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Contract Changes Squeeze Molina

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The executives at Molina Healthcare Inc. sound completely different from the executives of traditional health insurers when talking about their company’s outlook.

Molina, Long Beach, Calif. (NYSE:MOH), focuses mainly on serving Medicare and Medicaid plans.

The company is reporting $19 million in net income for the third quarter on $1.2 billion in revenue, up from $16 million in net income on $1 billion in revenue for the third quarter of 2010.

Executives at health insurers that focus mainly on selling to individuals and employers in the commercial market talk mainly about matters such as medical cost trends and employers decisions to keep employees or reduce head counts.

Molina executives talked during their company’s third-quarter earnings call mainly about subtle and not-so-subtle changes in government contracts.

“We wouldn’t look at what the future cost trends might be,” John Molina, the chief financial officer at Molina, which was founded by his father, told an analyst. “What we’ve got to do is manage within the budget that the state gives us.”

In the third quarter, the company increased earnings “despite operating in the most complicated premium rate environment in the history of our company,” said Dr. J. Mario Molina, the chief executive officer of Molina and the brother of John Molina. “For fiscal year 2011, six of our 10 states actually cut their premium rates.”

But Medicaid premiums rose in some major states, and federal efforts to help states shift dual-eligibles – individuals eligible both for Medicaid programs for low-income people and for Medicare programs for people who are elderly or disabled – into managed care programs should help companies like Molina, J. Mario Molina said.