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Molina Healthcare Inc (NYSE:MOH)
Q4 2019 Earnings Call
Feb 11, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Molina Healthcare Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Julie Trudell, Senior Vice President of Investor Relations. Please go ahead.

Julie Trudell -- Senior Vice President, Investor Relations

Good morning, and thank you for joining Molina Healthcare's fourth quarter 2019 earnings call. With me today are Molina's President and CEO, Joe Zubretsky; and our CFO, Tom Tran.

The press release announcing our fourth quarter and full year 2019 earnings was distributed yesterday after the market closed, and the release is now posted for viewing on our Investor Relations website. The replay of this call will be available shortly after the conclusion of this call through February 17. The numbers to access the replay are in the earnings release. For those who are listening to the rebroadcast of this presentation, we remind you that the remarks are made herein as of today, Tuesday, February 11, 2020 and have not been updated subsequent to the initial earnings call.

In this call, we will refer to certain non-GAAP measures. A reconciliation of these measures with the most direct comparable GAAP measures can be found in our fourth quarter 2019 press release.

During our call, we will be making forward-looking statements, including statements relating to our growth prospects, our 2020 guidance and our long-term outlook. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review our risk factors discussed in our Form 10-K Annual Report for 2019 filed with the SEC, as well as the risk factors listed in our other reports and filings with the SEC. After the completion of our prepared remarks we will open the call and take your questions.

I would now like to turn the call over to our Chief Executive Officer, Joe Zubretsky. Joe?

Joseph Zubretsky -- President and Chief Executive Officer

Thank you, Julie, and good morning. On the call today, I will provide highlights from the fourth quarter and full year 2019, discuss our growth initiatives, review our capital allocation priorities and provide our full year 2020 earnings guidance with detail on each of our three lines of business.

Yesterday, we reported earnings per diluted share for the fourth quarter of $2.67, with net income of $168 million and an after-tax margin of 3.9%. I am pleased with our fourth quarter and full year results. For the full year, we met or exceeded our expectations. Premium revenue was $16.2 billion and in line with our expectations. The Medical Care ratio was 85.8% as our cost containment efforts continue to control medical costs, while ensuring the highest quality of care for our members. The G&A ratio was 7.7% as we leveraged our fixed cost base while beginning to invest in growth.

We improved our Medicaid and Medicare margins and earned exceptionally high margins in our Marketplace business. The 2019, total company after-tax margin of 4.4% was supported by 3.2% in Medicaid, 6.7% in Medicare and 10.3% in Marketplace. All-in this performance resulted in net income of $737 million and earnings per diluted share of $11.47. In a year when premium revenue decreased by 8% due to legacy contract losses, we were able to deliver 4.4% after-tax margins and earnings-per-share growth of 8%, a testament to our early stage focus on margins.

During the year, we improved an already strong balance sheet and capital structure, while the business continued to generate significant excess cash flow. In the fourth quarter we harvested an additional $300 million of dividends from our operating subsidiaries, bringing the total for the year to $1.4 billion. As of December 2019, unrestricted cash at the parent company was $1 billion. In early December 2019, our Board authorized a share repurchase program of up to $500 million, through February 7 under a 10b5-1 trading plan, we repurchased 1.9 million shares for $257 million.

I will now comment on the progress we made in the second half of 2019 on our pivot to growth strategy. During the past few months, we announced two acquisitions: YourCare, in Upstate New York and NextLevel Health in Illinois. These acquisitions are financially underperforming health plans, have stable membership in revenue, provide opportunity for margin improvement, operating leverage and membership growth. As a result of the YourCare acquisition, we will serve approximately 46,000 Medicaid members in seven counties in Western New York with annual revenues of approximately $285 million. The purchase price is approximately $40 million. In the NextLevel transaction, we will serve over 50,000 Medicaid and LTSS members in Cook County, Illinois, with annual revenue of approximately $270 million. The purchase price is approximately $50 million. We will fund these acquisitions with available cash and both are expected to close in the first half of the year, enhancing our premium revenue growth rate for 2020.

In New Mexico, we have been working on a special situation, which is a discrete program filling an unmet need. The Navajo Nation in New Mexico has passed legislation to create the first Native American managed care entity and further the legislation stipulates that the Navajo Nation partner with Molina to operate the plant. Pursuant to that legislation, the business arm of the Navajo Nation will contract with us to develop a fully capitated healthcare offering under the umbrella of New Mexico's traditional Medicaid program. The new entity will be designed to improve access and quality of healthcare for the largest Native American reservation, as there are approximately 75,000 Navajo's in New Mexico who are eligible for Medicaid. The program is expected to be operational by 2021.

Turning now to an update on our Medicaid RFPs. In Kentucky, we submitted a high quality proposal in 2019 and response to the state's Medicaid RFP and we're selected as one of the winning bids. In December, 2019, the new administration canceled the awards and rebid the contracts. We have already submitted the updated proposal that details our capabilities and local community commitments that were originally successful and therefore we are hopeful that we will be successful again. In Texas, the STAR+RFP award announced in October were disappointing to us. While we believe we have an excellent track record of service in this program and submitted a high quality proposal, we also believe the scoring process was severely flawed. Therefore, we are pursuing our administrative rights.

Our team filed a detailed protest which points out a number of fundamental flaws in the scoring process. We have not been given a timeline for a ruling on the protest. We believe that the effective date of the new contract would be no earlier than January 1, 2021. So we expect to operate under our existing contract for the full year 2020. These and our other growth initiatives are anchored by our capital allocation priorities. First, organic growth of our core businesses. Second, inorganic growth through accretive acquisitions. And third, programmatically returning excess capital to shareholders via share repurchases.

Now turning to our 2020 guidance. 2020 is the first full year and our pivot to growth strategy. It is a year in which we expect meaningful top line revenue growth, while continuing to produce attractive margins. In that context, some highlights of our guidance are as follows: We expect to grow premium revenues by 7.4% organically and 9% assuming our announced acquisitions close by June 30. For the total company, we expect to produce strong after-tax margins of 3.7% to 3.8%. We expect to continue to improve our performance in the Medicaid business as we benefit from a stable rate and cost trend environment. In Medicare, we expect to grow revenues and maintain our attractive margin position, despite the industry specific headwind of the reinstatement of the health insurer fee. However, we now expect a decline in the Marketplace profit pool for 2020 as the extraordinary 2019 margin performance presents a challenging jump off point into 2020 and it is clear to us now that our membership growth expectations were too optimistic relative to our pricing strategy.

We have enhanced our earnings profile by a measured deployment of excess capital. And finally as a result of all of this, for the full year 2020, we expect GAAP earnings per diluted share in the range of $11.20 to $11.70. Our premium revenue for the full year 2020 is expected to be approximately $17.4 billion, an increase of 7.4% over 2019. This growth is within the 7% to 9% guidance range we gave previously, which assumed a steady state in Texas and no acquisitions. Assuming the YourCare and NextLevel acquisitions close by June 30, premium revenue would increase approximately 9% year-over-year, an 11% increase on an annualized basis. 40% of our premium growth is attributed to member volume and 60% is attributed to rate increases and mix of business. We have a strong and balanced business portfolio, which produces a solid baseline for 2020 and supports our future growth.

Now, I will provide some details underlying our guidance by line of business. In our Medicaid business, we expect 2020 premium revenue to grow approximately 6.4%. This reflects the annualized impact of the RFP Award that we implemented this past year, market share growth in under penetrated markets and net rate increases. Our expected 2020 year end membership is an increase of approximately 3% over 2019 and 6% when including the membership of our two acquisitions.

From an earnings perspective, we expect to produce Medicaid after-tax margins in the range of 3.2% to 3.4%, a slight improvement over 2019. The rate environment is rational and our rate advocacy efforts are working well. We continue to manage medical costs effectively as our efforts in payment integrity, network management and utilization control continue to offset stable low single-digit medical cost trends and we continue to improve our retention of at-risk revenue and improve our member restores.

Our Medicare business is expected to grow premium revenues by approximately 12% with our DSNP product growing by 20%. Recall we filed DSNP products in 150 new counties in 2020 including entering to new states, Ohio and South Carolina and gained market share in existing counties. We continue to progress toward our goal of having full penetration of our DSNP product in our Medicaid footprint. Our year-end membership in Medicare all-in, is expected to be an 8% increase over 2019. From an earnings perspective in Medicare, we expect an after-tax margin in the range of 5.6% to 5.7% including the health insurer fee headwind of $22 million after tax, which dampens margins by approximately 90 basis points. In this line of business, premium yields have kept pace with medical cost trend. We continue to effectively manage the high acuity LTSS population, and we continue to improve on our member risk scores.

In our Marketplace business, we served 274,000 members at year end 2019 and produced exceptionally high margins. In an effort to be more competitive in our 2020 product set, we lowered our prices on average 4%. We began 2020 with approximately 350,000 Marketplace members, a 30% increase from year end 2019, including our expanded footprint in two new states, Mississippi and South Carolina. We expect Marketplace revenue growth of 9.2% in 2020 with after-tax margins in the 4.7% to 4.9% range. Our Marketplace membership in revenue growth outlook are below our initial expectations as the investments we made in product design and pricing did not produce the level of membership we had forecasted. This was particularly true in two markets, Texas and Florida, which comprised most of the shortfall to our expectation.

In summary, we had competitive pricing in many, but not all of our markets and we saw fewer members move for the same price differential than we had seen in years prior. We do however, expect membership attrition to be lower than in past years and thus we expect to end the year with approximately 310,000 members a 15% increase over year end 2019.

In conclusion, after another solid year of performance in 2019, we look to 2020 and beyond with confidence. We have a deep management team, a strong product portfolio, a healthy capital structure and a value creating approach to capital deployment. We are and we will be a pure play government managed care business. We are going to stay close to the core. We believe that the government managed care business has very attractive growth characteristics with compelling free cash flow generation.

Now I will turn the call over to Tom Tran for more detail on the financials. Tom?

Thomas Tran -- Chief Financial Officer

Thank you, Joe, and good morning. We report fourth quarter earnings per diluted share of $2.67, net income of $168 million and an after-tax margin of 3.9%, with premium revenue of $4.1 billion.

Let me provide some additional detail on the quarter. My commentary will be focused on a sequential quarter comparison. The consolidated MCR for the fourth quarter of 2019 was 86%, compared to 86.3% in the third quarter, primarily due to improved results in Medicaid. Prior period reserve development in the quarter was negligible, more specifically in the Medicaid business. Our MCR for the quarter improved 80 basis points sequentially to 87.3%, producing an after-tax margin of 3.6%. We continue to perform well in Medicaid.

Our Medicare business continued to perform well in the quarter. The MCR for the quarter of 85.5% was stable compared to 85.6% in the third quarter of 2019, producing an after-tax margin of 5.5%. Finally, our Marketplace business continued to perform well and generally in line with seasonal expectations as we report an MCR for the quarter of 73.5% compared to 71.2% in the third quarter of 2019, producing an after-tax margin of 4.5%.

Regarding influenza, costs were higher in the current quarter compared to the same quarter in the prior year, but the overall impact was not significant. The G&A ratio for the fourt quarter of 2019 increased by 40 basis points to 8%, compared to 7.6% in the third quarter of 2019, due mainly to spending on sales and marketing, during the open enrollment for Medicare and Marketplace.

Turning to our balance sheet, cash flow and cash position for the quarter. Our reserve approach is consistent with prior quarters and our reserve position remains strong. Days in claim payable represent 50 days of medical cost expense compared to 50 days in the third quarter of 2019 and 53 days in the fourth quarter of 2018. As of December 31, 2019 our health plans had total statutory capital and surplus of approximately $1.9 billion, which equates to approximately 350% of risk-based capital.

In December, the Board of Directors authorized a share repurchase program of up to $500 million. And during the quarter, we repurchased approximately 400,000 share for $54 million. Subsequent to the quarter through February 7, we repurchased an additional 1.5 million shares, bringing the total number of share repurchase to 1.9 million for $257 million.

Operating cash flow for 2019 was $427 million, an improvement compared to 2018, primarily due to the timing of premium receipt and government payments. Our initial full-year 2020 earnings per share guidance on a GAAP basis is in the range of $11.20 to $11.70. We have not include the YourCare and NextLevel acquisitions, as these transaction have not yet closed. Our guidance assumes a steady state in Texas, for the full year 2020 as we believe the existing contract will run through this year. Our premium revenue for the full year 2020 is expected to be approximately $17.4 billion, which reflects a 7.4% increase over 2019. If the YourCare and NextLevel acquisition were to close by June 30, premium revenue would increase approximately 9% year-over-year and the earnings impact for 2020 from the two acquisition would be negligible.

We expect the medical care ratio to be in the range of 86.2% to 86.4%. The increase over 2019 is primarily due to a higher Marketplace MCR in 2020. We expect our G&A ratio to improve to approximately 7.2%. This reflects revenue growth, fixed cost leverage and productivity improvements, offset somewhat by reinvestment in growth initiatives. Our effective tax rate is expected to be approximately 31%, an increase from 24% in 2019, driven by the impact of the health insurer fee. We expect after-tax margins in the range of 3.7% to 3.8%, primarily due to lower Marketplace margins that Joe previously mentioned. While we do not give quarterly guidance, I do want to point out that the first quarter earnings per diluted share will be less than 25% of our full year outlook, due to the impact of the leap year and the timing of our capital actions. Lastly, I would like to announce that we will be holding an Investor Day on May 28, 2020 in New York City. That concludes our prepared remarks.

Operator, we are now ready to take questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Peter Costa of Wells Fargo.

Peter Costa -- Wells Fargo Securities -- Analyst

Good morning. Thanks for taking my question. I really just wanted to explore the exchange business a little bit in terms of, do you believe the margins will deteriorate further going forward or are we at the end of it here with this year coming up and then talk about the pricing situation with competitors? How much further do you expect price competition to impact that businesses growth?

Joseph Zubretsky -- President and Chief Executive Officer

Sure, Pete. We hit our price point on our silver product, meaning we are number one or number two, and about 50% of our geographies. We have our price point in bronze either the number one price position or zero premium and about 75% of our geographies. So we didn't hit our price point in all geographies. And where we did hit the price point, fewer members moved before the price differential than we had seen in years prior. So we didn't get the volume that we expected to get for the 4% average price decreases we put into the market.

So 2020, the earnings reset. We earned $150 million which was exceptionally high in 2019. That will be approximately $75 million in 2020. But I would say that 2019 felt more like $125 million year and 2020 should have been more like a $100 million year. So the -- while the spread looks wide, I think the jump off point in 2019 was particularly challenging. I think we need to go through the pricing cycle for 2021 to see where the margins land. We still have very high hopes for this business. It leverages our Medicaid footprint, our Medicaid network, nearly 90% of our members are fully subsidized, so we're servicing the working -- serving the working poor, so it fits strategically, but let's go through the 2021 pricing cycle and see how we can grow the profit pool over time.

Peter Costa -- Wells Fargo Securities -- Analyst

Okay, thank you.

Operator

The next question comes from Matthew Borsch of BMO Capital.

Matthew Borsch -- BMO Capital Markets -- Analyst

Yes. Maybe just a little bit more on the ACA, you're Marketplace membership, and I'm curious in Florida and Texas, is that a dynamic of price competition being more intense than you would expect it? And you also alluded to members not moving at the same price point as you saw the move in prior years. Is that reflect a maturity in the market or are there other factors you might attribute that to?

Joseph Zubretsky -- President and Chief Executive Officer

Matt, on the last point, it's the question of elasticity of demand. And I think where we misforecasted was the result of members moving as prices were moving up, as price increases were going into the market, members would move for $10 and $20. And I think as prices have now moderated, and even declined, I think you're seeing less movement for the same price differential as the market -- as you suggested seasons and matures, as you're members become more chronic and they stay with you longer, these high acuity members are not going to move their health plan, if they're using a lot of services. So I think the maturity and the seasoning of the market has something to do with it.

On your first point, yes, in Texas and certain places in Florida, we did not hit the price point that we try to, do to a competitive force. And as we reprice into 2021, we're going to look at those markets and try to capture the market share that we think we can obtain.

Matthew Borsch -- BMO Capital Markets -- Analyst

Thank you.

Operator

The next question comes from Mike Newshel of Evercore ISI.

Michael Newshel -- Evercore ISI -- Analyst

Thanks. Maybe just a follow-up on the exchanges. I mean since the membership does appear less sensitive to price changes, is that going to change how you approach pricing next year in terms of the optimizing margin versus favoring enrollment growth. And also just how are you thinking about the long-term targets on margin and revenue growth that you have provided at the Investor Day.

Joseph Zubretsky -- President and Chief Executive Officer

The balance that you referred to is what you need to titrate in this business. You're looking for how many members you can grow for the price point you put into the Marketplace. And the favorable news in all of this is that while fewer members move, that also means that more members are retained. So we're projecting -- while last year we had about 1.5% to 2% membership attrition per month, we're projecting this year that could be more like 1% as I said as members stay with you longer, they're probably more chronic and every users of healthcare services and less likely to move. So, I would say that, yes as the market seasons fewer members will move, but that's good for member retention.

Michael Newshel -- Evercore ISI -- Analyst

How about the long-term guidance on exchanges, how are you thinking about that?

Joseph Zubretsky -- President and Chief Executive Officer

Well, I think we have to go through the 2021 pricing cycle. We'll look at all of the factors in this business. We will look at our networks. We will look at our broker relationships and our commission structures and then of course, product design and price point, and we still think we can grow the profit pools, albeit off a lower base, we're not reforecasting the long-term margin picture for the business. Although, suffice it to say, it probably will take longer to get there than we had originally forecasted.

Michael Newshel -- Evercore ISI -- Analyst

Okay. Thank you.

Operator

The next question comes from Steve Tanal of Goldman Sachs.

Stephen Tanal -- Goldman Sachs -- Analyst

Good morning, guys. Maybe just a couple of quick ones on the guidance. And then one of the Marketplace. So just wanted to understand is prior period development or prior year development now included in the guidance? And if so, is that at a similar level to '19, I think it was about $0.98 in the first half of the year.

Joseph Zubretsky -- President and Chief Executive Officer

Prior year development is not included in our 2020 guidance.

Stephen Tanal -- Goldman Sachs -- Analyst

Perfect. Thank you. And then on the Texas STAR+, can you give us a sense of what amount of sort of revenue and net earnings would be lost if the appeal the award doesn't go as planned, kind of on an annualized basis, so we have a sense of what that delta would look like?

Thomas Tran -- Chief Financial Officer

Well -- if we -- right now, as the Department has published, if they went through with the awards, the contract -- new contract would be effective on September 1, 2020. So therefore it would be four months of revenue lost and the Medicaid contract that's approximately $350 million, and we estimate anywhere from $0.20 to $0.25 of earnings per share drag in this year. Now, I wouldn't necessarily multiply that by 3 to get the full year impact, because you just can't take the cost out fast enough. In one quarter, you're not going to take cost out fast enough. So we need some time to readjust our cost structure and our fixed cost base to estimate the full annual effect. But for this year, $0.20 to $0.25 of drag in the latter half of the year -- in the last half of the year and $350 million of revenue loss in the Medicaid contract.

Stephen Tanal -- Goldman Sachs -- Analyst

Super helpful. Then just on the Marketplace, wondering if you could comment on the MLR that's embedded in the guide?

Joseph Zubretsky -- President and Chief Executive Officer

I'm sorry can you repeat the question.

Stephen Tanal -- Goldman Sachs -- Analyst

The Marketplace MLR for '20 that's embedded in the guide.

Joseph Zubretsky -- President and Chief Executive Officer

Yes. It's approximately 74% up from 68% in 2019.

Stephen Tanal -- Goldman Sachs -- Analyst

Awesome. Super helpful. Thank you.

Joseph Zubretsky -- President and Chief Executive Officer

You're welcome.

Operator

The next question comes from Justin Lake of Wolfe Research.

Justin Lake -- Wolfe Research -- Analyst

Thanks, good morning. I was hoping you could walk through your capital and balance sheet projections for the end of the year, assuming the deals closed that you expect in the share repo that's in the guidance. Just trying to get an idea on the end of the year of capital flexibility.

Joseph Zubretsky -- President and Chief Executive Officer

Sure, Justin. And just to recap, during 2019, we were retiring the very expensive convertible notes that were in our capital structure that we're getting more as the stock price moved up, that we're getting more and more expensive. So over a period of 18 months we freed up $1.7 billion and the notes right now are substantially gone. Now, as you know those notes have a dilutive effect on your share count and so retiring those notes actually is a catalyst going into next year on the share count dynamics as will be our share repurchase program, having already repurchased 1.9 million shares. All that being said, we still have $1 billion of cash at year end in the parent company, which means it's free and excess cash flow. We also have $900 million of undrawn debt capacity for a total of $1.9 billion of dry powder to fund our acquisitions, to repurchase shares and to grow the business the way we intend to.

Thomas Tran -- Chief Financial Officer

The other thing I would add here as Joe said is that we expect to continue to attract dividend from our subsidiary as we continue to generate profit in 2020. So that additional dividend structure will also give us additional flexibility there to do other things.

Justin Lake -- Wolfe Research -- Analyst

That's helpful. Can you tell us what you expect to spend on these acquisitions, I mean we could figure out the share repurchase number, pretty easily.

Thomas Tran -- Chief Financial Officer

I mean the two that we have under contract will be $90 million to up $50 million for $140 million for the year. So total of $90 million for the two acquisitions. And then we still have $250 million left in our current share repurchase authorization. But we can top that up at some point in the future.

Justin Lake -- Wolfe Research -- Analyst

Thanks. And then just a couple of quick numbers questions. First, can you give us an investment income assumption for 2020. And then second, Joe, just a follow-up on the commentary on Texas. I just want to make sure you were saying that it's 20 -- would be $0.25 dilutive to this year, but it would actually be -- we should multiple that by 3 to get to $0.75 because you'd be able to cut some costs so it will be lower than that on a full year basis. Once you get...

Joseph Zubretsky -- President and Chief Executive Officer

Yeah, that's... Let me answer the second question first, yes, that's correct. $0.25 of drag, if we were to lose the contracts on September 1, but we're still looking at how quickly we would reduce our cost structure and so we -- I don't have a full year number, but I'm expecting it would be less than 3 times the 2020 effect. Tom on the investment income.

Thomas Tran -- Chief Financial Officer

Sure. On the question of investment income, we love to get investment and other income and if you look at 2019 is $132 million. Third quarter happened to be higher than normal as we went through some restructuring of our portfolio. Typically you would see roughly about $30 million a quarter, I would say that for 2020, you should see that number to be lower because yields have dropped significantly over this past year due to the fact fed fund had decreased a couple of times. So I don't have the number at right in front of me. So let me just follow what we do right. Right after the call, I'll give you the exact number.

Justin Lake -- Wolfe Research -- Analyst

Thanks again.

Operator

The next question comes from Scott Fidel of Stephens.

Scott Fidel -- Stephens Inc. -- Analyst

Hi, good morning. A question, just want to ask something maybe a little more thematically and Joe, I'm interested in just your thoughts on, just looking at the Medicaid RFP process more broadly and what transpired in 2019. It's a pretty massive year in terms of how the RFPs played out in a number of states, when we think about North Carolina, Kentucky, Texas, Louisiana, just interested if you think holistically there's any broader takeaways around what we seen playing at -- play out in the Medicaid RFP process. I mean one could certainly look at each of these from a bit of a idiosyncratic sort of one-off dynamics in each state, but clearly when you aggregate it together it was just a difficult -- much more difficult year for RFPs in general than we've traditionally seen.

Joseph Zubretsky -- President and Chief Executive Officer

I think that's a fair point. And the specific sites you mentioned certainly have a lot of intrigue around them in terms of how they all unfolded. We don't view it any differently than we always have. We think non incumbents have a reasonable chance of displacing an incumbent which means you need to protect your turf and go after the new ones hard. We still think the ground game works. You have to be in a state a year or two before an RFP has dropped in order to build the provider relationships, the regulatory and political relationships, and really get to know the landscape and we're doing that. So, while I think this year, as you mentioned, might have some idiosyncratic noise to it, we still believe that the pipeline of Nevada, Missouri, Iowa, Indiana, Tennessee, Georgia, a little further out, we'll evaluate all of those through the screens we put them through, the friendliness of the regulatory environment, reasonable rate structure, the strength of the incumbency and ability to develop a network. And we'll take our shots and go after once we think we can win. So long term, I don't think my view of the growth aspects of new state wins has changed, even though as you suggest 2019 was a bit noisy.

Scott Fidel -- Stephens Inc. -- Analyst

Okay. And then just one quick guidance question. Just your thoughts on the good range for operating cash flow in 2020?

Thomas Tran -- Chief Financial Officer

Operating cash flow really fluctuate a lot. So that depends on timing of government payments. So we -- now we are in good zone. We expect operating cash flow to be positive going forward. But every quarter you're going to see fluctuation and that's just the nature of the business we're in.

Scott Fidel -- Stephens Inc. -- Analyst

Okay. All right. Thanks.

Operator

The next question comes from Josh Raskin of Nephron Research.

Joshua Raskin -- Nephron Research -- Analyst

Hi, thanks. Quick ones on guidance as well. Just as we think about adjusted EPS, any difference in amortization expectations for next year? And then the share count reductions sort of that 5% boost you're seeing, is that share buybacks, I think it feels like it almost assumes reauthorization of the buybacks, as well?

Joseph Zubretsky -- President and Chief Executive Officer

Josh I'll answer the second question first, then I'll hand it over to Tom. In 2019, we were retiring a very expensive convertible notes, which as you know, end up in your diluted share count. Ao about a third of our share count reduction is just a spillover effect of all the convert retirement activity in 2019, hitting full run rate in 2020 and the remaining portion is actually -- the actual reduction in share count as a result of the share repurchase program. It does not anticipate any top up to the existing $500 million authorization.

Thomas Tran -- Chief Financial Officer

Yes. On the intangible amortization, if you look at the table we disclosed in the earnings release is approximately $17 million pre-tax for 2019. That number is going to drop a little bit in 2020. So I expect to be roughly about $0.17 to $0.18 per share for the full year versus this year, but roughly about $0.20.

Joshua Raskin -- Nephron Research -- Analyst

Okay, perfect. And then, you guys talked last quarter around some of your select -- in some of the specific Medicaid markets cost pressures and some high cost claims and obviously no sign of that, no mention in the press release. Maybe any look back as to what the potential drivers were? What you guys were seeing or was any of that still lingering in the quarter?

Joseph Zubretsky -- President and Chief Executive Officer

It really wasn't. In the second and third quarter we did note some cost pressure here and there. The one that we were most aware of and concerned with was in Ohio due to three things: the behavioral carve in over a year ago. The inclusion of IMD facilities in the behavioral benefit, and then of course due to redetermination the acuity mix shift. As we've often said that rate advocacy is a very important part of this business and we and the other participants in Ohio work with the state, got a rate increase in mid 2019 and then got a very significant rate increase for 1/1/2020 going forward. So that was the one we are most concerned with. And we think that is largely been solved with our rate advocacy efforts and a nice rate increase on 1/1/2020.

Joshua Raskin -- Nephron Research -- Analyst

Perfect. Thanks.

Operator

The next question comes from Charles Rhyee of Cowen.

Charles Rhyee -- Cowen and Company -- Analyst

Yes. Thanks for taking the question. Just two quick questions. One going back on the Marketplace. If you're seeing fewer members move because of pricing, is there anything beyond pricing that you can do to really differentiate the products to drive growth?

Joseph Zubretsky -- President and Chief Executive Officer

Yeah, there are some benefit design of dental, vision in what we call ancillary benefit features, many of which we implemented in for this cycle, and then of course there your broker relationships and is your commission structure competitive, and we'll look broker loyalty help move membership. So we're looking at all of those factors in our 2021 pricing cycle.

Charles Rhyee -- Cowen and Company -- Analyst

Okay, great. And then -- and just going back to Kentucky, you mentioned that you kind of resubmitted the bid. Were there any kind of major changes when you looked at the revised RFP there. And can you talk -- maybe give us a little bit more thoughts on sort of what changes you revised for your bid as you resubmitted? Thanks.

Joseph Zubretsky -- President and Chief Executive Officer

Sure. The only changes to the RFP were to, I'll call them administrative matters really. The questions on the capabilities did not change at all. But what we did and I would imagine all of our competitors did, as you went back and looked at where you could have scored better and try to shore up your RFP response, which we did. And as I said, I'm sure the competitors did as well.

Charles Rhyee -- Cowen and Company -- Analyst

Okay, great. Thank you.

Operator

The next question comes from Steven Valiquette of Barclays.

Steven Valiquette -- Barclays Bank -- Analyst

Great, thanks. Good morning guys. Couple of questions around the Marketplace. I guess first for the 2020 membership that you mentioned that Texas and Florida in particular were stock relative to your expectation. Is there any chance that maybe just the unfavorable headlines for Molina around your initial outcome in the Texas STAR+ award may have hurt your Marketplace membership growth in Texas. And do you have any thoughts I mean on why you think Florida may have been soft. And then I have a follow-up after that.

Joseph Zubretsky -- President and Chief Executive Officer

Now the dynamics in Texas in the two businesses are quite separate and distinct from each other under different regulatory regimes, etc. So no, we do not think that the Marketplace and Medicaid business had anything to do with each other. It was competitive pricing. You do the best you can. It's a blind bid. You try to predict where your competitors are going. And as I said, I think the good news is we did hit in 50% of our silver geographies and in 75% of our bronze geographies. So we hit the price point in many places. We'll try to do better next year and hopefully the attrition rate will stick and we'll have sticky membership and profitable going forward.

Steven Valiquette -- Barclays Bank -- Analyst

Okay and then just quickly again for Marketplace, I mean you mentioned last month in January that 80% of the 350,000 members are renewals or retained which you mentioned gave you stability and visibility on the MLR. Just to kind of explore this a little further of this whole discussion around less new members for '20 leading to lower margins. I mean, is it possible that just a larger percent of your Marketplace book, because it's retained members is maybe hitting up on MLR floors in 2020 then what you expect in that is what is mechanically, making the net margins come in a little lower than expected or is that not really what you're seeing there? Thanks.

Joseph Zubretsky -- President and Chief Executive Officer

We -- in 2019, we are at the minimum MLR in one state New Mexico. We have been for two years now. And as you know the 2017 year, it's a three-year rolling calculation. The 2017 was a particularly poor year and as we just announced the 2019 was an exceptionally good year. So that will put pressure on the NIM and MLR in a couple of additional states. But it's really not material to the overall story on the margin. It's really the product, the -- sorry, the volume pricing equation that is the larger part of the story, not the minimum MLR.

Steven Valiquette -- Barclays Bank -- Analyst

Okay, perfect. Thanks.

Operator

The next question comes from Gary Taylor of JP Morgan.

Gary Taylor -- JP Morgan -- Analyst

Hi. Good morning. Most of my questions answered, I just want to go back to Medicaid margins for next year, a little bit, I think up 10 basis points is your guidance. And you had mentioned some rate increases in Ohio. So I've noted those. I guess my question is, what have you contemplated for 2020 in terms of just the redetermination environment in general getting better or worse, staying the same, and with this Trump public charge rule now being allowed to take effect at least, well, it's being litigated, what are your thoughts on whether that has any impact in terms of enrollment in margins?

Joseph Zubretsky -- President and Chief Executive Officer

On the -- Gary in the last part of your question, the public charge redetermination the impact on 2020 we certainly took all that into consideration, and we saw membership stabilize in the last half of the year. The year -- the quarter-over-quarter sequential membership and Medicaid has pretty much held steady, and so many of the significant redetermination efforts that were going on in Michigan in particularly Ohio have moderated. Certainly the public charges, we're aware of it. Three of our states, California, Texas and Illinois in particular have high concentrations of the populations that are subject to it, but Department of Homeland Security on the estimates that 140,000 people nationwide are really affected by it. But the chilling effect is something we're aware of. And we certainly considered in our guidance.

With respect to rate and profit improvement. It was not just Ohio, we actually did well on rates in many of our geographies. As I said, the rate environment is stable, it's very rational, it's actuarially sound, and just about all of our geographies rate not only kept pace with low-single digit medical cost trend, it exceeded it in some places. So that helps margins in 2020 and also we continue to pound away at our profit improvement initiatives, payment integrity, utilization control, better risk scores, all contribute to the profitability of the -- both the Medicare and the Medicaid book of business. So we're pretty confident we can maintain this margin position in 2020 and perhaps beyond.

Gary Taylor -- JP Morgan -- Analyst

Thanks. One other question if I could just on prior year development on your GAAP earnings guidance, roughly flat year-over-year is hurdling almost $1 of excess development that you're assuming does not recur. And I know, I think that $0.98 is higher than it's been historically in the last few years, but could you just remind us on maybe what lines of business were the largest contributors to that $0.98 or roughly $1. Just so we can think about that a little bit heading into 2020?

Thomas Tran -- Chief Financial Officer

Sure, most of the favorable development that we have report throughout 2019 were related to Medicaid business.

Gary Taylor -- JP Morgan -- Analyst

Okay. Thank you.

Joseph Zubretsky -- President and Chief Executive Officer

Thank you.

Operator

Next question comes from Kevin Fischbeck of Bank of America.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. So I just want to go back to the exchanges for a few minutes. The -- it sounds like you're saying that the delta versus your expectations on the exchanges is really about membership rather than margin. So are you saying that the margin is more or less in line with kind of what you expected when you were pricing the business last year?

Joseph Zubretsky -- President and Chief Executive Officer

No, Kevin. We expected the margin to be more closer to the long-term guidance range that we gave you. So we're certainly coming in lower. But as we said many times, you can't have a conversation about margin or membership without the companion statement. Our goal is to grow the profit pool, and growing it off of the $75 million base will be pretty important to our earnings growth story going forward. So every single year we go into the pricing cycle, we'll try to sort through of a competitive forces, we'll work with our broker relationships and our goal is to grow the profit pool here over time. Now, whether we can get it back to the 8% after-tax margin range we had originally forecasted, it will take some time to get there, but as we go into the 2021 pricing cycle we'll know more.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

And is it the minimum MLR, you're saying, I think you said minimum MLR was not a big issue. So if it is not minimum MLR being a big issue in 2020 that caused the margin drop, what is it just growth in lower margin markets and -- than you expect it?

Thomas Tran -- Chief Financial Officer

Yes. Kevin, MLR does play a factor in the lower margin in 2020, but it's not really the major factor, if you will. As Joe mentioned before we come off that 2017 bad year, drop off a three-year rolling calculation. So 2020, we expect to have higher minimum loss higher -- I would say a rebate and more state than just New Mexico.

Joseph Zubretsky -- President and Chief Executive Officer

But all of those factors played into the margin compression for the year. Number one, off of the higher revenue base the operating leverage is significant, let's not forget that. Your variable cost in sales expense is certainly there but you're leveraging of fixed cost base. So the fact that we didn't hit revenue really, really hurt us in the operating leverage in this line of business.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay. I guess the fact is already minimum MLR more states, does that give you then the pricing tailwind into next year, or are you now rethinking how beneficial that might be given that people really weren't switching for the incremental price differential?

Joseph Zubretsky -- President and Chief Executive Officer

Well, when we go into the 2020 with pricing cycle we'll have to forecast, again, here we go with three months into the year, forecasting if we're going to be up against in the state and take that into consideration into pricing. And as you know, it's a three-year rolling average, so you can't get it all back in one year. It takes time. But again, as Tom said, it's not a significant part of the story. We might bump into it in a couple of more states than New Mexico. But it's just not significant part of the story for this year.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay and I guess last question. So just basically just tell us down the costs are coming in basically unexpected effect in the coming, I would expect there is no cost issue, we're really talking about a pricing MLR and membership growth issue, not a cost issue anywhere in here.

Joseph Zubretsky -- President and Chief Executive Officer

Yeah, I think that's exactly, that's the balance of those three factors that you try to anticipate in price war. And this year we misforecasted it and we didn't hit it.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay. Great. Thanks.

Operator

The next question comes from Dave Windley of Jefferies.

David Windley -- Jefferies -- Analyst

Hi, good morning. Most have been covered, but I have a couple. On the acquisitions. Joe, you mentioned that the relatively low margin, which gives you an opportunity, I think Tom in his prepared remarks said if they close by X date they would be neutral to earnings this year. I guess I'm wondering how much of your playbook, does that assume are they just naturally financially neutral and your operational execution would make that better or does that assume some operational execution and how quickly you were able to execute the playbook pretty well in the organic business so pretty quickly? How quickly do you think you can execute that in these acquisitions?

Joseph Zubretsky -- President and Chief Executive Officer

We believe we can get these to run rate to our target margins after one year of operating them whatever that year is 12 months of operating them. And bear in mind, it's not just getting the $550 million of revenue to our target margin. I hate to keep talking about operating leverage, but it's real. These two properties in particular one in Upstate, New York is basically just folded into our existing infrastructure and same with Ohio. We have a very large Illinois health plan. We need no more management. We folded in and we get the operating leverage off it. So it actually produces north of your target margins because of the operating leverage you get. And we plan to get to a run rate after 12 months of ownership.

David Windley -- Jefferies -- Analyst

Got it. Okay. And am I right that approximate delta from where you're acquiring them to your target margins is a good 200 basis points or more?

Joseph Zubretsky -- President and Chief Executive Officer

Yes. These two properties in particular are basically breakeven.

David Windley -- Jefferies -- Analyst

Okay. Breakeven. And then just for simplicity, to the share count question and the reduction in share count in 2020. Can you give us after the retirement of the convert, after the buyback that you did in the fourth quarter, like, what was the ending share count for the year as opposed to the average for the fourth quarter?

Thomas Tran -- Chief Financial Officer

Yes. The ending share count is going to be lower than what we provided to you on a guidance table. So, because as you buy share is going to flow throughout a number of quarters. And the number is probably roughly about a little bit less than 51 million share for the end of 2020.

David Windley -- Jefferies -- Analyst

Okay, great. And last question. On the comments about attrition, Joe, I think you had talked about fewer movers. My understanding -- I'm interpreting that as movement during I can open enrollment period and during shopping. Do I also understand that you're translating that to you think your retention within the year is going to be higher and is the thought process in those two different kind of periods the same?

Joseph Zubretsky -- President and Chief Executive Officer

Good point. Our retention during open enrollment was north of 80%. So we ended the year with 274,000 members, 80% of those are now members inside our 350,000, beginning of the year membership. We also saw this last year, and you can see it in the medical cost, you can see higher use of pharmacy, chronic conditions using expensive drug. So the members are clearly more chronic, you see it in the risk scores. You see in the retention rate and the open enrollment retention rate. And therefore, we are projecting that we'll only lose about 1% a month, where in the past, we lost 1.5% to 2% a month.

David Windley -- Jefferies -- Analyst

Okay. And then is that higher chronic mix than consistent with what you expected in pricing and kind of MLR expectations. I presume you baked that into your guidance, but just to make sure.

Joseph Zubretsky -- President and Chief Executive Officer

Yes, absolutely. And again higher acuity members as long as you get paid for them and get the right risk scores, higher acuity members are finding they can produce target profitability. So yes, we took that into consideration as we price to book. But we have to get the risk scores and we're getting better and better at that every day.

David Windley -- Jefferies -- Analyst

Got it. Thank you. Thanks for the answers.

Operator

The next question comes from Sarah James of Piper Sandler.

Sarah James -- Piper Sandler -- Analyst

Thank you. For 2020 guidance in Medicaid and Medicare margins, they are both well above pure average and your long-term guidance that you gave at I Day. But the net margin of the company is still well below the midpoint of long-term guide. So I'm wondering if the 3.8% to 4.2% is still what we should be thinking about for long-term net margin guidance for Molina as a whole? And how sustainable are the heightened Medicare and Medicaid margins that you're experiencing in '20?

Joseph Zubretsky -- President and Chief Executive Officer

Well, it's certainly in Medicaid, with a projection for 2020 of 3.2% to 3.4% after-tax. We believe that the Medicaid margins are sustainable. And again all based on a reasonable rational and naturally sound rate environment. So that's the context for being able to sustain those margins in our ability to manage medical costs. On the Medicare side, bear in mind, our book is different. It's not traditional Medicare Advantage, it's DSNP and MMP, these are high acuity members, heavily burdened with LTSS benefits and we're very good at managing those. So, it's a $2 billion -- $2.5 billion book of business with starkly different characteristics than many of the larger Medicare players. So I don't think the comparison to traditional MA is the right comparison. But we believe these margins are sustainable in this area.

And, yes, you're right, it's really the margin rebalance in 2020 on Marketplace that has caused us to operate at the lower end of our long-term guidance range. And as we go through our 2021 pricing cycle for Marketplace, we'll make the determination as to whether that long-term guidance still stands or not.

Sarah James -- Piper Sandler -- Analyst

Got it. And then maybe if I compare the MA margins to your own books, because you're right about the product mix there. So they're running a good bit above the 5%, 5.5% long-term guide and then you mentioned there also absorbing 90 basis points from the half. So as we think about that book going forward, when the hit falls off, can you add that 90 basis points, back in and how do you think about the long-term margin profile of your MA book?

Joseph Zubretsky -- President and Chief Executive Officer

Well, clearly when we hit goes away for next year. It's a complete reversal. So you're right in that point. As you grow the business more aggressively, newer members that come on are going to attract a higher MLR. Typically, we see new members coming in, in the mid 90s and the book as it seasons producers mid 80s. So if we start growing this book more aggressively that will put pressure on the MLR, which will in turn put pressure on the margins, but that's all contemplated in pricing and in forecasting, but that would be the dynamic that I would expect as we grow this book in the future.

Sarah James -- Piper Sandler -- Analyst

Thank you.

Thomas Tran -- Chief Financial Officer

And, this is Tom. This is a question from Justin Lake on investment income before. I just want to provide you would a data. 2020, we expect investment and other revenue to be about $35 million less than 2019.

Joseph Zubretsky -- President and Chief Executive Officer

Thanks, Tom.

Operator

The next question comes from George Hill of Deutsche Bank.

George Hill -- Deutsche Bank -- Analyst

Good morning. And I think most of my questions have been answered. I'll just ask tack one more on about the Marketplace environment. If you guys kind of went to market with 4% price decreases and we're unable to kind of get the churn that you're looking for I guess churn wasn't what you expected, I guess, do you know what churn in aggregate looks like kind of across the market inclusive of your book? And I guess what does, I'm trying to figure out what are those numbers kind of tell you about the economic sensitivity of that market and like what type of price decrease do you think is necessary to drive churn in that book and grow market share? And I recognize there is a lot of moving pieces with that?

Joseph Zubretsky -- President and Chief Executive Officer

Yes. There are a lot of moving pieces. And one thing I would say is that first of all, we did retain an open enrollment 80% of our members. So we have at least our own data point. Hard to say what the competitor saw. But we believe this is sort of a dynamic as prices have now stabilized or even moderated and decreased. The $5, $10 and $20 price differential keep bearing in mind these are nearly fully subsidized members. So the Marketplace 10 million members wide, we're serving a niche. We are serving these highly subsidized members, 86% of our members have some subsidy. About half of those have a full subsidy and the dynamics I think in that market might be different than the Marketplace at large. If a member has high acuity and they're using services, they are less likely to move, that's a dynamic we've always dealt with, but I think if prices -- as prices had moderated, members are not leaving for the same price differential they have left for in prior years.

George Hill -- Deutsche Bank -- Analyst

Okay. That's helpful. Thank you.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Julie Trudell -- Senior Vice President, Investor Relations

Joseph Zubretsky -- President and Chief Executive Officer

Thomas Tran -- Chief Financial Officer

Peter Costa -- Wells Fargo Securities -- Analyst

Matthew Borsch -- BMO Capital Markets -- Analyst

Michael Newshel -- Evercore ISI -- Analyst

Stephen Tanal -- Goldman Sachs -- Analyst

Justin Lake -- Wolfe Research -- Analyst

Scott Fidel -- Stephens Inc. -- Analyst

Joshua Raskin -- Nephron Research -- Analyst

Charles Rhyee -- Cowen and Company -- Analyst

Steven Valiquette -- Barclays Bank -- Analyst

Gary Taylor -- JP Morgan -- Analyst

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

David Windley -- Jefferies -- Analyst

Sarah James -- Piper Sandler -- Analyst

George Hill -- Deutsche Bank -- Analyst

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