Business Combinations (Notes)

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Business Combinations

Business Combinations

Health Plans Segment

South Carolina. On July 26, 2013, we entered into an agreement with Community Health Solutions of America, Inc. (CHS) to acquire certain assets, including the rights to convert certain of CHS’ Medicaid members who will be covered by South Carolina’s full-risk Medicaid managed care program, consistent with our stated strategy to enter new markets. The conversion of such members is contingent on our successful receipt of an HMO license from the South Carolina Department of Insurance, the award to Molina Healthcare of a full-risk Medicaid managed care contract by the South Carolina Department of Health and Human Services, and the state's conversion to a full-risk Medicaid managed care program. Each of these three conditions is expected to be satisfied by January 2014. In connection with the agreement, we paid CHS $7.5 millionon the closing date. We currently expect to convert approximately130,000members under the agreement, for a total estimated discounted purchase price of$65.0 million. The final purchase price will be settled when the member conversion has been completed.

Because the number of members we will ultimately convert was unknown as of the July 26, 2013 acquisition date, $57.5 million of the purchase price represents contingent consideration for the number of members we expect to enroll in our health plan as a result of the conversion. The contingent consideration liability will be remeasured to fair value at each quarter until the contingency is resolved, with adjustments, if any, recorded to operations. The undiscounted amount we could be required to pay under this contingent consideration arrangement ranges from $7.5 million (which we paid on the closing date) to approximately $70 million. We expect most of the contingent consideration liability to be settled in the second quarter of 2014.

We recorded $42.1 million in goodwill, which relates to future economic benefits arising from expected synergies achieved in the transaction. Such synergies include use of our existing infrastructure to support our health plan operations in South Carolina. We also recorded $22.9 million in intangible assets, as indicated in the table below. Accumulated amortization was immaterial as of September 30, 2013. We expect to record amortization of approximately $1.9 million per year in the years 2014 through 2018.

New Mexico.Consistent with our stated strategy to expand within existing markets,on August 1, 2013, our New Mexico health plan closed on its acquisition of the Lovelace Community Health Plan’s contract for the New Mexico Medicaid Salud! Program, under which Lovelace’sMedicaid members became Molina Healthcare Medicaid members and now receive their Medicaid managed services and benefits from our New Mexico health plan. As part of this acquisition, we also expect to addmembership currently covered under New Mexico’s State Coverage Insurance (SCI) program with Lovelace in the near future. Effective January 1, 2014, members in this program will ultimately be a) enrolled in the Centennial Care program as Medicaid members, or b) eligible to enroll in New Mexico’s health insurance marketplace. All members transferred from Lovelace will be able to continue with Molina Healthcare as the state transitions to the Centennial Care program. We expect the final purchase price for the acquisition to amount to approximately$53.5 million, of which$47.2 millionwas paid on the closing date. As of September 30, 2013, the New Mexico health plan's membership increased by approximately80,000members as a result of this transaction.

Because the number of SCI members we will ultimately retain was unknown as of the August 1, 2013 acquisition date, $2.4 million of contingent consideration was recorded for this SCI membership as of September 30, 2013. We believe the contingent consideration amount may decrease as we learn more about how many SCI members we will retain, but is unlikely to increase. The contingent consideration liability will be remeasured to fair value at each quarter until the contingency is resolved, with adjustments, if any, recorded to operations. We expect that the contingency will be settled in the second quarter of 2014.

We recorded $35.2 million in goodwill, which relates to future economic benefits arising from expected synergies achieved in the transaction. Such synergies include use of our existing infrastructure to support the added membership. We also recorded $18.3 million in intangible assets, as indicated in the table below. Accumulated amortization was immaterial as of September 30, 2013. We expect to record amortization of approximately $1.8 million per year in the years 2014 through 2018.

Florida. On June 30, 2013, our Florida health plan acquired assets relating to the Statewide Medicaid Managed Care Long-Term Care Program from Neighborly Care Network, Inc. The final purchase price for this acquisition was $3.3 million. Accumulated amortization as September 30, 2013, and future amortization for this acquisition are immaterial.

The following table presents assets acquired and the weighted average useful life for the major asset categories for the business combinations in 2013:

	Fair Value of Assets Acquired - Health Plans Segment
	Weighted average useful life	South Carolina		New Mexico		Florida		Total
	(Years)	(In thousands)
Membership conversion rights	12.0	$	21,800	$	—	$	—	$	21,800
Contract rights	10.6	—		18,300		—		18,300
Other finite-lived intangibles	7.7	1,060		—		990		2,050
Goodwill	—	42,140		35,223		2,332		79,695
		$	65,000	$	53,523	$	3,322	$	121,845

Acquisition costs relating to these transactions were immaterial individually and in the aggregate. The amounts recorded as goodwill represent intangible assets that do not qualify for separate recognition as identifiable intangible assets. The entire amounts recorded as goodwill are deductible for income tax purposes. Goodwill is not amortized, but is subject to an annual impairment test.