Feb 10, 2014
Executives
Juan José Orellana - Senior Vice President, Investor Relations Mario Molina - Chief Executive Officer John Molina - Chief Financial Officer Terry Bayer - Chief Operating Officer Joseph White - Chief Accounting Officer
Analysts
Justin Lake - JPMorgan Josh Raskin - Barclays Sarah James - Wedbush Securities Tom Carroll - Stifel, Nicolaus Chris Carter - Credit Suisse Carl McDonald - Citigroup Kevin Fischbeck - Bank of America Merrill Lynch Chris Rigg – Susquehanna Anna Gupte - Leerink Swann Dave Windley - Jefferies Peter Costa - Wells Fargo Michael Baker - Raymond James
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare Fourth Quarter and Year End 2013 Earnings Conference Call.
During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session.
(Operator Instructions) And as a reminder, this conference is being recorded, Monday, February 10, 2014. And now I would like to turn the conference over to Mr.
Juan José Orellana, Senior Vice President, Investor Relations. Please go ahead.
Juan José Orellana
Thank you, Jason. 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, 2013. 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 Dr. 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 to take your questions. If you have multiple questions we ask that you get back in the queue so that others can have an opportunity to ask their questions.
As a reminder, even our Investor Day presentation this coming Thursday where we will discuss guidance, today we will only be taking questions related to our earnings release. Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act.
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 judgments as of February 10, 2014, and we disclaim any obligation to update such statements except as required by the 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.
Mario Molina
Thank you, Juan José. Hello, everyone, and thanks for joining our discussion.
First, I want to say that John and I will be brief in our remarks today. We will have a full afternoon with many of you at Thursday’s Investor Day in New York City.
There is too much happening at Molina to cover in a single phone call. So today we will focus briefly on 2013.
On Thursday, we will share our thoughts on 2014 and beyond. I look forward to seeing you there.
For Molina Healthcare 2013 was another successful year of continuity, growth and opportunity. The results that we are reporting today conclude a year in which we strengthened the foundation of our existing business, expanded into new markets, added new products and prepared for the opportunities in front of us.
Profitability of its core operation is essential to any business. This is why we've made such great efforts to stabilize medical costs in 2013.
During 2013, I'm pleased to report that eight of our nine legacy health plans reported increases in medical margin. 2013 was also a year of growth.
Our total revenues reached $6.6 billion, a record for our company. We expanded our national footprint by entering two additional key states, Illinois and South Carolina.
Our entry to Illinois came by way of startup, while South Carolina was achieved through an acquisition. In our existing states we nearly doubled the size of the New Mexico health plan by assuming another health plan’s Medicaid contract.
We were awarded a long-term care contract in Florida, we expanded statewide in Ohio and we secured five dual eligible contracts more than any other health plan in the country. In addition, last week, the California Health and Human Services Agency notified us that Molina Healthcare will be offered a direct contract in Los Angeles County for the Duals Demonstration pilot.
This is an exciting development, as it represents a new service area to complement our participation in Riverside, San Bernardino and San Diego counties for the Duals Demonstration pilots. We accomplished all of this, while preparing our organization for the implementation of the Affordable Care Act requiring us to scale and build the infrastructure required to accommodate Medicaid expansion and the new marketplace products.
I’d like to take a moment to thank all of our employees for their hard work and their contributions during 2013 in transforming our collective aspirations into reality. Of course, all of these accomplishments have not come easily and much work remains to be done.
Pressure on premium rates, increased spending on administration in preparation for the new enrollment and temporary delays in some programs continued to create a challenge for anyone involved in the Medicaid business. Since 1981 when my father founded this company, our success has been rooted in our ability to respond to and overcome the challenges in our industry, never losing the focus on serving those most in need and least able to afford care.
Today we arrange care for over 2.1 million persons in 11 states, building upon our leadership in serving the underserved, we believe the coming years will take us much, much further. We're very excited about the future.
And now, I’d like to turn the call over to John.
John Molina
Thank you, Mario, and hello, everyone. As Mario noted, we accomplished a lot this year even while we were establishing a solid foundation for our future growth.
Today we reported full year earnings of $0.96 per diluted share on a GAAP basis or $3.13 per diluted share on an adjusted basis, a substantial improvement over the earnings of $0.27 per diluted share on a GAAP basis or a $1.72 per diluted share on adjusted basis reported for the comparable period for 2012. These results are consistent with our preannouncement on January 22nd.
Total revenues grew by 11% when compared to 2012 reaching a record $6.6 billion. The revenue growth was driven primarily by increased enrollment and to a lesser extent through an increase in revenue per member per month.
Enrollment in 2013 grew to 1.9 million increasing by approximately 134,000 members when compared to 2012. The enrollment gains came primarily from four states, California, Ohio, New Mexico and Wisconsin.
In California and Ohio, we added new members as we expanded into new service areas. In New Mexico as Mario discussed, we assume the membership associated with another Health Plans Medicaid contract and in Wisconsin, we benefited from the exit of a local competitor.
Growth in our aged, blind and disabled enrollment, coupled with growth in our Medicare Advantage plans, both of which come with higher premiums contributed to our growth in revenue per member per month. While clearly a first quarter 2014 event and the only piece of news associated with 2014 that we will discuss this afternoon, our consolidated enrollment in January grew to 2.1 million members, an increase of nearly 200,000 members in just one month.
A large part of that enrollment gain is the result of our South Carolina health plan, which started serving members on January 1st. The remainder is new enrollment resulting from the expansion of the Medicaid program.
The additional revenue associated with these members will help us leverage the administrative infrastructure we’ve been investing in. As Mario noted, we made substantial improvements to the margins of our base business in 2013.
Other than in Illinois where operations commenced in September of 2013, medical margins improved in eight of our nine health plans last year. Consolidated medical margin increased by approximately 45% year-over-year.
Consistent with the increase in medical margin, our medical care ratio declined to 87.1% in 2013, compared with 90% for the full year of 2012. As we have discussed before, the improvement in medical margins was partially offset by higher general and administrative expense.
The need to prepare for enrollment growth associated with our South Carolina and New Mexico acquisitions, Florida and New Mexico long-term care programs, Medicaid expansion in six states, Duals Demonstration in five states and the entry into the marketplace in nine states required us to spend about $135 million during 2013 in G&A expenses, above and beyond G&A expenses associated with our base business. There was very little revenue in 2013 to offset this additional G&A expense.
As a result of this necessary growth in expenses, general and administrative expenses grew to 10.1% of total revenue in 2013 from 8.8% in 2012. This higher G&A spend was the main reason why we guided to a breakeven fourth quarter when we announced third quarter results at the end of October.
Absent the unfavorable premium adjustment in Washington that Mario announced at our appearance at the J.P. Morgan Conference on January 13th, fourth quarter results came in as we told you they would.
As of December 31, 2013, the company had cash and investments of around $1.7 billion, including approximately $365 million at the parent. If you recall in February of 2013, we raised $550 million by issuing convertible debt.
As we’ve discussed in the past, accounting for this type of debt requires the recording of non-cash charges. In 2013, non-cash charges associated with the amortization of convertible senior notes and lease financings were $0.31 per diluted share.
This further validates our decision to present the adjusted EPS metric, which we believe better reflects how we manage our business. Finally as Mario emphasized, we will be hosting our Investor Day Conference in New York City this Thursday, February 13 at 12:30 p.m.
At that time, we will be discussing our 2014 guidance as well as other business topics. This concludes our prepared remarks.
We are now ready to take questions.
Operator
(Operator Instructions) Our first question comes from the line of Justin Lake with JPMorgan. Please go ahead.
Justin Lake - JPMorgan
Thanks. Good evening.
First question, at our conference you mentioned that you laid out the states where you feel like you’re going to get full reimbursed with the industry tax. You laid out some states that are like California and Ohio and Texas where you expect to get the tax itself but [inaudible] [the gross up] [ph].
Just curious if you can give us an update there?
Mario Molina
Justin, we absolutely can you give an update and when you come on Thursday, we’ve got a nice schedule that will be going through the details where we stand on a state-by-state basis.
Justin Lake - JPMorgan
Okay. Also any numbers in terms of your expectations for perhaps the spending in 2014 or is that another one that you are going to give at the investor…?
Mario Molina
That’s another Thursday answer.
Justin Lake - JPMorgan
Okay. [Inaudible] $120 million of spending?
That’s a number I hadn’t heard before. Did you discuss that before?
Mario Molina
The number is $135 million, Justin. We have discussed it before but we didn’t include the fourth quarter spend because we hadn’t done that yet.
Justin Lake - JPMorgan
Okay. So that -- those are dollars where you feel like essentially there’s $135 -- $135 million of earnings [spread] [ph] this year?
Mario Molina
That’s right.
Justin Lake - JPMorgan
How much do you expect to reoccur next year?
Mario Molina
We will be going through that on Thursday.
Justin Lake - JPMorgan
Okay. Last question then, there has been a little bit of a discussion on the pickup on cost front throughout both the Medicare Advantage and commercial sectors, we’ve heard less on the Medicaid side.
Can you talk a little bit about what you saw in the fourth quarter on cost trend and any pockets where you might have seen an increase there?
Mario Molina
No. In fact for the full year, as talked about, medical margin increased and the MCR went down.
So there was nothing unexpected for the fourth quarter.
Justin Lake - JPMorgan
Okay. I know [inaudible] you respond nothing in the fourth quarter.
The [inaudible] a little bit higher than we expected. Nothing near that we would -- they were in line with your expectations, so what you are saying even for the fourth quarter?
Joseph White
I think - it’s Joe speaking. I think in line with our expectation, ex the impact of that Washington issue, Mario discussed at JPM.
Justin Lake - JPMorgan
Great. Thanks a lot for the color, guys.
Juan José Orellana
Thanks Justin.
Operator
Our next question comes from the line of Josh Raskin with Barclays. Please go ahead.
Josh Raskin - Barclays
Hi. Thanks.
I’ll stick with 2013. So the MLR, I guess in a couple of states, New Mexico, Utah, Florida, I guess, I know it doesn’t necessarily count a couple of months but Illinois as well came in a little bit higher than we were looking for.
Would you determine -- would you say any of the states were out of ordinary, I know they moved - lot of the state fluctuations on a quarterly basis et cetera, but no change in trend or nothing that you saw in any of those specific states?
Mario Molina
Josh, are you talking about quarter or full year?
Josh Raskin - Barclays
Quarter, 4Q.
Mario Molina
4Q, for New Mexico, I think probably we had to do with just the influx of the new membership, Florida, I don’t know Joe could speak to that. I don’t think there was anything really unaligned in Florida.
Joseph White
We’ve had some -- we’ve had some in-patient cost pressure in Florida. We think mainly [high to unusual] [ph] number of high [dollar case] [ph], there’s nothing out of the ordinary -- nothing exceptional though.
Josh Raskin - Barclays
Okay. When you say you have that, how long has that been [inaudible]?
Joseph White
I think it’s a trend in Florida we probably see since early fall.
Josh Raskin - Barclays
Okay. And is that specific, is that higher dollars per claim or are you seeing more high dollar claim?
John Molina
I think we’re seeing higher dollars per claim. It’s a pretty small population.
So obviously they can do pretty easily.
Josh Raskin - Barclays
Got you.
Mario Molina
But I think it’s fair to say more intensive cases, not more intensity to the cases so to speak.
Josh Raskin - Barclays
Okay. And then the MMIS business, do you guys have an EBITDA number for the quarter?
John Molina
We have done an operating income number which we’ve shared. [We’ll give you an update] [ph] [inaudible].
Josh Raskin - Barclays
Great.
John Molina
[We can assist you] [ph] with what we’ve been running.
Josh Raskin - Barclays
Okay. Maybe while you are looking for that, did you guys give a South Carolina enrollment number?
I know that was a driver of your -- I think you said the January enrolment was up for that in expansion. But did you say, John, how much was South Carolina?
John Molina
We didn’t give that Josh. We’ll give it to you Thursday.
Josh Raskin - Barclays
Thursday. Big day, Thursday.
John Molina
Big day.
Josh Raskin - Barclays
The operating income for MMIS, then I’m off of it?
John Molina
Yeah. So that was running about -- that was about $12 million for the quarter, Josh.
So a little higher than normal. They’ve had a pretty good year as a result of upsells and that kind of item.
Josh Raskin - Barclays
Okay. That’s a bit much behind.
Got it. Okay.
Thanks guys.
John Molina
Thanks, Josh.
Operator
Our next question comes from the line of Sarah James with Wedbush Securities. Please go ahead.
Sarah James - Wedbush Securities
Thank you. I wanted to circle back to New Mexico.
I know that you guys go over some numbers in August, and this quarter you have three months versus two months, that’s having them on the book. But I am just wondering if that was the sole drivers for the sequential uptick is just having them one more month in the quarter.
And then if so, what kind of MLRs [on your book] [ph] running at to cause such as impact?
Joseph White
I will just speak to -- certainly this is Joe speaking Sarah. I speak to certainly there are always some degree of cost pressure bringing on a new population.
We have also gone a couple of years there with actually some [inaudible] small rate increases but actually a few negative rate increases -- decreases I guess that would be. So I think we are definitively feeling compared then the past I think we are feeling a little bit more cost pressure than we have in New Mexico in the past.
Sarah James - Wedbush Securities
Can you remind us when rates are reset there, when you have a chance to renegotiate that?
Joseph White
They have been moving around a lot there. There was a -- generally they traditionally been set, July 1st.
I think there was a further adjustment 12/01 of 2012 as a matter of fact, but I think the last two July 1s have been slight decreases.
Sarah James - Wedbush Securities
Got it. And last question was just on California.
There was a sequential improvement there. I believe the settlement doesn’t kick in until Jan 1.
You guys had some possibly headwinds from beginning on some of the new members that entered. So should we think about that change mainly as a rate update or was there any improvements in medical management going on sequentially that helped that business?
Mario Molina
The answer to your question is both, Sarah. We did get rate increase in a couple of counties effective October 1.
And then the California team has been doing a lot to bring down inpatient utilization and I think it’s ended up also now to the financials.
Sarah James - Wedbush Securities
Thank you.
Operator
Our next question comes from the line of Tom Carroll with Stifel, Nicolaus. Please go ahead.
Tom Carroll - Stifel, Nicolaus
Hey, guys, good afternoon. So few things.
First, John you said $0.31 of non-cash charges in full year 2013 related to your convert. How much of that was in fourth quarter?
John Molina
That’s a Joe question.
Joseph White
After that question Tom I look that up.
Tom Carroll - Stifel, Nicolaus
Okay. Second question, I think I know the answer, but just a reminder in Texas, MLR was up quite a bit.
I think that was because last year was influenced by the reversal of some reserving. Is that occurred?
Joseph White
That’s correct.
Tom Carroll - Stifel, Nicolaus
So this year is more normalized.
Joseph White
I am sorry, yes.
Tom Carroll - Stifel, Nicolaus
Okay. And then lastly is there -- somewhat of a conceptual question.
Is there a desire on your part to put as much as expense into 2013 as possible given all of the growth opportunities in moving parts in 2014, like maybe more so than out years?
Mario Molina
Tom, I wouldn’t put it that way. I think that sort of the converse is true.
There was a lot of money spent building infrastructure in preparation for all these new contracts and expansion. It had to be done in 2013.
In part, it was driven by these readiness reviews where the states wanted to see that we were fully staffed for the new patients and that we were hurt by the fact that some of these things got delayed. So really it wasn’t a matter of our desire to put the costing of 2013, it just worked out that way.
Joseph White
All right. Tom, it’s Joe again.
Just let me say something speaky as Chief Accounting Officer, we put the expenses and the revenues where they belong not where we likened to be. So let me just clarify that, your question about the convert is $0.90 for the three months in to 12/31.
Remember we did that in February so your full year is going to be -- your fourth quarter run rate is going to be little different than your full year.
Tom Carroll - Stifel, Nicolaus
All right, great. Then lastly maybe to give us a little hip on EPS 2014?
Joseph White
On Thursday.
Tom Carroll - Stifel, Nicolaus
Got it. See you.
Operator
Our next question comes from the line of Chris Carter with Credit Suisse. Please go ahead.
Chris Carter - Credit Suisse
Thanks. Good afternoon.
So realizing it’s early, can you just give us any color on how the Illinois ABD is tracking versus kind of your expectations, I know that MLR was not even 7%, but just any thoughts there in terms of rates and the MLR?
Joseph White
It's Joe speaking. I just think it's too early.
We received our first membership in September and that was only, I think, less than 100 members, it's been ramping up very slowly. If anything, we've been a little disappointed at the rate at which the membership has come on.
But right now the population is just too small to speak to that.
Chris Carter - Credit Suisse
And any, I mean probably same answer, but any thoughts on the Florida long-term care, can you just tell us what you kind of book in that MLR?
Joseph White
We've brought on 3000 lives effective December and we're booking that at around just below 90s.
Chris Carter - Credit Suisse
Below 90s, you said?
Mario Molina
Below 90s.
Chris Carter - Credit Suisse
Okay. Thank you.
Operator
Our next question comes from the line of Carl McDonald with Citigroup. Please go ahead.
Carl McDonald - Citigroup
Great, thanks. So if you adjust for the 135,000 lives that you brought on in South Carolina, it only looks like the enrollment grew about 65,000 or 3%.
I would have expected that number to be bigger given the markets with Medicaid expansion, so any color on why the growth hasn't been as big?
Mario Molina
Yeah, Carl, this is Mario. I think that one of the things we're seeing is that the government's reporting huge numbers, people that are qualifying for Medicaid.
The problem is getting them over to the Medicaid agency and enrolled and in many cases that means they have to go to a state or a county office. There has not been good electronic transfer of files from the marketplace to the state agencies.
And I think that what we're seeing is a delay on the expansion. I expected we're going to see growth for Medicaid expansion throughout the first half of 2014, and I think that's the real issue here.
Carl McDonald - Citigroup
Appreciate it, Thank you.
Operator
Our next comes from the line of Kevin Fischbeck with Bank of America-Merrill Lynch. Please go ahead.
Mr. Fischbeck, your line is open, please raise your question.
Kevin Fischbeck - Bank of America Merrill Lynch
Hey, sorry about that, can you hear me now?
Mario Molina
Yeah. We can hear you.
John Molina
Go ahead, Carl
Carl McDonald - Citigroup
Okay. Yeah.
So I want to go back to the California question, it sounds like obviously rate increase we saw that and then the medical measures, is there anything unusual in the Q4 MLR or is this the kind of a good way to think about the run rate?
Mario Molina
I don't think that there's anything unusual in the MLR for Q4, we'd be discussing our expectations for the business on Thursday, I would just note that we talk about run rates, remember we're getting all kinds of new products and all kinds of new populations. So it's -- it maybe more challenging just to draw a straight trend line that way.
Kevin Fischbeck - Bank of America Merrill Lynch
Okay, that's still helpful, but not I think unusual. I guess, your couple of line items in your payables, a little bit unusual as far as the, what was the $150 million non-risk provider payable number in the quarter and then the direct delivery cost grew dramatically, do you know what those were?
Joseph White
Sure, it's Joe, I'll speak to that. First of all, the non-risk payable it is essentially the payments with states have beginning to forward to us for disbursements to providers based upon what's [called] it, A, the Affordable Care Act, PCP Parity requirements.
You'll recall the Affordable Care Act requires that physicians be paid at Medicaid -- physicians performing Medicaid or Medicaid services be paid at Medicare rates for certain services. And for the most part states are handling that via a discrete payment to us which we then forward on to our own providers.
So what's you're saying is like a pass -- are pass-through dollars.
Kevin Fischbeck - Bank of America Merrill Lynch
Yes, so no impact to MLR?
Joseph White
Correct, it's purely a non-risk relationship, we are just a conduit for healthy, states are reimbursing providers at Medicare PCP rates. The second issue is direct delivery, we've had a ramp up throughout this year in direct delivery activity, and Mario, John, and Terry can speak more to that, essentially I think this part of our strategy to get closer to the patient and provide a specific care our members needed.
We've also entered into some other provider arrangements following that direct delivery area which are driving that cost higher.
Kevin Fischbeck - Bank of America Merrill Lynch
Was that cost was skewed by the Medicaid parity?
Joseph White
No. It was not.
Kevin Fischbeck - Bank of America Merrill Lynch
Okay. And then just finally with the Washington, certainly it’s hard a little bit, how much of the impact in Q4 is kind of outside of peer if you will, I guess if you were to kind of normalize the numbers, Washington just to have the current period impact what would the MLRP be?
Mario Molina
Yeah. I don’t have that MLR handy but the impact would be about $7.5 million to the med margin line.
Kevin Fischbeck - Bank of America Merrill Lynch
To the net margin line, okay.
Mario Molina
Med margin, medical margin line, so…
Kevin Fischbeck - Bank of America Merrill Lynch
Medical margin.
Mario Molina
Yeah. Correct.
Kevin Fischbeck - Bank of America Merrill Lynch
Okay. All right.
Perfect. Thank you.
Operator
Our next question comes from the line Chris Rigg with Susquehanna. Please go ahead.
Chris Rigg - Susquehanna
Good afternoon. Thanks for taking my question.
Just wanted to come back to the $135 million you increased admin costs? How much of that was in the fourth quarter?
John Molina
The fourth quarter number, I think that fourth quarter number was about $45 million.
Chris Rigg - Susquehanna
Okay. And then…
John Molina
$45 million or $50 million.
Chris Rigg - Susquehanna
Okay. And then just remind us when we think about that $135 million?
Is that sort of investment spending, I wouldn’t expect to be -- you wouldn’t expect to repeat or is that just baseline costs for people building et cetera that will keep the ongoing and the future will be covered by revenue?
Mario Molina
So, Chris, we talked about this I think in the last Investor Day. There are two components of it.
One is sort of the one-time fixed cost find the additional servers, gaining the configuration of the systems, those types of things. Then there was also for many states they are hiring a personnel that the state agencies wanted to see and placed before we get enrollment.
Unfortunately, places like New Mexico and most to say especially South Carolina and Illinois things like delayed. So we have these bodies and program like California was another one, where the programs can’t get delayed but rather than let go very valuable employees we don’t wanted to expense.
So there are two components to that spend.
Chris Rigg - Susquehanna
Anyway to sort of frame out which falls into which bucket expense wise?
Mario Molina
A pretty long and detail review of that at our last Investor Day, I would, just go back and take a look at that presentation.
Chris Rigg - Susquehanna
Okay. And then now one last and I don’t know this is a 2014 question or not, but with the dual rates, I mean, to date how did they compare to your expectations in California -- California, I am sorry?
Mario Molina
We are going to go through that again in New York we get you on Thursday.
Chris Rigg - Susquehanna
Okay. Thanks a lot.
Mario Molina
Okay.
Operator
Our next question comes from the line of Anna Gupte with Leerink Partners. Please go ahead.
Anna Gupte - Leerink Swann
Yes. Thanks.
Good evening. So just I wanted to try to stick to 2013 if I can, the first one is on Washington, is there any read across to all those states in terms of retrospective rates which you have?
Mario Molina
I don’t think there is any read across, I think that was…
Joseph White
Idiosyncratic
Mario Molina
Yes. Thank you.
Anna Gupte - Leerink Swann
Okay. And then the second one is just even near 2013, any color on Medicaid and exchange enrolment, you are talking about the welcome-mat effect and sees like one of your peer is not optimistic on it so is that something that we should look forward to?
Joseph White
We have talked though welcome-mat effect being somewhere between 5% and 10%, I think is what we said and until we see something otherwise that’s where we are going to stay with.
Anna Gupte - Leerink Swann
5% to 10% growth off of what you have.
Joseph White
That’s right.
Anna Gupte - Leerink Swann
About 5% to 10% off that population that is eligible.
Joseph White
I would say what we have talked about is absent the welcome-mat effect, enrollment would be 5% to 10% less than what it is with the welcome-mat effect.
Anna Gupte - Leerink Swann
Okay. Got it.
Got it. The last question is, I think, when we looked at your statutory filings, it seems like, I mean, certainly normalize your medical margins, but in couple of states like Florida and Texas and I just look at the times of margin normalization it seems like you are slower than some of the other players, any thoughts on that and if it’s the population health management that is slower to take effect or is that nothing we should be reading or seeing through into that?
Mario Molina
Always conscious folks kind of read anything from statutory filings.
Anna Gupte - Leerink Swann
So, I shouldn’t, is that (inaudible). So just at the quarterly progression, it seems like it was very slower.
Mario Molina
I’m sorry, could you phrase the question again. I think you’re talking about Florida and Texas, I got that far.
Could you phrase the question again please?
Anna Gupte - Leerink Swann
Yes, so just in terms of normalizing the medical margin, say, in some of the states. It sound like in terms of the speed to normalization, Molina was slower.
And I guess the rate adjustments are probably accruing at the same times. And I’m just wondering if I should read anything into that or is it just a way of reporting because the stat filings can be misleading sometime so.
Mario Molina
You’re asking us to compare us to our competitors and draw some inferences and we can’t do that. What we can say is how our own business is stacking up in Texas and Florida.
I think that frankly, Joe, one of the reasons that Florida MCR went up in the fourth quarter is because we didn’t get the big book of business, the long-term care business which we booked at above 90% MCR. Small population with very large premiums and I think, Texas had a pretty good quarter.
So again it just hard to compress to compare in terms of speed normalization against anyone else.
Anna Gupte - Leerink Swann
Okay. We know what else is offline now, just shared with the Joe and to see if get some feedback there.
Thanks.
Mario Molina
Terrific, he's looking forward to that.
Joseph White
Yeah.
Anna Gupte - Leerink Swann
Thank you.
Operator
Our next question comes from the line of Dave Windley with Jefferies. Please go ahead.
Dave Windley - Jefferies
Hi, thanks for taking my question. On the $135 million question in the 45 to 50 in the fourth quarter, did you spend all that you intended to spend, was that on your target for the quarter?
Joseph White
It’s Joe speaking and generally yes.
Dave Windley - Jefferies
And does all that, was all that booked, Joe, in G&A or with some of that of a medical nature?
Joseph White
No, that’s specifically G&A. I think, we talked last time about some substantial advertising expenditure that we are going to make in the fourth quarter.
We made those. It’s a variety of buyers.
But -- I would say the increase we’re talking about is all revenue for which we, I mean, expense for which we haven’t seen directly yet.
Dave Windley - Jefferies
Okay. And so then coming back, if I make the adjustment for your answer to the earlier question about the Washington impact.
If I make that adjustment, your MCR, I think, was up year-over-year and up sequentially by, maybe 20, 30 basis points. Is that -- several ways but…
Joseph White
Dave, woke up there for a second. I got the point, I think you were looking at Washington and adjusting for $7.5 million revenue, I lost you after that, sorry.
Dave Windley - Jefferies
Right, okay, so after adjusting for that, MCR is still up year-over-year and sequentially. You’ve highlighted some in-patient costs in Florida.
Other than that, is there anything we need to be aware of that influenced MCR in the fourth quarter?
Joseph White
I think, if you’re comparing over the fourth quarter of 2014 -- 2012, you have to look to about $30 million of favorable prior period development in the fourth quarter as we called out in Texas. So again if you are comparing the fourth quarter of 2012, it was $30 million of favorable PPD in Texas.
I think beyond that I think, what we’re seeing in fourth quarter is essentially seasonality and that's about it and long ways, they are growing slight impact from Illinois in Florida.
Dave Windley - Jefferies
Okay.
Mario Molina
Well, this is Mario. When you talk about Washington, the thing that strikes me as if you look at the PMPM medical cost for the quarter was about $203 in 2012 and it's about $204 in 2013.
So the medical cost haven’t change that much. The real story I think in the Washington was the revenue difference, the PMPM revenues were down.
So that I think is the issue at Washington.
Dave Windley - Jefferies
Okay. Thank you.
Operator
(Operator Instructions) Our next question comes from line of Peter Costa with Wells Fargo. Please go ahead.
Peter Costa - Wells Fargo
Good afternoon. You became new competitor for duals in L.A.
County where you were previously a subcontractor. Do you expect new competitors in your counties where you use subcontractors for duals?
Mario Molina
This is Mario. No, we don't expect any change to the mix of contractors in San Bernardino or San Diego counties.
Three plans were added in Los Angeles, Caremore CareFirst and Molina, but we don't expect any other changes.
Peter Costa - Wells Fargo
And then looking at your list of Safe Harbors sort of risk factors, you changed a couple of them, one of which was just ascertains the wording around the fully grossed up reimbursement of the premium taxes to highlight the fully grossed up component, should I take that as a positive that you now have most of the premium taxes itself taking care of, or should I take that as a negative, but there's more risk you are getting in the grossed up than it was before?
Mario Molina
This is Mario. You should take that as a change by Jeff Barlow who wanted some clarity.
I think, we are trying to be more clear about what the risk is.
Peter Costa - Wells Fargo
Okay. And you added another one, which is the efforts by states to recoup previously paid mounts including-- I think the Tropicana Washington as well.
But you talked about other states potentially. Is there some other state that you are worried about a similar retroactive reimbursement the way it happened in Washington?
Mario Molina
No, we are not. But I think that we want to make that a general risk factor because it could happen in other states.
We don’t have it on the horizon right now, but given that's happened in Washington, we just want to make people aware at different time-to-time states might do something like this.
Peter Costa - Wells Fargo
Okay. And the Washington thing is that with the way you are talking about in here with the psychotropic drugs, is that correct?
Mario Molina
Yes.
Peter Costa - Wells Fargo
Okay. And then lastly you added risk factor about hep C.
Is that just because we are closer to 2014, or was there some change in terms of your expectations for what’s going on with hep C and the new drugs that are coming out there?
Mario Molina
No, I think that really reflects the fact that there are new drugs available that were not available in the past. Also the recommendations for increased screening, we really don't know what the prevalence of hepatitis C is in the population and there have not been very effective treatments in the past.
So this is an area that's evolving.
Peter Costa - Wells Fargo
Okay. So it’s nothing new other than the complete factor that there are new drugs coming out.
But it’s unchanged your view of how the structure is coming out.
Mario Molina
I think it’s that plus the fact that the new screen recommendations. The prevalence of hepatitis c is really unknown and the CDC estimate is about 3 million.
It was a study from UCLA that came out and says closer to 6 million and until we get more testing we won’t really know. But we will discuss that more on Thursday.
Peter Costa - Wells Fargo
Okay. And then last question on Illinois, the $1200 PMPM, is that a good PMPM rate to look at that business going forward and then perhaps for all duals, or is that something unique about this quarter since the starting out?
Mario Molina
Yeah. We don’t have duals there yet.
So, I think it’s probably little early to extrapolate, especially given the small numbers that we have and we don't yet have the duals folded in yet.
Peter Costa - Wells Fargo
Okay. Thank you.
John Molina
Again, that’s just for the ABD in Illinois, not for the duals.
Peter Costa - Wells Fargo
Got it.
Operator
Our last question today comes from Michael Baker with Raymond James. Please go ahead.
Michael Baker - Raymond James
Thanks a lot. I was wondering if you guys could more specifically address hep C, whether or not you’ve seen anything meaningful on the cost side there first off.
Mario Molina
Thursday.
Michael Baker - Raymond James
Okay. And then secondly, as you're dealing with these newer populations, any challenges on continuity of care provisions relative to our implementation of your medical management protocols?
Mario Molina
I don't think that there's anything in terms of the continuity of care that is not something that we haven’t already encountered in previous rollouts yeah.
Michael Baker - Raymond James
Okay. Thanks for the update.
Look forward to Thursday.
Mario Molina
Okay. So, I’m assuming there are no further questions.
And I just want to remind you all that we will be discussing guidance for 2014 and a number of other factors, which have been alluded to you today. And we hope to see you at the Investor Day, Thursday afternoon.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.