Molina Healthcare’s stock has been under heavy pressure this year, down nearly 50% as medical costs rise, margins tighten, and management trims earnings guidance.
The headlines make it sound like a business in trouble.
But what’s really happening is more like bad weather, not climate change.
A Business Built for Efficiency
Molina runs managed-care health plans for people covered under government programs, mainly Medicaid and Medicare. It also participates in state insurance marketplaces under the Affordable Care Act.
Roughly three-quarters of its revenue comes from Medicaid, where the company works with state governments to deliver care for low-income families.
This business isn’t flashy, but it’s steady.
Molina’s moat lies in its deep operational expertise, understanding complex state rules, keeping administrative costs low, and running an efficient network while maintaining quality of care.
For years, that efficiency has been its competitive edge.
What Went Wrong This Year
After several strong years of growth, 2025 brought a sharp increase in healthcare costs.
People who delayed medical treatments during the pandemic returned for care, many of them sicker and requiring more expensive procedures. Specialty drug costs also rose sharply, while hospitals passed along higher wages and inflation-driven expenses.
All this hit Molina’s profitability at once.
The medical cost ratio, essentially the share of every premium dollar spent on care, rose above 91%, up from the company’s usual range of 88–90%.
That small change in percentage terms has a large impact on margins.
The ACA (Marketplace) business was hit hardest. Medical costs there rose faster than premiums, forcing Molina to cut its footprint in weaker markets and raise prices significantly to restore profitability.
Why It’s Likely Temporary
Healthcare inflation isn’t permanent.
State reimbursement rates are already being reset for 2026 with more current cost data. Molina is exiting the least profitable counties and repricing others. Medicaid, which drives most of earnings, remains solidly profitable.
As demand normalizes and state rate adjustments catch up, the pressure on margins should ease.
This isn’t a structural problem, it’s timing.
What Management Is Doing Right
Rather than chase growth, Molina is staying disciplined. It’s shrinking exposure in unprofitable ACA markets, raising premiums where necessary, and continuing share repurchases while the stock trades well below intrinsic value.
That’s a rational use of capital, buying more of a business that remains strong at a time when sentiment is weak.
The balance sheet is solid, giving management room to invest and stay patient.
Investment Thesis
Molina’s stock has fallen about 46% in 2025. The market seems to think the business is in trouble. I don’t completely disagree, but I believe the issue is temporary. To me, it looks more like the company is dealing with a short-term gap between rising medical costs and slower state rate adjustments.
This post reflects my own opinions and research. It is shared for educational purposes only and does not constitute investment advice. Investors should always conduct their own due diligence or consult a professional adviser before making decisions.
