Molina Healthcare, under pressure to boost margins, will lay off 1,400 workers

Health insurer Molina Healthcare Inc. will lay off about 1,400 employees as the Long Beach company looks to cut costs and increase profitability.

The layoffs will hit 10% of staff in the company’s corporate and health-plans units, from senior leaders to “front line staff,” interim Chief Executive Joe White said in a memo sent to employees Monday that was obtained by The Times.

Notice will go out to affected employees in two waves and will largely be completed by the end of September, according to the memo.

The company said it would provide severance packages, interview and resume help, and would give affected employees access to Molina Healthcare recruiters to help some qualified candidates find positions in other departments or locations.

Molina Healthcare employs about 6,400 people in its corporate segment, and 7,700 people in health plans, according to its latest annual report, released in March.

“This was a very difficult decision, and one that I do not take lightly,” White wrote in the memo. “But we must never flinch from making the decisions that will allow the Molina mission to continue.”

Molina Healthcare declined to comment.

Founded in 1980 by a Long Beach emergency room doctor, Molina Healthcare has traditionally been known as a Medicaid provider and emerged as a major player in the Affordable Care Act, or Obamacare, health insurance markets.

As of March, the company had about 4.8 million members in 12 states and Puerto Rico who were eligible for Medicaid, Medicare and other government-sponsored healthcare programs for the poor. In California, the company had 765,000 members and operates several of its own clinics.

In May, Molina Healthcare ousted its two top executives — the sons of the firm’s founder — in a move the company attributed to poor financial results.

Analysts said Molina Healthcare had long lagged competitors in profitability. An effort to improve that under Chief Executive J. Mario Molina and his brother, Chief Financial Officer John Molina, had been slow to materialize and inconsistent in its progress. The two brothers remain on the company’s board.

“The company and the management team did an excellent job growing the top line,” said Chris Rigg, director at Deutsche Bank. “It was just not able to effectively and really consistently translate the revenue growth to earnings growth.”

White, the company’s chief financial officer, assumed the role of interim CEO, while Dale Wolf, a director, became the firm’s chairman.

Although the timing of the layoffs was surprising — coming while the company is looking for a permanent CEO — the actual decision to cut jobs was not, said Dave Windley, managing director at Jefferies.

“Their margins are very low relative to their competitors,” he said. “The idea that they need to streamline costs and become a more efficient operation is fairly apparent from the financial performance.”

In the memo to employees, White said the company had started an effort known as Project Nickel, which would improve Molina Healthcare’s operating and financial performance and position the firm to be “exceptionally strategic in doing more with less.”

The effort involves managing medical costs and increasing revenue by winning more government contracts.

The Medicaid market is expected to grow, and Molina Healthcare’s track record of winning opportunities in that sector could be an additional plus for the company, said Sarah James, an analyst at Piper Jaffray.

In 1994, Molina Healthcare won a no-bid state contract estimated at the time to be worth $400 million to provide care for mothers and children in California’s Medicaid program.

But the company also faces some uncertainty in its future role in the ACA exchanges. Earlier this year, then-CEO J. Mario Molina wrote a letter to Congress saying that Molina Healthcare would have to pull out of the exchanges if the government did not continue to provide subsidies that lower an individual’s out-of-pocket costs based on their income.

The current management has not yet indicated what its plans are for further involvement, analysts said.

samantha.masunaga@latimes.com

Twitter: @smasunaga

ALSO

Amazon announces U.S. hiring spree as labor market tightens

Q&A: Why this company is implanting microchips in its workers

Why the grim reaper of retail hasn't come to claim Best Buy

Copyright © 2017, Los Angeles Times
EDITION: California | U.S. & World
57°