactive adjustments. Because substantially all of our receivable amounts are readily determinable and substantially all of our creditors are governmental authorities, our allowance for credit losses is insignificant. Any amounts determined to be uncollectible are charged to expense when such determination is made.

	September 30, 2022		December 31, 2021
	(In millions)
Government receivables	$	1,545	$	1,566
Pharmacy rebate receivables	290		276
Other	385		335
Total	$	2,220	$	2,177

Premium Revenue Recognition and Amounts Due Government Agencies

Premium revenue is generated from our contracts with state and federal agencies, in connection with our participation in the Medicaid, Medicare, and Marketplace programs. Premium revenue is generally received based on per member per month (“PMPM”) rates established in advance of the periods covered. These premium revenues are recognized in the month that members are entitled to receive healthcare services, and premiums collected in advance are deferred. State Medicaid programs and the federal Medicare program periodically adjust premium rates.

Certain components of premium revenue are subject to accounting estimates and are described in further detail below, and in our 2021 Annual Report on Form 10-K, Note 2, “Significant Accounting Policies,” under “Contractual Provisions That May Adjust or Limit Revenue or Profit,” and “Quality Incentives.”

Contractual Provisions That May Adjust or Limit Revenue or Profit

Many of our contracts contain provisions that may adjust or limit revenue or profit, as described below. Consequently, we recognize premium revenue as it is earned under such provisions. Liabilities accrued for premiums to be returned under such provisions are reported in the aggregate as “Amounts due government agencies,” in the accompanying consolidated balance sheets.

The following table sets forth amounts due government agencies, categorized by program:

	September 30, 2022		December 31, 2021
	(In millions)
Medicaid program:
Minimum MLR and profit sharing	$	1,091	$	1,016
Other	617		263
Medicare program:
Minimum MLR and profit sharing	100		101
Risk adjustment and Part D risk sharing	74		89
Other	23		35
Marketplace program:
Risk adjustment	179		902
Minimum MLR	4		18
Other	51		48
Total amounts due government agencies	$	2,139	$	2,472

Medicaid Program

Minimum MLR and Retroactive Premium Adjustments. State Medicaid programs periodically adjust premium rates on a retroactive basis. In these cases, we adjust our premium revenue in the period in which we determine that the adjustment is probable and reasonably estimable, based on our best estimate of the ultimate premium we expect to realize for the period being adjusted.

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 9

Beginning in 2020, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. Since the second quarter of 2020, we have recognized risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. For the three and nine months ended September 30, 2022, we recognized approximately $34 million and $156 million, respectively, related to such risk corridors, primarily in the Medicaid segment, compared to $17 million and $183 million, respectively, recognized in the three and nine months ended September 30, 2021. The decrease is due to the elimination of several of the COVID-19 risk corridors.

It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the future or discontinue existing risk corridors. Due to these uncertainties, the ultimate outcomes could differ materially from our estimates as a result of changes in facts or further developments, which could have an adverse effect on our consolidated financial position, results of operations, or cash flows.

Marketplace Program

Risk Adjustment. Under this program, our health plans’ composite risk scores are compared with the overall average risk score for the relevant state and market pool. Generally, our health plans will make a risk adjustment payment into the pool if their composite risk scores are below the average risk score (risk adjustment payable), and will receive a risk adjustment payment from the pool if their composite risk scores are above the average risk score (risk adjustment receivable). We estimate our ultimate premium based on insurance policy year-to-date experience, and recognize estimated premiums relating to the risk adjustment program as an adjustment to premium revenue in our consolidated statements of income. As of September 30, 2022, Marketplace risk adjustment payables amounted to $179 million and related receivables amounted to $94 million, for a net payable of $85 million. As of December 31, 2021, Marketplace risk adjustment payables amounted to $902 million and related receivables amounted to $7 million, for a net payable of $895 million.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments, receivables, and restricted investments. Our investments and a portion of our cash equivalents are managed by professional portfolio managers operating under documented investment guidelines. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels. Our investments consist primarily of investment-grade debt securities with final maturities of less than 15 years, or less than 15 years average life for structured securities. Restricted investments are invested principally in cash, cash equivalents, and U.S. Treasury securities. Concentration of credit risk with respect to accounts receivable is limited because our payors consist principally of the federal government, and governments of each state in which our health plan subsidiaries operate.

Income Taxes

The provision for income taxes is determined using an estimated annual effective tax rate, which generally differs from the U.S. federal statutory rate primarily because of foreign and state taxes, and nondeductible expenses such as certain compensation and other general and administrative expenses.

The effective tax rate may be subject to fluctuations during the year as new information is obtained. Such information may affect the assumptions used to estimate the annual effective tax rate, including projected pretax earnings, the mix of pretax earnings in the various tax jurisdictions in which we operate, valuation allowances against deferred tax assets, the recognition or the reversal of the recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities, along with net operating loss and tax credit carryovers.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) did not have, nor does management expect such pronouncements to have, a significant impact on our present or future consolidated financial statements.

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 10

3. Net Income Per Share

The following table sets forth the calculation of basic and diluted net income per share:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In millions, except net income per share)
Numerator:
Net income	$	230	$	143	$	736	$	556
Denominator:
Shares outstanding at the beginning of the period	57.6		57.8		57.9		58.0
Weighted-average number of shares issued:
Stock-based compensation	—		—		0.2		0.3
Stock purchases	—		—		(0.3)		(0.5)
Denominator for basic net income per share	57.6		57.8		57.8		57.8
Effect of dilutive securities: (1)
Stock-based compensation	0.7		0.7		0.7		0.7
Denominator for diluted net income per share	58.3		58.5		58.5		58.5
Net income per share - Basic (2)	$	4.00	$	2.49	$	12.74	$	9.63
Net income per share - Diluted (2)	$	3.95	$	2.46	$	12.58	$	9.51

______________________________

(1)    The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method.

(2)    Source data for calculations in thousands.

4. Business Combinations

AgeWell. As described in Note 1, “Organization and Basis of Presentation,” we announced this acquisition closed on October 1, 2022. Because the closing date fell on a weekend, the $134 million purchase price was paid on September 30, 2022 and was recorded to prepaid expenses and other assets. Such amounts are reported in investing activities in the accompanying consolidated statements of cash flows. The initial accounting for this transaction is incomplete.

Cigna. On January 1, 2022, we closed on our acquisition of Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan contracts, along with certain operating assets, for purchase consideration of approximately $60 million. We acquired membership and a provider network with a preliminary fair value of approximately $36 million. We allocated the remaining $24 million of purchase consideration to goodwill, primarily in the Medicaid segment, which relates to future economic benefits arising from expected synergies from the use of our existing infrastructure to support the added membership, and from the assembled workforce. The goodwill is deductible for income tax purposes.

Affinity. On October 25, 2021, we closed on our acquisition of substantially all of the assets of Affinity Health Plan, Inc., a Medicaid health plan in New York, for initial purchase consideration of approximately $176 million. In the nine months ended September 30, 2022, we recorded various measurement period adjustments, including an increase of $8 million to “Medical claims and benefits payable,” and an increase of $1 million to “Receivables” net of “Amounts due government agencies.” In the aggregate, we recorded a net increase of $7 million to goodwill for these measurement period adjustments and various purchase price adjustments.

5. Fair Value Measurements

We consider the carrying amounts of current assets and current liabilities to approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to the three-tier fair value hierarchy. For a description of the methods and assumptions used to: a) estimate the fair value; and b) determine the classification according to the fair value

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 11

hierarchy for each financial instrument, refer to our 2021 Annual Report on Form 10-K, Note 5, “Fair Value Measurements.”

The net changes in fair value of Level 3 financial instruments are reported in “Other” operating expenses in our consolidated statements of income. In the nine months ended September 30, 2022 and 2021, we recognized a loss of $4 million and $3 million, respectively, for the increase in the fair value of the contingent consideration liabilities described below.

Our financial instruments measured at fair value on a recurring basis at September 30, 2022, were as follows:

			Observable Inputs		Directly or Indirectly Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(In millions)
Corporate debt securities	$	2,283	$	—	$	2,283	$	—
Mortgage-backed securities	743		—		743		—
Asset-backed securities	303		—		303		—
Municipal securities	148		—		148		—
U.S. Treasury notes	116		—		116		—
Other	46		—		46		—
Total assets	$	3,639	$	—	$	3,639	$	—
Contingent consideration liabilities	$	8	$	—	$	—	$	8
Total liabilities	$	8	$	—	$	—	$	8

Our financial instruments measured at fair value on a recurring basis at December 31, 2021, were as follows:

			Observable Inputs		Directly or Indirectly Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(In millions)
Corporate debt securities	$	1,833	$	—	$	1,833	$	—
Mortgage-backed securities	614		—		614		—
Asset-backed securities	247		—		247		—
Municipal securities	123		—		123		—
U.S. Treasury notes	353		—		353		—
Other	32		—		32		—
Total assets	$	3,202	$	—	$	3,202	$	—
Contingent consideration liabilities	$	47	$	—	$	—	$	47
Total liabilities	$	47	$	—	$	—	$	47

Contingent Consideration Liabilities

Our Level 3 financial instruments at September 30, 2022 are comprised solely of contingent consideration liabilities of $8 million, in connection with our 2020 acquisition of certain assets of Passport Health Plan, Inc., a Medicaid health plan in Kentucky. Such liabilities are recorded at fair value on a recurring basis. In the nine months ended September 30, 2022, the estimated fair value of contingent purchase consideration increased by approximately $4 million, relating to an operating income guarantee.

In the nine months ended September 30, 2022, we paid the seller $43 million, of which $23 million was for the remaining half of the consideration due for minimum member enrollment targets and $20 million was for the first payment of the consideration due for the operating income guarantee. For the amounts paid in the nine months ended September 30, 2022, $20 million has been presented in “Financing activities” in the accompanying consolidated statements of cash flows, with the balance reflected in “Operating activities.” The remaining balance of

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 12

the liabilities is reported in “Accounts payable, accrued liabilities and other” in the accompanying consolidated balance sheets.

Fair Value Measurements – Disclosure Only

The carrying amounts and estimated fair values of our notes payable are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets.

	September 30, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
4.375% Notes due 2028	$	792	$	715	$	791	$	829
3.875% Notes due 2030	642		541		642		675
3.875% Notes due 2032	741		612		740		760
Total	$	2,175	$	1,868	$	2,173	$	2,264

6. Investments

Available-for-Sale

We consider all of our investments classified as current assets to be available-for-sale. The following tables summarize our current investments as of the dates indicated:

	September 30, 2022
	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses
	(In millions)
Corporate debt securities	$	2,431	$	—	$	148	$	2,283
Mortgage-backed securities	804		—		61		743
Asset-backed securities	322		—		19		303
Municipal securities	159		—		11		148
U.S. Treasury notes	117		—		1		116
Other	49		—		3		46
Total	$	3,882	$	—	$	243	$	3,639

	December 31, 2021
	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses
	(In millions)
Corporate debt securities	$	1,836	$	9	$	12	$	1,833
Mortgage-backed securities	616		2		4		614
Asset-backed securities	248		—		1		247
Municipal securities	123		1		1		123
U.S. Treasury notes	353		—		—		353
Other	32		—		—		32
Total	$	3,208	$	12	$	18	$	3,202

Molina Healthcare, Inc. September 30, 2022 Form 10-Q | 13

The contractual maturities of our current investments as of September 30, 2022 are summarized below:

	Amortized Cost		Estimated Fair Value
	(In millions)
Due in one year or less	$	378	$	374
Due after one year through five years	2,330		2,186
Due after five years through ten years	390		364
Due after ten years	784		715
Total	$	3,882	$	3,639

Gross realized gains and losses from sales of available-for-sale securities are calculated under the specific identification method and are included in investment income. Gross realized investment gains were insignificant for the three and nine months ended September 30, 2022, respectively. Gross realized investment gains amounted to $6 million and $7 million for the three and nine months ended September 30, 2021, respectively. Gross realized investment losses were insignificant for the three and nine months ended September 30, 2022, and 2021.

We have determined that unrealized losses at September 30, 2022, and December 31, 2021, primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers. Therefore, we determined that an allowance for credit losses was not necessary. So long as we maintain the intent and ability to hold these securities to maturity, we are unlikely to experience losses. In the event that we dispose of these securities before maturity, we expect that realized losses, if any, will be insignificant.

The following table segregates those available-for-sale investments that have been in a continuous loss position for less than 12 months, and those that have been in a continuous loss position for 12 months or more as of September 30, 2022:

	In a Continuous Loss Position for Less than 12 Months					In a Continuous Loss Position for 12 Months or More
	Estimated Fair Value		Unrealized Losses		Total Number of Positions	Estimated Fair Value		Unrealized Losses		Total Number of Positions
	(Dollars in millions)
Corporate debt securities	$	1,764	$	103	909	$	433	$	45	167
Mortgage-backed securities	555		36		282	188		25		75
Asset-backed securities	242		13		128	56		6		28
Municipal securities	106		7		110	31		4		35
U.S. Treasury notes	116		1		8	—		—		—
Other	32		3		20	—		—		—
Total	$	2,815	$	163	1,457	$	708	$	80	305

The following table segregates those available-for-sale investments that have been in a continuous loss position for less than 12 months, and those that have been in a continuous loss position for 12 months or more as of December 31, 2021:

	In a Continuous Loss Position for Less than 12 Months					In a Continuous Loss Position for 12 Months or More
	Estimated Fair Value		Unrealized Losses		Total Number of Positions	Estimated Fair Value		Unrealized Losses		Total Number of Positions
	(Dollars in millions)
Corporate debt securities	$	1,063	$	12	395	$	—	$	—	—
Mortgage-backed securities	408		4		146	—		—		—
Asset-backed securities	166		1		75	—		—		—
Municipal securities	69		1		61	—		—		—