Feb 7, 2013
Executives
Juan Jose Orellana - Vice President of Investor Relations Joseph Mario Molina - Chairman, Chief Executive Officer and President John C. Molina - Chief Financial Officer, Executive Vice President of Financial Affairs, Treasurer, Director and Member of Compliance Committee Joseph W.
White - Chief Accounting Officer Terry P. Bayer - Chief Operating Officer
Analysts
Sarah James - Wedbush Securities Inc., Research Division Justin Lake - JP Morgan Chase & Co, Research Division Joshua R. Raskin - Barclays Capital, Research Division Christian Rigg - Susquehanna Financial Group, LLLP, Research Division Thomas A.
Carroll - Stifel, Nicolaus & Co., Inc., Research Division Ralph Giacobbe - Crédit Suisse AG, Research Division Michael J. Baker - Raymond James & Associates, Inc., Research Division Carl R.
McDonald - Citigroup Inc, Research Division Scott J. Green - BofA Merrill Lynch, Research Division Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division Sam Wass - Goldman Sachs Group Inc., Research Division
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Molina Healthcare Fourth Quarter and Year-end '2012 Earnings Conference Call. [Operator Instructions] A quick reminder, this conference is being recorded, Thursday, February 7, 2013.
It is now my pleasure to turn the conference over to Juan Jose Orellana, Vice President of Investor Relations. Please go ahead, sir.
Juan Jose Orellana
Thank you, David. Hello, everyone, and thank you for joining us.
The purpose of this call is to discuss Molina Healthcare's financial results for the fourth quarter and fiscal year ended December 31, 2012. The company's earnings release reporting its results was issued today after the market closed, and is now posted for viewing on our company website.
On the call with me today are Mario Molina, our CEO; John Molina, our CFO; Terry Bayer, our COO; and Joseph White, our Chief Accounting Officer. After the completion of our prepared remarks, we will open the call and take your questions.
[Operator Instructions] Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act including without limitations statements regarding our ABD and duals membership in Illinois, growth and enrollment associated with the Medicaid expansion, our projected revenue growth over the next several years, our accreditations and quality ratings, our medical care costs and our financial guidance for fiscal year 2013. All of our forward-looking statements are based on our current expectations and assumptions, which are subject to numerous risk factors that could cause our actual results to differ materially.
A description of such risk factors can be found in our earnings release and in our reports filed with the Securities and Exchange Commission, including our Form 10-K annual report, our Form 10-Q quarterly reports and our Form 8-K current reports. These reports can be accessed under the Investor Relations tab of our company website or on the SEC's website.
All forward-looking statements made during today's call represent our judgment as of February 7, 2013, and we disclaim any obligation to update such statements except as required by securities laws. This call is being recorded, and a 30-day replay of the conference call will be available at our company's website, molinahealthcare.com.
I would now like to turn the call over to Dr. Mario Molina.
Joseph Mario Molina
Thank you, Juan Jose. Hello, everyone, and thanks for joining our discussion today.
Let me start by saying that we are proud of our strong fourth quarter operational results, which reflect solid growth in our revenue and considerable improvement in our margins. Our performance in the fourth quarter is a strong finish to 2012, a year in which we successfully managed through a difficult operating environment resulting from margin pressure at our Texas, Wisconsin and California health plans.
We are especially encouraged by the traction we are gaining with our operational and strategic initiatives that we have outlined in the past. The overall result was a record year for our company, with revenue totaling $6 billion.
In 2012, our company revenue grew by nearly $1.3 billion, while our enrollment grew by an additional 100,000 members. To put this in perspective, our annual revenues have increased by over 50% in the last 3 years, and nearly all of this increase has come from organic growth.
As we've talked about during previous presentations, our strategy calls for us to double our annual revenues in the next 3 years. As we begin looking forward at 2013, I thought it would be worthwhile to think back on some of our accomplishments in 2012 and consider the solid foundation on which we can build in 2013.
Our health plans in Washington and Ohio had successful Medicaid contract bids. Our Ohio health plan will expand to serve the entire state and was selected to participate in the new contract for the dual eligibles.
We helped to transition thousands of aged, blind and disabled or ABD members from fee-for-service into managed care in Texas, Washington and California. We experienced considerable growth in Texas as we implemented new contracts for ABD members in the Hidalgo and El Paso service areas.
Our Utah health plan celebrated its 15th anniversary of serving that state's Medicaid program. It was in Utah that we first demonstrated that our business model could be replicated in states other than California.
In Wisconsin, we made great progress in lowering health care cost by entering into new contracts with the major hospitals in our network, and we received a premium rate increase. Performance of the Florida health plan has improved as medical cost decreased, resulting from reductions in unit costs and utilization.
Illinois is a new market for Molina Healthcare. We're excited to have been selected to serve members in the Central Illinois region.
Starting in the second quarter of 2013, we will begin serving seniors and persons with disabilities in the Medicaid program, as the state expands its integrated care program. There are approximately 20,000 ABD patients in the central region.
In the fall of 2013, our Illinois health plan will also begin serving duals in central Illinois under the state's Medicare-Medicaid Alignment Initiative. There are approximately 18,000 dual eligible beneficiaries in this region, and Molina Healthcare will compete against only 1 other plan.
Our participation in Medicare is now entering its eighth year, and we are now the sixth largest Medicare Special Needs plan in the country. All of our eligible plans have achieved 3 Star ratings.
We opened new clinics in California, Florida and New Mexico this year, with more to come in 2013 to supplement our direct delivery footprint, which already included a presence in California, Virginia and Washington. As I've said before, our direct delivery strategy does not replace our contracted physician network.
Instead, it supplements access for patients in areas where access to primary care is a challenge. Molina Medicaid Solutions achieved improved financial performance overall.
With the CMS certification of our Medicaid Management Information Systems in Idaho in 2012, all 5 of our Molina Medicaid Solutions states now operate systems certified by CMS. In addition, we also attained a 1-year contract extension in Louisiana and were awarded a contract to use our West Virginia system to serve the U.S.
Virgin Islands. Next year, in 2014, the Affordable Care Act will continue to be implemented, and with it, expansion of Medicaid coverage to newly eligible beneficiaries.
At this point, the governors of California, Illinois, New Mexico, Ohio, Michigan and Washington have announced they intend to proceed with expansion. In those states, expansion could add up to 4.3 million new beneficiaries.
Florida, Utah and Wisconsin are still undecided. Should these states elect to expand Medicaid, the potential market could increase by an additional 1.3 million new beneficiaries.
Over the next 3 years, we expect to double our annual revenue from $6 billion to $12 billion, while at the same time improving our profitability and enhancing our reputation for quality. We intend to accomplish this through contracts for dual eligible members in the markets we currently serve, and through increases in Medicaid enrollment in our present states.
We expect to maintain NCQA accreditation in all states, and it is our goal to achieve 4-star ratings for our Medicare products. For Molina Healthcare, 2012 was a year of opportunity, challenge and validation.
As more states moved beneficiaries of government programs into managed care, our experience and track record continued to open new doors of opportunity for our company. We will continue to execute on our strategy and remain true to our mission to bring quality health care services to even more of those who need it most and are least able to afford it.
Thank you. Now I'd like to turn the call over to John.
John C. Molina
Thank you, Mario, and hello, everyone. As Mario noted, this year we faced some challenges, but have made great progress, which is reflected in our fourth quarter results.
Today, we reported earnings of $26 million or $0.54 per diluted share for the fourth quarter of 2012, a substantial improvement over the earnings of just $0.07 per diluted share that we reported in the third quarter, and the loss of $0.72 per diluted share for the same period last year. There was a lot of ebb and flow in this quarter: a $12 million benefit from a retroactive rate increase in California, a $30 million benefit from a prior period claims development in Texas, and a $14 million expense for potential settlements.
Had we not incurred these items, earnings per share would have been about $0.26 for the quarter. But the real story of this quarter is that we have demonstrated an ability to work with our state partners to get rates right as we increase value by encouraging members and providers to access and provide care in a more cost-effective manner.
That's a reassuring message as we prepare for 2013 and 2014. In the interest of time, I'm going to focus on Texas and California, but I want to point out to everyone that 7 of our 9 health plans reported a decrease in their medical care ratios from the third quarter of this year to the fourth quarter of this year.
As we've discussed in the past, we usually see an increase in medical care ratios from the third to the fourth quarters. But Texas is, of course, the big story.
When we reported results in the third quarter, we felt that Texas was on the right track, but we didn't yet have enough information to be certain. Today, we have that information.
With the benefit of the last 3 months of the year, we are now able to review the Texas health plan's performance over the entire 10 months that have passed since the expansion took place effective March 1, 2012. In the fourth quarter, we were able to reap the benefits of our approach to patient care and provider contracting.
We also recognized more revenue due to increased premium rates that more closely matched the high costs of our ABD members. The result is that our Texas health plan reported a medical care ratio of $0.78 -- 78% for the fourth quarter, with a benefit of about $30 million of lower medical cost that related primarily to the second and third quarters of 2012.
However, to understand the Texas performance in the proper context, we have to assign all revenues and medical costs to their proper periods. When we do that, we can see that the medical care ratio of the Texas health plan declined from 99% in the first and second quarters of 2012 to 90% in the third quarter and 89% in the fourth quarter.
This represents solid improvement that gives our shareholders a fair return, while also providing value and quality to the state of Texas. For the fourth quarter, again adjusting for a favorable out of period claims development, the Texas health plan reported pre-tax income up $4 million.
We have made good on our commitment to reach breakeven by the end of 2012. While we are proud of our accomplishments in Texas, I want to be clear that we are not going to maintain a 78% medical care ratio you see reported in this fourth quarter.
The adjusted medical care ratio of 89% for the fourth quarter that I mentioned a minute ago is a good starting point for 2013. California is another example of where our perseverance has paid off.
You will recall that on our third quarter call, we talked about our efforts to demonstrate to the state that higher premiums for ABD members were appropriate. In the fourth quarter, we received a cumulative retroactive rate increase of approximately $12 million for our ABD members.
About $4 million of this rate increase related to 2011, while about $8 million related to 2012. So just like with Texas, the medical care ratio of 89% that we reported in the fourth quarter is not indicative of where we are on a run-rate basis.
When we push back the retroactive rate increase to the proper time periods, we have an adjusted medical care ratio of 94.5% for the fourth quarter. The situation in California is analogous to our situation in Texas.
Our greatest challenge is among our ABD members. After adjusting for a retroactive rate increase in California, we still had a 103% medical care ratio for the ABD members in the fourth quarter of 2012.
We did achieve a 10% decline in inpatient utilization between the third and fourth quarters of 2012. This activity, coupled with the rate increase, shows we are making good progress towards improved financial performance.
General and administrative expenses grew to 9.7% of total revenue in the fourth quarter of 2012 from 8.3% in the third quarter. Absent $14 million of expense recognized for potential settlements in the fourth quarter, our administrative expense ratio was 8.8%.
We will also continue to make the infrastructure investments necessary to support the growth opportunities we've previously identified. As of December 31, 2012, the company had cash and investments of approximately $1.2 billion.
The parent company had free cash and investments of approximately $45 million. Moving on to guidance, a more comprehensive list of guidance components for our 2013 guidance can be found in today's press release.
The following are some highlights, and as a reminder, all numbers are approximations: total revenue, $7 billion; medical care ratio, 88%; G&A ratio, 8.6%; income before tax, $128 million; net income, $74 million; earnings before interest, taxes, depreciation and amortization or EBITDA, $245 million; diluted EPS, $1.55; and effective tax rate, 42%. Let me speak about our tax rate for a moment.
Although we have historically experienced and guided to a tax rate of about 38%, we expect that limits in compensation deductions for health insurers as a result of the Affordable Care Act will increase our tax rate. These changes to the Internal Revenue Code apply to all health insurers beginning in 2013.
For our 2013 guidance, we estimate that the impact of a change in our effective tax rate from 38% to 42% results in a reduction to earnings per share of about $0.10. I also want to point out to everyone that we are now calculating our medical care ratio by dividing medical cost into revenue exclusive of premium tax.
We made this change to allow for better comparability of the medical care ratio between periods for health plans operating in states where premium taxes have changed. Michigan and California reduced or eliminated their premium taxes during 2012.
A complete discussion of our assumptions and risk factors associated with our guidance will be discussed at our upcoming Investor Day on February 21. So I would ask that you defer your guidance questions until then.
This concludes our prepared remarks. David, we're now ready to take questions.
Operator
[Operator Instructions] And our first question today comes from the line of Sarah James from Wedbush.
Sarah James - Wedbush Securities Inc., Research Division
I appreciate all the detail on the California MLR, but I wanted to narrow in on the 103% ABD MLR post the retroactive timing of rate increase adjustments. So when you think about bringing that down, how much progress would be driven by rates versus medical management?
And then maybe in terms of inpatient, since that's the metric that you chose to highlight in the prepared remarks, if that went down 10% for the fourth quarter, how much further is there to go until you get to a range you're comfortable with?
John C. Molina
That's a multiple-choice question there. A lot of detail in there, Sarah.
I think that we've gone back and talked to the states about the rates again because we think that even though they have looked at rate adequacy, we believe and some other health plans believe that perhaps we're not quite where we need to be in terms of the rates. So part of this may come from additional rate relief.
Our medical directors have done a very good job of working on getting utilization down in terms of inpatient. And inpatient for the ABD constitutes, I would say, about 30% to 35% of all medical costs, so we would expect to gain some further decreases because of continued decreases in utilization.
1 month, again, doesn't -- or 1 quarter doesn't make a trend. We also have a new pharmacy contract that took effect January 1 of this year, which we expect will help with those costs as well.
Operator
Our next question today comes from the line of Justin Lake from JPMorgan.
Justin Lake - JP Morgan Chase & Co, Research Division
Just looking ahead, can you talk a little bit about how you see the rate environment shaping up going into 2014 and specifically on the industry tax? Can you tell us any of the conversations you're having with states and your confidence in the ability to pass that through?
John C. Molina
Well, Justin, on the rate environment, we're going to go through a lot of detail in a couple of weeks on the rate increase -- increases or decreases or flat. We think that by and large rates are going to be sort of flat again this year, state budgets are not.
They're improving, but still not in great shape. As far as the premium tax goes, I'll let Mario speak to our efforts there, but we have seen some actuarial white papers on other sorts of premium taxes.
And since it is a discrete item, we believe there is a very good argument, if it's not repealed, that it is paid for as a discrete line item.
Joseph Mario Molina
This is Mario. We continue to advocate for repeal of the tax.
We believe that this excise tax really does not generate new revenue for the government because our premiums are paid for by the government, so you're really just robbing Peter to pay Paul. However, as with other premium taxes we've seen in the past, we expect this to be passed through.
So if there is a tax like this, we would expect that the states would increase our premium revenues accordingly, and that's consistent with actuarial practices and our previous experience on premium taxes.
Operator
Our next question today comes from the line of Josh Raskin from Barclays.
Joshua R. Raskin - Barclays Capital, Research Division
Texas. I'm just looking at the change on a sequential basis, and I understand the rates added $9 million and the PPRD was $30 million.
So I'm kind of backing into a medical cost improvement of like $3 million, maybe something in the ballpark of $1 million a month of improved medical costs. So I'm curious, did that continue to ramp through the quarter?
Is that a decent run rate? Or is this just the tip of the iceberg, and you guys are still making significant changes in that market that you think would improve even further?
Joseph Mario Molina
Well, what we said, Josh, was that we're starting at about an 89% medical care ratio for Texas, and we think that, that is a good baseline going into 2013. Of course, we're going to continue to try to work that down.
We've made a lot of improvements in terms of our contracts, and we'll continue to work on utilization management to see if we can push that a little bit lower.
Operator
[Operator Instructions] Our next question comes from the line of Chris Rigg from Susquehanna.
Christian Rigg - Susquehanna Financial Group, LLLP, Research Division
I guess I'm just trying to figure out when I look at the EBITDA guidance for this year of $245 million. If you look at sort of the run rate of below-the-line items, D&A, investment income, rental, interest expense, et cetera, is there some big step-up assumption for 2013 relative to the fourth quarter?
Because it looks like the bottom line got --
Joseph W. White
This is Joe speaking. We don't want to go into too much on guidance, obviously, on this call.
We'll save that for New York. But fair to say, we've been ramping up a lot of our infrastructure investment in anticipation of entering new markets, which inevitably has been pushing the depreciation line up.
Operator
We'll move to our next question coming from the line of Tom Carroll from Stifel.
Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division
I wonder if we could just walk through some of the moving pieces here. And, John, I think you said if you carve them all out, you get to a $0.26 number for the quarter.
So maybe we could just start with your $0.54 reported number and work your way to the $0.26 for me on a per share basis?
John C. Molina
Go ahead, Joe.
Joseph W. White
It's Joe speaking. It's really the 3 items John called out to get there.
The first item being the abnormally high prior-period development number in Texas of $30 million. There's always a degree of prior-period development, usually favorable in our case.
We just call that number out because it's particularly big this time. So you could back that out or you could back out the majority of that, and translate that into a per share basis.
And I think it's -- I think on a per share basis, it's about $900,000 pretax equals about $0.01 a share after tax. So you would just back out that $30 million.
We talked about the retro rate increase in California of about $12 million for the ABDs in California. About $2 million, or $2 million to $3 million of that relates to fourth quarter.
The rest of it is either in earlier parts of 2012 or 2011. So again, you could subtract out $10 million for that.
And then we talked about $14 million of accruals related to settlements in that kind of item, which are unlikely to recur. So that would go back the other direction.
So if you price all those out at around $900 pretax equals $0.01, you'll get around $0.25, $0.26, $0.27. It's a rough cut, but that'll be -- it's in the ballpark.
Did that help? [Technical Difficulty]
Operator
We'll move to our next question coming from the line of Ralph Giacobbe from Credit Suisse.
Ralph Giacobbe - Crédit Suisse AG, Research Division
I was hoping maybe you'd talk about another state. Wisconsin, I think, was a little bit problematic sort of earlier in the year.
Can you maybe just talk about what you're seeing in that market at this point?
Terry P. Bayer
Sure. This is Terry Bayer.
The story in Wisconsin is not unlike we've shared with you on other states where we've identified higher costs and premium shortfalls. So we embarked on a plan there to renegotiate primarily our hospital contracts, which are major driver of cost, to beef up our utilization management efforts.
We brought our behavioral health management in-house in late summer, and we began to see improvement there. And finally, we presented our case to the state of Wisconsin and worked with them very closely to obtain a rate increase that took us in the right direction.
So it's very basic. It's not completely over the hill.
We've got continuing work to do there on all of those fronts, on rates, as well as on utilization management, but we're in better shape now than we were a year ago. Did that help?
Operator
We'll move on to our next question coming from the line of Michael Baker from Raymond James.
Michael J. Baker - Raymond James & Associates, Inc., Research Division
I was wondering if you could give us a sense for how the flu progressed during the fourth quarter and post the quarter how it's trending in the first quarter.
John C. Molina
Sure. I think we tried to scope out and put about -- I think it was $5 million is what we attribute to flu cost during the fourth quarter.
As the flu sort of moved out West, we're seeing a bit of a ramp up in January. But again, nothing very significant, nothing materially significant, I would say.
Operator
Our next question today comes from the line of Carl McDonald from Citigroup.
Carl R. McDonald - Citigroup Inc, Research Division
I'm going to ask the EBITDA to pre-tax question again. It looks like the -- to make the numbers work, assuming that investment income and interest expense are roughly stable, you'd need to see an increase in the D&A from $64 million this year to over $100 million in '13.
Is that the expectation?
Joseph W. White
No, that's not the expectation. I'll have to take a look at that, Carl.
I'll have to take a look at that.
Operator
Our next question today comes from the line of Scott Green from Bank of America Merrill Lynch.
Scott J. Green - BofA Merrill Lynch, Research Division
I had a couple of questions, if we're allowed to ask more than 1. First is on the Texas MLR.
You talked about 89 being a good base. I'd appreciate your perspective if you've had any communications with the state leading you to believe there might be some sort of off-cycle either rate increase?
I know you're in Hidalgo STAR, and Santino has talked about higher cost there. Or maybe some decrease in Hidalgo STAR+PLUS based on changes in your member mix?
Joseph Mario Molina
No, we're not anticipating any off-cycle rate changes.
Scott J. Green - BofA Merrill Lynch, Research Division
Okay, that's helpful. And secondly, last month you hired a new plan president in New Mexico.
Is there any -- does that demonstrate your confidence in being able to win that RFP rebid?
Joseph Mario Molina
Well, Scott, we need a plan president there whether we win the RFP or not. So that had nothing to do with it.
Scott J. Green - BofA Merrill Lynch, Research Division
Okay. And lastly, I had a question on duals.
If you've been working in any of your markets to expand your provider network to incorporate maybe more Medicare providers, I was curious if you were able to contract with them on a unit-cost basis that's equivalent to the Medicare fee schedule or maybe lower or maybe higher?
Terry P. Bayer
Scott, this is Terry Bayer. We already operate Special Needs plans in the markets where we are expanding our duals, except for Illinois, which is new.
So we have not had any need yet to change any of our reimbursement methodology than what we've experienced in the past.
Operator
Our next question today comes from the line of Peter Costa from Wells Fargo.
Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division
Curious about the status of the subcontracting arrangements for the California Coordinated Care duals program between you and other health plans, have you signed any of those contracts at this point, whether you as a subcontractor or subcontractors to you and your regions?
Joseph Mario Molina
Yes, that's a very interesting question. We have a subcontract relationship in Los Angeles County for the Medicaid program.
We have not signed any new or additional contracts with HealthNet, and we're all waiting for further information on how the program is going to roll out in California. So until we have more information, there's not much to add to that other than things remain status quo.
Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division
We're getting kind of close to when we would expect to have actually, sort of, this all taken care of and understanding rates and rolling the program out. Do you believe at this point the contracting will look similar to the way the contracts have been for the typical Medicaid business?
Or do you think that there'll be substantial changes?
Joseph Mario Molina
Well, I think the first thing we have to see is what the contract between -- for the 3 party agreements going to look like between the state, the federal government and the health plans, and we haven't received that yet. So until we know more about what the underlying contract looks like, I think it's too early to say what subcontracts will look like.
But we imagine it's going to simply be an extension of our current agreement with HealthNet.
Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division
Okay. And then just 1 last question, if you don't mind.
Can you talk about the Florida long-term care bids? And you were invited to negotiate and didn't end up agreeing with the state.
Can you describe what exactly caused you to not agree with the state? Do you think that, that will have any implications for your ability to win Florida business down the road in terms of the TANF business when that is moved to managed care, if that's moved to managed care?
Joseph Mario Molina
Those are under protest right now, and so we can't comment.
Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division
You won't even discuss what exactly the issues are around your protest?
Joseph Mario Molina
At this point because the protest is ongoing, we don't want to comment any further.
Operator
Our next question today comes from the line of Matt Borsch from Goldman Sachs.
Sam Wass - Goldman Sachs Group Inc., Research Division
This is actually Sam Wass on for Matt. I was wondering if you could give any comments on rate negotiations for your duals contracts in Illinois and Ohio.
I was particularly interested in any sort of savings assumptions that might be factored in.
Joseph Mario Molina
Well, we have seen some preliminary numbers, and I think it's safe to say that consistent with what we have said in the past and what we have seen from that -- the savings assumptions are going to be on the order of 1% to 2% in the first year of the program.
Operator
We have a follow-up question from the line of Sarah James.
Sarah James - Wedbush Securities Inc., Research Division
Continuing on my earlier question of California MLR, you guys mentioned that there was a 5,000 member exit. So what product were those in?
What was MLR running on that book, so we can get an idea of how it may have skewed the fourth quarter as opposed to really the run rate?
Joseph Mario Molina
We exited a region in the northern part of Los Angeles County, and the medical costs there were high in large part because there's only a single hospital in the region, and we've had a great deal of difficulty as have other health plans in negotiating with them. This is an ongoing problem in -- especially in rural areas with the Medicaid program.
And I hope that in the future we'll get more support from the government, both in terms of the states and perhaps looking at antitrust issues, to prevent certain hospitals from holding health plans hostage. But we had no choice but to exit that region as a result.
Sarah James - Wedbush Securities Inc., Research Division
But no specific amount that you're willing to talk about, about how it may have skewed your fourth quarter MLR or what MLR they were running at?
Joseph Mario Molina
We're not going to get into that level of detail.
Sarah James - Wedbush Securities Inc., Research Division
Then another membership question. In Ohio, you guys had a 28,000-member loss because of eligibility errors or changes.
Can you just remind us what that was? And if there's any premium give back associated with that?
Joseph W. White
It's Joe speaking. The state had some issues with eligibility that first started surfacing, I think, around July and August.
They spent a couple of months fixing it, and they've gotten it fixed now. While there might be a little bit of true-up back and forth, it won't be material at this stage.
Operator
[Operator Instructions] We have a follow-up question from the line of Chris Rigg from Susquehanna.
Christian Rigg - Susquehanna Financial Group, LLLP, Research Division
I did want to follow up on the G&A expense. What is the onetime in there?
Maybe I missed it, but just some more detail would be helpful.
Joseph Mario Molina
Yes, the G&A, we had a number of settlement issues. They are onetime in nature.
They're about $14 million, and we don't expect those things to recur.
Christian Rigg - Susquehanna Financial Group, LLLP, Research Division
And what's behind the $14 million?
Joseph Mario Molina
Some litigations, prior settlements. Some of this goes back to 2011.
Christian Rigg - Susquehanna Financial Group, LLLP, Research Division
So it's a bunch of little things or is there 1 charge that makes up a majority of it?
Joseph Mario Molina
No, it's a number of little things, I mean if you can call $14 million little. But it's a number of little things.
Christian Rigg - Susquehanna Financial Group, LLLP, Research Division
Right, right. And then on the Texas -- obviously, that's a fairly big number.
And I know obviously it takes time in the claims submittal process to see where things shake out, but I guess is there anything -- I guess what led to sort of the big favorable adjustment in the fourth quarter relative to Q2 and Q3?
John C. Molina
Well, we were pretty conservative in Q2 and Q3 when we did our IBNR reserves. And I think what happened is the changes we made to provider contracts and to some of the utilization management caused those trends to go down faster than what our actuaries predicted, and so that's what the big delta was for.
Christian Rigg - Susquehanna Financial Group, LLLP, Research Division
Okay. And then one last follow-up on the guidance, and I know you guys are trying to not talk about it too much, but is it primarily on the D&A side or is there an assumption there on the interest side in terms of raising some money you're earning that, that might be worth highlighting?
And we'll leave it at that.
John C. Molina
No, we've talked about a big ramp up that we're going to be experiencing over the next 3 years. And so that's what you're seeing in the D&A.
There's nothing in there in terms of interest expense, et cetera.
Joseph W. White
We'll have to talk off-line with people who are having issues getting their -- the model essentially envisions about $20 million of increased depreciation expense over 2012. So I'll have to talk to you about why they're sort of struggling to get to our number.
Operator
And at this time, we have no further questions registered. I'll turn the call back to Dr.
Molina.
Joseph Mario Molina
Well, thank you, everyone. We appreciate you joining our call.
It's been a good quarter, and we look forward to seeing you in February on the 21st in New York for our Investor Day.
Operator
And, ladies and gentlemen, that will conclude our conference call for today. We thank you for your participation, and you may now disconnect your lines.