C. David Molina with his building contractor outside the first medical clinic he opened, in Long Beach. Molina Medical eventually grew to encompass 12 clinics and a health insurance company. (Courtesy of Molina Healthcare)
Some large health insurance companies have suffered losses under the Affordable Care Act, leading to a couple high-profile exits from the health exchanges – Humana was the latest. But one smaller, Long Beach-based insurer has done OK: Molina Healthcare.
“We understood the demographics of the people that we’re serving a little better, ” said J. Mario Molina, CEO of Molina Healthcare, "because we’ve been doing it for so long,"
Molina’s father, David, founded Molina Healthcare in 1980, after a career as a doctor. Sometimes his patients couldn’t pay, so they would barter, or they gave him items from their homes instead: a glass decanter, a pipe organ, even the family dog.
“My father was old-fashioned,” recalled the younger Molina. “He believed doctors had an obligation to take care of patients, and that the primary issue was not how they were going to get paid.”
The elder Molina opened a network of medical clinics serving low-income patients, and then later, started a health insurance company focused on customers with Medicaid, government coverage for the poor.
That is what positioned the company to move into the Obamacare marketplaces so smoothly, Mario Molina explained, because most people who signed up for Obamacare plans are low-income.
“It’s a different population most insurance companies haven’t been interested in,” he said.
For example, transportation is an issue for their customers, Molina said. They often take the bus to medical appointments, so they’d much rather see a doctor close to home, not someone at a fancy academic hospital 30 miles away.
“We don’t contract with every hospital and every doctor,” he said. “It’s not everyone, but it’s enough so that you can find a doctor and the hospital and the services you need.”
Having fewer doctors in their network means lower costs for Molina. And that means the company was able to earn some modest profits -- roughly 1 percent in the first couple years of Obamacare.
But some big name commercial insurers are used to creating health plans for employers, who often want more doctors and more benefits to attract better employees. Plans like that cost more.
“They’re looking at things sort of from the top down, and we’re looking at things from the bottom up,” Molina said.
He’s used to running a low-cost, low-margin business. Those big guys aren’t. Industry analysts say that’s why some of them lost money with Obamacare.
“It’s easier to work up from a low-cost position than it is to work down from a higher-cost position,” said Josh Weisbrod, a health care consultant with Bain and Company. “For an insurer that is used to selling employer plans with rich benefit designs and broad networks, it is difficult for them to transition that to a narrow network of lower cost providers.”
But Molina says there’s been a serious downside to his company’s success: a provision of the Affordable Care Act known as “risk transfer.” The program was designed to help insurance companies cover losses, if they ended up with a lot of really sick, expensive patients. The way it works: companies with fewer sick patients pay some of their revenues to the companies that have more.
It was a fine idea, Molina said, but the formula lawmakers came up with to calculate risk was all wrong.
“Let’s put it this way: currently Molina Healthcare is returning 25 percent of our premiums to the government, which are then distributed to our competitors,” he said. “So we are really subsidizing our competitors and helping them, rather than forcing them to compete.”
And that hit Molina’s bottom line in 2016, resulting in much lower profits than originally projected. Molina said the risk formula factors in the average cost of premiums in the state, which seems to punish efficiency rather than help those who had some bad luck.
“I think it was done by well-meaning people who had a theoretical knowledge, but not a practical knowledge of insurance,” he said.
Still, Molina remains a fan of the Affordable Care Act overall. His company operates in 12 states and Puerto Rico, and he hopes Congress will consult with him and other insurers as it debates the future of the health law.
“It doesn’t need to be scrapped and replaced,” he said. “It needs a tune-up.”
He added that if lawmakers need guidance on how to fix Obamacare, they should look at one state that really got it right: California.
California insurance regulators "forced everyone to really compete. and that made everyone kind of sharpen their pencils and do a better job,” he said. “It’s kept everyone on their toes, and, as a result, I think there’s been more stability in the marketplace.”
There’s also more predictability. California may have more business regulations than other states, but Molina believes that’s created a level playing field.
“The state doesn’t make arbitrary decisions. We can plan from year to year. We understand the rules,” he said. “Imagine if you’re trying to play a game and the rules change in every quarter.”
Molina is hoping the newly-elected rule makers at the federal level take this to heart.