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Operator
Good morning and welcome to the Molina Healthcare Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Kruszewski, Krzyzewski, SEP Investor Relations. Please go ahead.
Joe Kruszewski
Good morning, and welcome to Molina Healthcare's fourth quarter 2021 earnings call. Joining me today are Molina's president and CEO, Joe Zabrowski, and our CFO, Mark Kahn. A press release announcing our fourth quarter earnings was distributed after the market closed yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those who listened to the rebroadcast of this presentation, we remind you that the remarks made are as of today, Thursday, February 10, 2022, and have not been updated subsequent to the initial earnings call. In this call, we'll refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our fourth quarter 2021 press release. During our call, we will be making certain forward-looking statements, including but not limited to statements regarding the COVID-19 pandemic, the current environment, recent acquisitions, 2022 guidance, our embedded earnings power, and our long-term outlook. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K Annual Report filed with the SEC, as well as risk factors listed in our Form 10-Q and Form 8-A filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zabrowski. Joe?
Joe Zabrowski
Thank you, Joe, and good morning. Today, we will provide updates on several topics. Our financial results for the fourth quarter and full year 2021, our initial 2022 revenue and earnings guidance, and our growth initiatives and reaffirmation of our Sustaining Profitable Growth Strategy. Let me start with the fourth quarter highlights. Last night, we reported adjusted earnings per diluted share for the fourth quarter of $2.88, with adjusted net income of $170 million and premium revenue of $7.2 billion, an increase of 48% over the prior year. The 88.8% consolidated medical care ratio demonstrates solid performance while managing through pandemic-related challenges. The net effect of COVID increased our consolidated medical care ratio by 150 basis points, decreasing net income per diluted share by approximately $1.50, which is 50 cents more than previously expected. We managed to a 7.4% adjusted G&A ratio, reflecting continued discipline in cost management while making the appropriate investments in our business to fuel growth. We produced an adjusted after-tax margin of 2.3%. Excluding the net effect of COVID, our adjusted after-tax margin was 3.5%, squarely in line with our long-term target. We are very pleased with our fourth quarter performance with respect to both the delivery of solid earnings and the focused execution of our profitable growth strategy. The quarter marks the end of yet another very successful year, a year in which we continue to produce a high level of financial performance while navigating the effects of the global pandemic. We executed well and sustained solid operating margins while driving significant revenue growth. Now, turning to full year highlights. We reported full-year 2021 adjusted earnings per diluted share of $13.54, a 6% increase over initial full-year guidance. We absorbed $3.50 of costs related to the net effect of COVID, which was $2 higher than initial guidance, implying $2.80 of improved underlying performance. Excluding the net effect of COVID, our after-tax margin was 3.6%, consistent with our long-term target. We generated premium revenue of $26.9 billion, an increase of 47% over our full-year 2020 premium revenue, and $3.9 billion above our initial 2021 guidance. This strong premium revenue growth was well-balanced between organic growth and bolt-on acquisitions. and is a testament to our successful transition to sustained profitable growth. From a membership perspective, we ended the year with 5.2 million members, a 1.2 million member increase year over year. Notably, this 29% growth across all three segments was enhanced by the suspension of Medicaid redeterminations and the special enrollment period in Marketplace. Turning now to our full-year performance highlights by line of business. Medicaid, our flagship business, representing 76% of total company premium, produced strong premium revenue growth and stable earnings as we continued to execute on the underlying fundamentals. For the full year, our Medicaid business achieved a medical care ratio of 88.7%, consistent with our long-term MCR target as moderate net effect of COVID was offset by strong medical cost management. For the year, our diversified portfolio of state contracts performed well across all dimensions. Underlying medical cost trend was stable and well-controlled, particularly within our growing population of high-acuity members, while we continued to deliver high-quality care. The rate environment was stable, and risk-sharing corridors we captured some of our outperformance, but many already have been and will continue to be eliminated. For the year, our Medicare medical care ratio was 87.2%, a very strong result, squarely in line with our long-term target range, and demonstrating our ability to clinically and financially manage the high-acuity members in both our DSNP and MMP programs. This line of business plays an important role in the portfolio, as each year over 30,000 of our Medicaid members turn age 65. Our marketplace medical care ratio for the full year was 86.9%, well above our long-term target. This reflects the significant cost related to the net effect of COVID in our largest geographies and the high cost impact of the adverse selection related to the special enrollment period. Approximately 300,000 members were attracted to our product during the special enrollment period, accounting for 25% of full-year Marketplace member month. All told, our Marketplace performance has been a disappointment. Later, Mark will summarize the steps we have taken and the environmental factors which will allow us to restore margins to our mid-single-digit target in 2022. you will hear that included in our revenue guidance is a planned reduction in marketplace membership and a related 38% decrease in 2022 marketplace revenue. However, we expect this repositioning of our product to be significantly accretive to 2022 earnings and establish a strong foundation for this business going forward. 2021 was also a very successful year across multiple dimensions of our profitable growth strategy. Specifically, we successfully reprocured our Ohio Medicaid contract and were awarded a new state contract in Nevada, validating our ability to retain existing state contracts as well as win new business in new states. Our M&A engine continued to execute at a high level. During the year, we announced two new acquisitions, Cigna's Texas Medicaid business and Agewell in New York, for combined premium revenue of approximately $1.7 billion. In October, we closed the New York-based Affinity acquisition, adding over 300,000 members and approximately $1.6 billion of annual premium revenue. And we successfully integrated three previously closed acquisitions representing approximately $5 billion in annual revenue, which continued to provide earnings accretion. In summary, our full-year 2021 enterprise results continue to demonstrate our ability to produce excellent margins while growing premium revenue and successfully managing through the ongoing clinical and financial impacts of the pandemic. Turning to our 2022 guidance, beginning with premium revenue. We are very pleased with the continued success of our profitable growth strategy. In 2022, we project premium revenue of approximately $28.5 billion, a 6% year-over-year increase on a reported basis, and 14% growth before the effect of regulatory headwinds and the planned decline in marketplace revenue. This is consistent with the initial outlook provided on our third quarter 2021 earnings call. This growth is well balanced between the new contract win, organic growth in our current footprint, and the full annual run rate of our recent acquisitions. Incremental to our revenue guidance will be the age well acquisition when closed and any further extension of the public health emergency and the resulting suspension in Medicaid redeterminations beyond April. Moving to earnings guidance, our initial full-year 2022 adjusted earnings guidance per share is no less than $17, or 26% growth year-over-year. We project a 3.4% adjusted after-tax margin, consistent with our long-term target. Our 2022 earnings profile reflects durable and sustainable operating improvements and earnings growth. Included in our 2022 guidance is the realization of $3.50 per share of our 2021 embedded earnings hour and additional organic earnings growth partially offset by the effects of regulatory headwinds. With COVID still providing $2 of earnings per share pressure in 2022, and a few of our acquisition integrations not yet fully matured, we still have embedded earnings power remaining to support future earnings growth. In summary, our 2022 guidance features premium revenue growth of 14% before regulatory headwinds and the marketplace reset, and strong earnings per share growth of 26%, with key operating and margin metrics squarely in line with the long-term targets we shared at our September 2021 investor conference. I will now provide a few concluding comments that frame our profitable growth strategy. We remain committed to staying close to the core. We intend to remain a pure play government managed care business, which has very attractive growth characteristics, demographically and politically. We aspire to provide high quality care to our members, while driving to the lowest cost of delivery to produce attractive margins. We believe we have the right strategy and the right team to execute it. Our strong finish to 2021 and our 2022 guidance position us well and give us great confidence we can achieve our long-term targets of 13% to 15% premium revenue growth and 15% to 18% earnings per share growth on average over time. As I conclude my remarks, I want to express my gratitude to our management team and our nearly 14,000 Molina colleagues. Their skill, dedication, and steadfast service continue to form the foundation for everything we have achieved and everything we will achieve in the years to come. With that, I will turn the call over to Mark for some additional color on the financials and 2022 guidance. Mark?
Joe
Thank you, Joe. Good morning, everyone. This morning, I will discuss some additional details of our fourth quarter and full year performance. I will then turn to the balance sheet and some thoughts on our 2022 guidance. Beginning with our fourth quarter results by segment. In Medicaid, we reported an 88.3% MCR, a strong result that included continuation of costs from the net effect of COVID offset by strong medical cost management. In Medicare, our reported MCR was 88.3%. During the quarter, the emergence of the Omicron variant had a greater impact on our Medicare population than on our other segments. Focused medical cost management and better-than-expected risk adjustment offset the net effect of COVID in the quarter. In Marketplace, our reported MCR was 92.1%. While COVID infection rates in our marketplace population declined from the peak of the Delta variant in August, the net effect of COVID continued to pressure results in the fourth quarter. The special enrollment period membership, which grew to almost 40% of our marketplace book in the quarter, also contributed to the elevated marketplace MCR. Turning to full-year results. our full-year consolidated MCR was 88.3%. This result is modestly above our long-term target, as strong performance in our Medicaid and Medicare businesses was offset by the performance of our marketplace business. Specifically, our full-year Medicaid MCR was 88.7%, in line with our 88% to 89% long-term target. Our full-year Medicare MCR was 87.2% in line with our 87 to 88% long-term target. In both Medicaid and Medicare, strong medical cost management offset the net effect of COVID. Our full-year marketplace MCR of 86.9% is well above our 78 to 80% long-term target and includes approximately 430 basis points of the net effect of COVID, as well as approximately 360 basis points from the impact of the special enrollment period. Turning now to our balance sheet, our capital foundation remains strong. We harvested $218 million of subsidiary dividends in the quarter, which brought our year-end 2021 parent company cash balance to $348 million. Debt at the end of the quarter is 2.1 times trailing 12-month EBITDA. Our debt-to-total cap ratio is 47.8%. However, on a net debt basis, net of parent company cash, these ratios fall to 1.8 times and 43.9% respectively. These metrics reflect a conservative leverage position and ample cash capacity for additional growth and investment. During the quarter, we redeemed our senior notes due 2022 using the proceeds of our November debt offering of notes due 2032. This refinancing will lower our total interest expense by 50 basis points and extend our debt maturity towers to 2028 through 2032. More importantly, the transaction marks the final step in our capital restructuring strategy. We have eliminated the costly convertible bonds and addressed all near-term maturities at coupon rates well below similarly rated issuers. Turning to reserves, our reserve approach remains consistent with prior quarters, and we continue to be confident in our reserve position. Days in claims payable at the end of the quarter represented 51 days of medical cost expense, an increase of two days sequentially. Now, turning to guidance, beginning with membership. We ended 2021 with approximately 4.3 million Medicaid members. As discussed, our 2022 guidance reflects the resumption of redeterminations which we expect will more than offset Medicaid growth drivers and result in 2022 year-end membership of approximately 4.1 million members. In Medicare, we ended 2021 with 142,000 members. We expect year-end 2022 total Medicare membership of approximately 150,000 members. This reflects strong AEP growth in our MAPD and DSNP products and the addition of members from our Cigna Texas Medicaid acquisition. In Marketplace, we ended 2021 with 728,000 members. Based on open enrollment, we expect to begin 2022 with approximately 320,000 members. reflecting our strategy to achieve target margins in this business for 2022. Accounting for a limited SEP and normal levels of attrition through the year, we expect to end 2022 with approximately 250,000 members. Turning now to premium revenue guidance. We expect premium revenue of approximately $28.5 billion, or 6% growth. Excluding regulatory headwinds and our marketplace reset, this represents 14% growth over 2021. Specifically, our premium revenue guidance includes the following growth drivers. A full year of the acquired affinity business, which closed October 25th, and the Cigna Texas Medicaid business, which closed on January 1st, for a combined $2.2 billion. approximately $1.1 billion of organic Medicaid and Medicare growth in our current footprint, and approximately $400 million for the Nevada Medicaid contract, which began on January 1st. Partially offsetting these growth drivers are several headwinds to 2022 revenue growth. $1.2 billion of lower marketplace premium revenue, reflecting our strategy to restore target margins in this business, approximately $400 million related to the resumption of redeterminations, and $500 million from the carve-out of pharmacy benefits in our California and Ohio Medicaid contracts. Consistent with past practice, AgeWell is excluded from our 2022 guidance. We continue to expect this acquisition to close in the third quarter of this year and will provide $200 million or more of additional premium revenue in 2022 when closed. Turning now to earnings guidance. We introduced our initial full year 2022 adjusted earnings guidance of no less than $17 per share, reflecting 26% growth over 2021. Our EPS guidance reflects the realization of approximately $3.50 per share of 2021 embedded earnings, consisting of approximately $1.50 per share of lower net effect of COVID, roughly $0.50 per share for improvement in Medicare risk adjustment, approximately $1 per share as we attain target margins in Magellan Complete Care and Passport, and approximately $0.50 per share for the recently closed Affinity and Cigna Texas Medicaid acquisitions. Our 2022 guidance also includes approximately $0.80 per share of marketplace margin improvement not captured in the lower net effect of COVID. This is offset by the net impact of organic earnings growth and the resumption of redeterminations in the previously discussed pharmacy benefit carve-outs. The restoration of marketplace margins to mid-single digits in 2022 will be accomplished through actions already taken. Specifically, we priced to a higher medical cost trend, anticipating a more moderate COVID and SEP impact. We redesigned our product offerings, focusing on the silver tier in response to the increased member premium subsidies. Based on recently concluded open enrollment period, we expect to have a higher percentage of renewing members. We also expect a lower mix of special enrollment membership in 2022 based on the revised eligibility rules and our revised product design and distribution strategies. We expect many of these changes will also improve our risk adjustment results. Moving on to select P&L guidance metrics. We expect our medical care ratio to be approximately 88%. The MCR improvement over 2021 is primarily due to lower net effect of COVID, our actions to improve marketplace performance in 2022, continued progress in medical cost management in our legacy and acquired businesses, and improvement in Medicare risk scores. We expect our adjusted G&A ratio to improve to 6.8%. This reflects disciplined cost management, fixed cost leverage from our revenue growth and mix, offset by continued investment and growth in capabilities. The effective tax rate is expected to be 25.4%. Adjusted after-tax margin is expected to be 3.4%, consistent with our long-term targeted range. Weighted average share count is expected to remain flat at 58.4 million shares, and we expect that just over 50% of our full-year earnings will be produced in the first half of the year. As mentioned, our 2022 guidance includes the realization of $3.50 a share of 2021 embedded earnings, leaving approximately $2.50 a share of embedded earnings power in 2022, comprising the net effect of COVID of approximately $2 per share, which should continue to dissipate, and approximately $1 per share as we attain our target margins on closed deals, including Affinity, Cygnus Texas Medicaid Business, and our pending acquisition of Agewell. Partially offset by roughly $0.50 per share of projected Medicaid redetermination impact in 2023. As a reminder, this embedded earnings power does not represent 2023 guidance, but rather an accounting of drivers that are temporarily suppressing our earnings profile and our current projection of the impact of Medicaid redeterminations post-2022. This concludes our prepared remarks. Operator, we are now ready to take questions.
Operator
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the key. To withdraw from the question queue, please press star then two. The first question is from Kevin Fishbeck of Bank of America. Please go ahead.
Kevin Fishbeck
Okay, great. Thanks. I just wanted to ask about the exchange. I guess that was a surprise for me in this guidance. Can you talk a little bit about how you think about this business sustainably? Just looking back and, you know, I guess over the last eight years, six of those years, you either grew that business by over 50% or you dropped that business by over 50% in a given year. So very volatile from year to year. It's hard to see kind of what the strategy is long-term. How comfortable are you that this is actually a base that you can grow off of in that, you know, low to mid-single, or sorry, mid to high-single business that you're forecasting long term. Thanks.
Joe Zabrowski
Sure, Kevin. This is Joe. The strategic positioning of the business really hasn't changed. This is an adjunct to Medicaid. We serve the working poor. We leverage our Medicaid network. We leverage our Medicaid network pricing and our Medicaid footprint. So the strategy hasn't changed. 90% of our members are fully or partially subsidized. That is the market segment we are approaching. What you're observing this year is really a capital allocation decision. We never intended to have 728,000 members. That was a function of the special enrollment period, which not only grew membership beyond what anybody expected, but added a significant element of adverse selection. Really, what you're seeing this year is the repositioning of the product as markets suggested in his comments, from a pricing perspective, from a structuring perspective, from a metallic tier perspective, and from a distribution perspective, to continue to target the working poor and to more emphasize the silver tier that is much easier to price to and to financially manage. So this is a business where we're more focused on margin than we are membership, and we will let membership float up and down with our ability to obtain mid-single-digit margin.
Joe
Mark, anything to add? I think that's right, Joe. If you look back to 2020, we were about 318,000 members at the end of the year. 2021 probably would have looked a lot more like 2020 if it wasn't for the SEP that Joe talked about, which almost none of us in the space knew pretty much this time last year. Backing out that SEP, 2021 would have looked a lot like 2020. Here we are in 2022 with an outlook that's a lot like 2020 and 2021 before the SEP. So I think this level in our portfolio is about the right level. But as Joe mentioned, we'll be entirely pricing for margin, not for volume. You're just a fair point.
Kevin Fishbeck
You're not tough. You're not talking about increased competition or irrational pricing here. This is more of a company specific decision. I just want to make sure I understand. Is this a market issue or is this just Molina's strategy?
Joe Zabrowski
Our strategy is to focus on our Medicaid footprint and to capture individuals who at times income out of Medicaid and have a marketplace product to buy from us at zero premium. That's always been the strategy. And again, If you look back just a year ago, we were at 300,000 members. And then, of course, the special enrollment period had 20,000 to 40,000 members a month were coming on to the marketplace role at a higher acuity. So this is a capital allocation decision. It's a function of the SEP. It's a function of the pandemic. And we are comfortable with this business at roughly 7% to 8% of revenue, leveraging our Medicaid footprint. And we think our capital allocation is appropriate as we've now repositioned the risk profile of this business.
Kevin Fishbeck
All right. That's helpful. Thank you.
Operator
The next question is from Matt Borsch of BMO Capital Markets. Please go ahead.
Matt Borsch
Good morning. This is Ariana Brady on for Matt Borsch. I was wondering if you could give more detail on the expected timing of the Medicaid redeterminations. and how much certainty and visibility you have around the process. Thanks.
Joe Zabrowski
Sure. With the public health emergency now having been extended to April, given the notification periods that are required, the first members will not be redetermining, reestablishing eligibility until July 1st. We estimate that that given that we grew organically approximately 750,000 members since the beginning of the pandemic, that equates to approximately $2.9 billion of revenue. We believe that $2.9 billion of revenue will decrease by $1.3 billion to a $1.6 billion residual target. And that will happen partially over 2022, and then partially over 2023. Mark, do you want to go through the numbers?
Joe
Yeah, just to build on that. So that's a $1.3 billion decline over time, but that's going to happen over a couple of years. So in my prepared remarks, I mentioned $400 million impacting our 2022 outlook and the additional $900 million in 2023. So our target was an expectation that we would keep half of these members gained since the start of the pandemic. They'll come off over time per the public health emergency. And the revenue impacts across the two years are as I mentioned.
Operator
Great, thank you. The next question is from Nathan Rich of Goldman Sachs. Please go ahead.
Joe
Hi, good morning. Thanks for the questions. I wanted to follow up on the member attrition in Marketplace. I guess I'm just trying to think about the 475,000-member decline for 2022 and how that's balanced between member attrition potentially due to SEP and maybe the adverse selection that you mentioned. I think the 300,000 that you saw sign up during that period and any competitive factors that you may have seen in the marketplace And, you know, Mark, maybe could you help us think about how much marketplace margins were impacted by that adverse selection dynamic in 2021 as we think about where kind of marketplace margins ended the year and the improvements that's contemplated to get to mid-single-digit margins for 2022?
Joe Zabrowski
Well, first, on the membership and revenue question, what's interesting and should be noted that although membership is down by over 60 percent, revenue is down by less than 40 percent because we shifted the book to the silver tier. The silver tier has a much richer product design and therefore revenue flow. So the PMPM revenue on silver is much higher. So the operating leverage is very positive. With respect to the margin, we are very confident and a return to mid-single-digit. This produced, this business, due to the SEP and the pandemic, this business produced a low single-digit margin loss on $3 billion of revenue in 2021. We expect now to return that to a mid-single-digit margin gain on $2 billion of revenue in 2022. So, sort of a seven to eight point increase in margins, a lot of it due to the elimination of the COVID pandemic, and much of it also due to the adverse selection that the SDP produced. Mark, the numbers?
Joe
Yeah, absolutely. So if you look at our membership, as you point out, we're down some 60% end of 21 versus 22. But as Joe mentioned, our revenues in Marketplace are are down 38%. Why the disconnect? Within our new membership is a very different mix of bronze versus silver. Last year, 2021, we had about 41% of our portfolio in bronze. That'll be down to 15% in 2022. As I'm sure you know, the PMPMs, the revenue PMPMs, are quite different between bronze and silver. They're about 300 in bronze. and about 550 in silver on average across the portfolio. So that kind of offsets a lot of the volume decline just on higher PMPMs on those members. Now, on the margins, Joe mentioned last year's 86.9 MCR. We're tracking this year to a 79, which is smack in the middle of our long-term guidance for Marketplace MLR. A couple of things that bridge us from last year to this year. Obviously, we took significant pricing as we looked into the new year. Your specific question around what did SEP and COVID cost us, I think we mentioned at a high level in our prepared remarks, we carried across marketplace 430 basis points of COVID last year and 360 basis points from the SEP. So you put those two together, that's 8% of headwind that I'm not expecting in the new year. COVID, we all have a more optimistic outlook for COVID in the new year. And SEP, the market will behave differently this year. The regulations are different. Fewer people can sign up. And our distribution strategy puts us in a different place. I just don't think we'll have that exposure. So you get the 8% pricing coming into the new year. You remove that headwind of COVID and SEP, throw a trend assumption on there for what a normalized trend assumption could be, and you have a very clear path to that high 70, 79% MLR I'm talking about.
Joe
Thanks. I appreciate the detail.
Operator
The next question is from Stephen Baxter, Wells Fargo. Please go ahead.
Stephen Baxter
Hi, thanks for the updated view on earnings power. I guess just first, you know, appreciated actions were required on the exchange business. I guess, how should we think about the foregone membership there is impacting the earnings power dynamics you've talked about through 2021? It seems like in aggregate, you're kind of at the same ballpark as you were before, just trying to make sure I can follow that. And second, just would appreciate, you know, if you could provide a little more detail on what's still in the $2 of COVID pressure at this point. it sounds like maybe you're getting back 50 cents of the dollar per score, so maybe that's half, or excuse me, a quarter of it. But when we think about the balance, you know, it sounds like you're saying that all three businesses, you know, I think will be roughly a target margin. So just trying to understand where you feel like the opportunity still is. Thanks.
Joe Zabrowski
Sure. Steven, you mentioned the embedded earnings power, which, you know, is not a theoretical construct. We didn't construct it in the abstract. It's real. And as we previously disclosed, sitting on top of our $13.50 actual result for 2021 was $6.50 of embedded earnings power. Clearly, with the significant impact of the pandemic, was something reasonable to account for. And because we've been so acquisitive, we thought it was also helpful to account for the growing accretion of our closed acquisition. So, sitting on top of our $13.50 result for 21 was an additional $6.50 in embedded earnings. We have harvested $3.50 of that embedded earnings inside our $17, at least $17 plan for 2022. Also, as you suggested, sitting on top of the $17 is an additional $2.50 of continued embedded earnings power due to the net effect of COVID, due to the affinity and Cigna Texas acquisitions, which are new to the portfolio, and AgeWell will add a little bit as well. So it's a real construct. The embedded earnings have been harvested inside the 2022 plan, and some still exist to add to future earnings growth here over time. In the net effect of COVID, we account for three things. we account for the direct cost of COVID-related care. We attempt to estimate the effect of utilization curtailment due to the pandemic. And then we account for the effects of the corridor. As we previously suggested, the corridors were significant in 2021. We had nine of them that were financially significant. That has been reduced to three for 2022. So they linger on into 22 in the state of Washington, Ohio, and Mississippi. We have every confidence when the PHE ends, they too will be eliminated. So that's really what's in the $2 net effect of COVID for 2022 are the lingering effects of three corridors.
Kevin Fishbeck
Thanks for the call, Eric.
Operator
The next question is from Michael Hoff of Morgan Stanley. Please go ahead.
Michael Hoff
Hey, thank you, guys. I appreciate the color on the exchanges. I understand you're pretty confident on the single-digit margin this year. So I just wanted to clarify. So a large percent of these lives that were lost basically were very low to no margin, maybe even negative margin. So earnings impact was basically negligible. And looking forward, are you now at a place where, The portfolio is fully right side. You're ready to charge ahead at 5% to 8% long-term growth a year?
Joe Zabrowski
Yes. Just, again, some additional color. The answer is yes. That special enrollment membership, you know, ran at a very high loss ratio. In fact, the volume, it represented about 40% of the member month volume in the fourth quarter alone. and 25% for the year. It ran at 105% MCR in the fourth quarter, and just about 100% for the full year. So that was a significant contribution to our issue this year. As Mark suggested, blended over the entire year, it was 260 basis points of MCR pressure. So we expect that to completely reverse into next year. The business is positioned where it should have been, pre-SEP. As I said, we follow our Medicaid footprint. We sell to highly subsidized members. Now that we've repositioned the mix to more silver than bronze, we have every confidence that this is a solid baseline, mid-single-digit margins, and probably mid- to low-single-digit growth here over the foreseeable future.
Operator
The next question is from Josh Raskin of Nefron Research. Please go ahead.
Josh Raskin
Thanks. Good morning. I've got a bigger picture question around where Molina is in their sort of corporate life cycle. And obviously the turnaround, Joe, since you got there about four years ago, has been much more successful than I think anyone expected and feels mainly driven by this big margin improvement and some opportunistic M&A. But it seems as though we're getting to a point where, you know, there are some top line headwinds and it's sort of ebbing and flowing. And as you look over the next few years, I'm curious about the plan to extract more value from that membership, not just the embedded earnings that you talked about, but real value over the long term. And are we at a point where scale and maybe other non-insurance-based capabilities become more important?
Joe Zabrowski
It certainly is part of our strategic planning process to look at all opportunities for allocation of capital. and yes, we're well aware of the capability builds that happen in other companies. We're well aware of vertical integration with providers. We believe, for the foreseeable future, there is so much growth, both in the demographics, actual membership growth, particularly in the high-acuity segment, that we don't have to look far beyond our ability to take capitated risk particularly with high-acuity members, manage it really well, be a rate-taker in Medicaid, grow Medicare, and use this ballast of marketplace as this residual mechanism that we don't need to do much beyond that to sustain the growth we're on. We never would have suggested a 13% to 15% revenue growth and 15% to 18% EPS growth by 2025 if we didn't see enough runway to continue growing the business and the swim lanes we're in. So certainly in our strategic planning process, we always look at capability builds. We are not going to allocate capital to vertically integrate with providers. For us, we do not think that's a good deployment of capital. But there's so much runway with the number of lives that will go managed, and particularly the high-acuity lives, that we don't need to do much beyond that.
Kevin Fishbeck
Very helpful. Thanks.
Operator
The next question is from Justin Lake of Wolf Research. Please go ahead.
spk01
Thanks. Good morning. A couple questions here on the exchanges. First, Joe, going back to the third quarter, you had talked about exchange membership being flattened down. You certainly indicated that there could be some pressure here. But the fact that flat was in the ballpark potentially, the 60% decline is certainly more than I think any of us expected. So I was hoping you could tell us a little bit more about what happened between the third quarter and today that so significantly changed the outlook for the exchanges. Did you cut commissions or something? Is there something structural that you did? Or is this just higher turn? What can you tell us?
Joe Zabrowski
Well, certainly all the strategies that we were executing for 2022 were in place during the third quarter. They had to be as we're going into open enrollment. Yes, membership is down, but we withdrew in just about all of our markets the bronze product. Now, how many of those members were going to then take up a Molina-based silver product was a matter of estimation. Would I have hoped to end up with more membership if it was silver? Sure. But 320,000 out of the gate is just fine. So as you take a complete product set off the shelf, except in three states where the circumstances are quite different, basically pull it off the shelf, it was hard to know how much of that membership would have stayed in a Molina product with silver. But the good news is the members that we do have Most of them are renewal members, and 85% of them are silver. So irrespective of where we started and where we ended up, we're ending up in a really, really good place that portends well for the production of the mid-single-digit margin.
spk01
Great. And then I'd love to get your opinion on a couple things. You talked about the impact of the special enrollment period, both the margins and memberships. You know, I'd love to hear your view on, like, how sticky do you think that membership is in terms of 2022, right, if we don't have those special enrollment periods? Like, what do you think happens with those members? Also, there's a lot of talk about the fact that, you know, with Medicaid redetermination, we could see a lot of those members move from, you know, from Medicaid over to the exchanges. So what do you think happens with those two things specifically? And then, you know, maybe you can give us your kind of view of what you think the marketplace is going to do in terms of enrollment overall, given all those different swing factors in 2022 versus 2021. Do you think it grows or shrinks?
Joe Zabrowski
Sure. Well, certainly when insurance is available to you anytime you need it, you buy it, and it should be no surprise that the effects of the adverse selection were significant. So the question then becomes, what happens to that cohort? A lot of the uptake during the special enrollment period was bronze. So to the extent that that product was the one that was affordable and no Molina bronze product was available, they either renewed with us into silver or didn't renew with us at all. The other fact that's really important is if the acuity of the member didn't change, they're still high acuity, but now we still have them. The fact that we've now had them for over a year means that we'll be able to capture risk scoring more appropriately. And the fact that they're in silver means the risk score will count for more revenue. So the fact that some of these members renewed into the renewal book into 2022 is fine. The number's not very high, but now we have visibility into their acuity. We'll be able to capture the risk score, and at least they're in a silver product. Long-term, my comments are going to really extend to our strategy, which is this is a high-subsidy strategy to follow our Medicaid footprint. My view of this has always been, and I was always looking for the right words, it's a residual market for Medicaid. As members get part-time jobs and have an income level just above Medicaid, they're probably eligible for a highly subsidized marketplace product. Our strategy has always been to target that market. Now our execution has been less than perfect on that. But that's always been the strategy. So this is going to grow with the working poor, with the Medicaid population as people flex up and down. So we think there, as we said on Investor Day, low single-digit growth rate, mid to I think it's 5% to 8% I think is the right number. And we're confident that that's the way the business will grow with a yield that's probably half of that and membership growth that's another half of that. But it's a product that should flex up and down with Medicaid as the Medicaid rolls move up and down.
Joe
And, Justin, it's Mark. The only thing I'd add to that is I think you asked about redetermination as well. As you know, we have the projections for some revenue coming off and some members through redetermination. What we don't have is those members picked up in our marketplace product. At the margins we expect to drive here, that is all upside to our projections. But we have a meaningful effort out there to pick up the redetermination members in our marketplace and Medicare, in some case, products through cross-sell, which is meaningful upside to the numbers we've talked about today. Great. Thanks.
Operator
The next question is from A.J. Rice of Credit Suisse. Please go ahead.
A.J. Rice
Hi, everybody. Let me just ask you about the Medicaid business. So can you comment on what the RFP pipeline looks like, where the opportunities are, where the defending procurements might be, and specifically maybe comment on California that's been in the press lately with discussion about potentially a side deal with Kaiser Permanente. Do you think that's going to be a normal RFP process from your perspective? Are there nuances of difference? And I don't think you've commented on your expectations for the 22 average composite rate increase across your states that you're seeing in Medicaid. And I wondered if I missed that or if you would give that.
Joe Zabrowski
Well, AJ, first, thanks for asking about Medicaid. It's obviously 80% of the revenue base. And we couldn't be more pleased with the result that the Medicaid team produced in 2021 and the plan for 22. I mean, it's now a total of nearly $24 billion of revenue, $23 billion of premium revenue, and it's going to operate north of a 3% after-tax margin. We continue to win new business. And, yes, we do have to retain and defend our existing contract, as you suggested. The California RFP was distributed just yesterday. We believe the Texas RFP will be distributed late in the first quarter, and Mississippi is in the middle of a proposal writing effort as we sit here today. Most of the other re-procurements are longer dated, but those are the three. We have a high confidence in all three of them. We run a really well-run business in California. We have a great team. As you know, it's a pretty complex state with respect to how the regions work. And, yes, I think us and the rest of the managed care industry were disappointed that Kaiser was awarded a no-bid contract. But it's not as though it's some transformational event that's going to reshape the entire Medi-Cal landscape. It's incremental. In fact, most of the impact will be in the two plan regions where the local health plans have major share. So high confidence in California, high confidence in Texas. In fact, we say that the fact that the regulatory process for the Cigna acquisition went so well that it is testimony to the high regard the state holds us in with respect to the Star Plus population. With respect to new states, as you know, there's a $108 billion pipeline over four to five years. We certainly won't chase every opportunity in every state. We are very selective as to where we think we can win, evaluating a series of criteria. But our proposal writing team, our business development team are extremely active and to date have demonstrated a great deal of success with a Kentucky win, a Nevada win, and defending the Ohio contract. So the business is performing extremely well, and at 80% of revenue, it needs to and has. And the outlook for growth, both organically and inorganically, is pretty robust.
A.J. Rice
Okay. Any thoughts on the rate increase for 22 on average?
Joe Zabrowski
I don't think we've given a specific percentage, but the rate increase was low single digits. in Medicaid across the book. We are comfortable with its actuarial soundness. It is generally kept paced with our view of normalized medical cost trend, which also was low single digit. So the rate environment is stable. It's rational. The principle of actuarial soundness and the return to a prospective setting of rates based on a sound medical baseline and the removal of these corridors seems to be happening as quickly as we originally estimated.
A.J. Rice
Okay, great. Thanks a lot.
Operator
The next question is from Stephen Vallis-Kett of Barclays. Please go ahead.
Stephen Vallis - Kett
Great, thanks. Good morning. I guess two more interrelated questions on Marketplace. First, just with the drop-off in membership by 65% from 7-28 to 2-50, as we think about the quarterly cadence around that, do you have any sense of where that will shake out at the end of the first quarter in particular? And then is it possible that the 250-year red number maybe is just conservative, you know, around the progression around all this? And then the second question, maybe just ask it now, too, because it's kind of interrelated. With the 65% decline in membership, the revenue is expected to decline 38%. As we think about the delta between those two numbers, how much of that is just driven by that shift from bronze to silver ratio? versus just premium increases, just trying to get a proxy for what drives the delta between that two, a little more color on that. Thanks.
Joe Zabrowski
Most of it is the shift from bronze to silver, which is a very significant differential in the PMPM revenues that those products generate. But we did go for and attain a high single-digit rate increase in that business. In terms of where we start and where we end, I think we said we started with 320,000, 330,000 members after the whole annual enrollment period. We are projecting pre-pandemic levels of attrition, which average 1.5% to 2% a month. Now, if that doesn't happen, we'll end up with more than 250,000 members by year end. We're also expecting not to pick up many members during special enrollment. As you know, the special enrollment period still exists. But the eligibility requirements have been significantly reduced to where only people at less than 150% of federal poverty level income are eligible. So if we won't pick up SEP members, we're confident in that. And if attrition is at 1.5% to 2% a year, the $250,000 number by year end is about where we'll end.
Stephen Vallis - Kett
Okay. All right. Got it. Thanks.
Operator
The next question is from Scott Fidel of Stevens. Please go ahead.
Scott Fidel
Hi. Thanks. Good morning. I'm just interested if you can give us your initial thoughts on the 2023 MA advance notice and then just walk us through your capital priorities and how you think about capital employment this year in terms of, you know, M&A opportunity buybacks, et cetera. Thanks.
Joe Zabrowski
Sure. Obviously, like the rest of the industry, we were pleased with the advance notice, second year in a row, that it looked very attractive on its surface. You know, we've grown our Medicare business, even though half of it is demonstrations, which likely won't grow. The other half is marketed business in the DSNIP product that will grow. And the fact that we are growing from 142,000 to 152,000 members is significant. So we're really happy with the growth characteristics of the business. We think two years straight of rate increases give us a lot of room to put the right benefits in the product to rate it appropriately and to win new business and have margins in the mid-single-digit after-tax territory where we're positioned today. So we're really bullish on our Medicare business, and we have a great team that will grow that business here over the foreseeable future, as we said in our investor day. Capital deployment, Mark?
Joe
So on the capital side, I feel really good about our dry powder. We're starting off the year with a good cash balance at the parent. Our projected cash flow for the year is strong, and you can see the leverage metrics gives me a lot of room to raise more if I need it. On the M&A side, I'm encouraged by what we're seeing for the year. A number of things in the hopper right now. Of course, they all move at their own speed. We never make commitments about when they might happen, but good line of sight on a number of targets, which I'm hoping to deploy the capital against. What Joe and I have always been adamant about, though, is share repurchases when and where appropriate. There's some small amount that is just part of our normal hygiene that we would probably do during the course of the year. Not a big commitment by any means, but just on an annual basis, there is some small amount we like to do. Part of that's, though, a function of what the M&A pipeline turns out on. We'll have to see how that plays out on the year.
Operator
The next question is from George Hill of Deutsche Bank. Please go ahead.
George Hill
Hey, good morning, guys, and thanks for taking the question. I know a lot's been covered here, so I just was going to ask one about the PBM carvings, and I guess could you talk about is the impact of that meaningful at all? I didn't hear you guys call it out in the prepared commentary, and I didn't have anything on it in my notes. So maybe just kind of walk through the mechanics. How does it impact the income statement? Is there any meaningful impact to the financials from the PBM carvings?
Joe Zabrowski
I think you're, George, referring to the PBM carve-outs? Yes, in California.
George Hill
Yeah, carve-outs, you guys carve into the states.
Joe Zabrowski
Okay, okay, thank you. Just wanted to make sure we're talking about the same thing. Sure, we have a $500 million revenue decrement in our forecast for the year due to the carve-outs, which is a full year of California and a half a year of Ohio. And obviously... there's margin implications of that. These revenues that are taken out into a fee-for-service environment generally carry with them the average Medicaid margin. So think of it as the loss of the average Medicaid margins on $500 million of revenue.
Gary Taylor
Thank you.
Operator
And the last question comes from Gary Taylor of Collins. Please go ahead.
Gary Taylor
Hi, good morning. Most of my questions sort of touched on one way or the other, so just refining a little bit. Do you have any, on the non-SEC exchange population, do you have any retention figures on that piece versus what it historically looked like or too early?
Joe Zabrowski
Gary, I want to make sure we're answering your question. When you say retention, are you talking about throughout the year, our lapse rate, or are you talking about how many members renew from the prior year?
Gary Taylor
The latter.
Joe
Yeah, we do have pretty good insight at this point. A much better proportion of our starting membership this year is renewal, meaningfully better than, say, even last year. Part of that is with the smaller book, a number of our members rolled over with us. So we kept a much higher percentage of renewal members this year. And that's a really good thing because we know those members better. We have the history on them, and that converts right into risk adjustment and starting the year with a much better risk adjustment position and obviously being able to code those members right out of the gates. So we feel good about that higher level of renewals, and it does translate into risk adjustment. Great.
Gary Taylor
And then my second one was on the Medicare risk adjustment headwinds related to the pandemic. I thought at one point you had cited that as a dollar. It sounds like you're saying you're going to recoup 50 cents of that in 2022. Does it still mean there's another 50 cents for that? And that's maybe kind of embedded in your your remaining COVID recapture, or has the dollar changed, or am I just off?
Joe
No, it's Mark. Your memory is quite good. We used to talk about a dollar of Medicare risk score in our embedded earnings. That is, we just weren't able to get out there and do the in-home assessments and the risk scoring during the pandemic the way we had historically. So, we were carrying a dollar. Now, the good news is late in the third quarter, especially in the fourth quarter, we were actually able to realize part of that. CMS extended the window for submissions from 2020, which meant we were able to get a little bit more of that into the back half of 21. As a result, that dollar fell to 50 cents at the end of the year, and we'll realize that 50 cents in our guidance. So the dollar we used to talk about, 50 cents you got in third and fourth quarters, the other 50 cents you're getting in guidance.
Gary Taylor
Got it. Okay. Thank you.
Operator
This concludes our question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.
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