Ladies and gentlemen thank you for standing by. Welcome to the Molina Healthcare Fourth Quarter and Yearend 2007 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). As a reminder, this conference is being recorded, Wednesday February 13, 2008. I would now like to turn the conference over to Mr. Juan Jose Orellana, Vice President of Investor Relations, Molina Healthcare. Please go ahead sir.

Thank you, Vanessa. 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 the year ended December 31, 2007. 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 several members of our executive team Dr. Mario Molina, our CEO, John Molina, our CFO, Terry Bayer, our COO, and Joseph White, our Chief Accounting Officer. Dr. Michael Seal, our Corporate Vice President and Medical Director will be sitting in for Dr. Howard, our Chief Medical Officer who is visiting our Michigan Health Plan this week. After the completion of our prepared remarks, we will open the call to take your questions. I also would like to remind you that our comments contain numerous forward-looking statements that are intended to take advantage of 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 that are subject to numerous risks, uncertainties, and other factors that could cause our actual results to differ materially. A description of such risk factors can be found in our press release or 10-K annual report and our 10-Q quarterly reports filed with the Securities and Exchange Commission. These reports can be accessed under the Investor Relations tab of our company website or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of February 13, 2008 and we disclaim any obligation to update such statements. This call is being recorded and a 30-day replay of the conference call will be available over the internet through the company's website at www.molinahealthcare.com. I would now like to turn the call over to Dr. Mario Molina.

Thank you Juan Jose and hello everyone. I hope you got the chance to read our press release which is comprehensive. As indicated by our results announced today, our fourth quarter performance represented a strong conclusion to the year. We accomplished a great deal in 2007 and our efforts translated in the consolidated full year earnings of $58 million or $2.05 per share. This figure represents a year-over-year increase in net earnings of 28%. Our results came in slightly ahead of our estimates and validated many of the assumptions we discussed at each of our investor days. As outlined in our press release, there were various factors contributing to our success in both the fourth quarter and full year. Generating these financial results are various operational achievements that are worth highlighting. These operational achievements can be grouped into three categories: Execution, Continuity, and Transparency. Let me briefly address each of these categories. Let's begin with Execution. In large part, our increased earnings can be attributed to higher revenues by holding the line on our medical care ratio. In our industry, managing medical care costs is a health plan's most fundamental form of blocking and tackling. In 2007, we continued to focus on basic medical management tactics that include re-contracting with providers, directing patients to cost-effective providers, implementation of care management programs, and the integration of new populations into our existing operations. The continued emphasis on basic management tactics is how we will succeed in 2008 and for the foreseeable future. The second category is Continuity. Essential to our success is a coherent and consistent approach in the execution of our business strategy. We have achieved our objectives as a result of our focus and the stability of our management team. If you have been following our company over the past…

Thank you, Mario. As Mario noted, results for the fourth quarter of 2007 and fiscal year 2007 showed an improvement over 2006 results. Earnings per share for the fourth quarter was $0.63 per share as compared to $0.41 per share for the fourth quarter in December 31, 2006. Additionally at year end, earnings were $2.05 per share as compared to $1.62 per share for 2006, a significant increase of 27%. These results are slightly better than our stated expectations of $1.90 to $2. Our results tracked very closely with the estimates and the assumptions we provided back on September 12. We were on target with our revenue estimate. We did better than anticipated on our medical care ratio, and initiative costs were slightly higher due in part to Medicare. Our 2007 fourth quarter revenue includes the benefit of higher enrollment at our New Mexico, Ohio, and Texas Health Plans and the acquisition of Mercy Care Plus in Missouri. These increases offset the termination of operations in Indiana and reduced membership in Utah and Michigan. Our medical care ratio decreased from 85.1% in the fourth quarter of 2006 to 83.6% in the fourth quarter of 2007. This is an improvement of 150 basis points year-over-year, and 10 basis point improvement over the prior quarter in September 30, 2007. This improvement comes from stable utilization, lower medical care ratios in the Ohio and Texas health plans, and the termination of operations in Indiana. General and administrative expenses in the fourth quarter were 11.8% of total revenue or $81 million as compared to 11.1% of total revenue for the fourth quarter of 2006 or $61 million. Core G&A expenses defined as G&A expenses less premium taxes increased to 8.8% of total revenue for the fourth quarter of 2007 as compared to 7.9% for…

Thank you. (Operator Instructions) Our first question comes from the line of Joshua Raskin of Lehman Brothers. Please proceed with your question.

Thanks, good evening. First question, it looks like you are talking about $10 million in investment in Medicare in 2007. I am curious what the expectations in terms of 2008, where you think you are going to be expanding in 2009? How would you think about that investment level?

Well, Josh, I think that we are not planning to do as major of an expansion on 2009 as we did in 2008. We talked about adding the MAPD in all the markets, and we entered two new markets, those being New Mexico and Texas; and we did bring in a more experienced management team in the fourth quarter. We will continue to see investment in Medicare because it is a product that, for the long term, we believed in. We think it fits very well with our profile but I do not expect to see the same sort of ramp up as we did in 2007.

Got you, that makes sense. And then the second question on Tennessee. Could you just run us through the relationship that you guys are forming with the UAHC, and how the economics play out? Is that just in investment; should we think about that as earnings in equity in an affiliate or is there going to actually be a P&L impact? How do we sort of think about that?

Well, let me start with saying that when we looked at the Tennessee opportunity we thought it was important to link arms with a group that has got experience in the Ten Care Program, and that partner was United American Healthcare. They have been in Western Tennessee for 12 years. We are operating together a joint bid and we will be finalizing our definitive renewal with them before that bid is in place. So, I really do not want to get into the economics of the deal until we are able to have a full sign up on that, but it would be our intention to make sure that, that agreement aligns our objectives with the United American's. So it will not be just a passive investment for us. We will be providing some administrative service for them so that we can work on this project jointly.

Okay, that's all. Once you get the contract, you feel that you will get that settled. And then just a last question, I know you are not updating the guidance in light of this, it have been provided a couple of weeks ago, but you had mentioned investment income is one of the mentioned opportunities and challenges which suggested a quarter point, and the interest rates was about $1.8 million; and then I believe that did not include the FED’s action; I believe it was either that day or the day before of 75 this cut. I am just curious. Is this sort of confirming the guidance? There are still some plusses and minuses, and maybe that's a little bit of a hurt but we feel better somewhere else, or just how do we think of that?

I think that's a good assessment of it, Josh. I want to focus for a second on the investment side to this. We had a number of questions raised about this. We did build in the guidance some assumptions that rates would decrease throughout the year. So embedded in the guidance is a lower rate of investment returns on our investment. So although we did not factor in a 75 point cut that happened the day after that we gave guidance, or day after guidance, we did factor in some decrease throughout the year. And I think on balance right now, it's too early to tell if that is going to go up or down throughout the year. So we feel comfortable, and which is why we put in a range and not a standby point.

Okay.

Yeah, Josh, just to get back on that. We disclosed when we did the guidance. We were assuming a 4% rate of return for our investments and on the fourth quarter, we ran around a little low; it ran around 5%. So obviously we built in some cuts into that originally, into that guidance we did last month.

Got you. That's helpful. Perfect. Thank you.

And our next question comes from the line of Scott Fidel of Deutsche Bank. Please proceed with your question.

Thanks. Good evening. First question, just around Ohio and maybe can you talked about just what your expectations, I know it is early here in terms of enrollment. You may pick up from the WellPoint exit and then, how would you think about that impacting your MLR on expectations for Ohio and then maybe, would you expect that it aggregates the accretive work, diluted in terms of the WellPoint membership here or of Ohio business this year?

If I recall, Scott, in the central region which is the only region that we overlapped WellPoint, they have about 40,000 members. So I do not know at this point how many of those members we are going to get, how many of them will first have the opportunity to choose a health plan between Molina and Care Source, and then how the state is going to distribute the rest of them. So it is really too early in the course to tell. We will know sometime in April, I think, is when the final rollout is done as we have seen our CFC members run a medical care ratio slightly below what we are expecting for the entirety of Ohio to be (inaudible). I think we said the CFC runs about 86% and we are expecting 88% for the year. So it may have an impact, just to bring the average down a bit. But we also do not know what the characteristics of the population coming over from WellPoint are.

Okay. And then just a follow-up question just on California. Please, could you give us an update on where the governor stands with this current proposal in the budget around medical, in terms of rates for health plans and providers and what your expectations are of actually seeing those proposals actually coming to fruition?

Yeah this is Mario. I don't know if any further information beyond what the governor originally proposed. There has been some information that I have gotten the last couple of days that the California Medical Association, as you might expect, intends to vigorously oppose those changes, but beyond that we have no new information.

Okay, and then if you could just give us an update on the Mercy Care acquisition and on how the integration is proceeding there. Are there any change on views to the accretion there and then how you see enrollment tracking relative to - what are your expectations in terms of counties that may expand to Missouri for 2008?

The integration of Mercy CarePlus is tracking according to our plan and we are training them as we do supporting them as we do all of other health plans. As you know, some of the counties dropped out because there weren't adequate bids. We were approved in the 17-county expansion and we are still awaiting word on the Insure Missouri Initiative. So we do not have any additional information at this time as to how that enrollment will come in.

Okay. Thank you.

Our next question comes from the line of Darren Miller of Goldman Sachs. Please proceed with your question.

Hi good evening. Thank you. A question on the Ohio ABD MCR. Two questions. What was the MCR last quarter and then in terms of the 97% this quarter. Is that a target that you are booking to at this point?

Can you repeat the last part of your question?

On the Ohio MCR, the 90.7%; is that from target that you are booking to considering that this is a newer population or is that your best estimate of what the actual medical cost are running at?

This is Joe speaking, Darren. I think John touched on the facts. We do not have quite the clarity into that given the limited history there, but I think it is a combination of a target combined with just what we are now. We are getting claims data in. So I would not say that this is purely a target.

I think the way you think about this, they tell me, are new. Anytime we can get a new population …

…you are talking about a spectrum. So, on the one hand you got almost a pure target, which is probably what we would use when we started with the ABD population in Ohio because that had virtually had no data. On the other end of the spectrum, it is purely based on historic confirmation. So we are moving from the pure target ratio down to market claims experienced base, but we are not there yet.

And what was the last quarter?

(I do not believe we just closed that did we?) The last quarter we have not yet but I think we can talk about it. The last quarter, we were at 94.4% for ABD in Ohio.

Anything particular that moved it up; some 300 base points this quarter?

It is essentially seasonality.

In terms of your snip enrollment, could you just give us a little color on how that is progressing so far this year, and just in terms of what you are seeing in the way of competition?

I think there is lots of competition but we have been pleased so far with the growth of our Medicare enrollment. It has not been spectacular but it has been steady and it has been good for us so far.

All right. Thank you.

Your next question comes from the line of John Rex of the Bear Stearns. Please proceed with your question.

Thanks. The first, I have a question on the Washington market. I believe in the last quarter you are talking about the kind of unsustainability, the loss ratio of that market. They got better again, at least sequentially on…; for a couple of things on that. I believe your rate increase was effective January 1, 2008, if I am not mistaken. So it seem like they get better from here. I guess the second point was at one point, you are referring to Q4 as being more challenging because of the impact of the lack of rate increase in Q4 and how they have handled the fees scheduled on that market. So, I just want to get a little color of what is going on in that market and how you should be thinking about it for 2008.

We were concerned, as you recall in investor date because there were some fee-scheduled changes and there was not a commensurate rate increase. However, we have Dr. Siegel here from an adventure a little bit on the medical utilization side. The Washington plant has done an extremely good job of managing the pregnancies and the low birth weight babies, and that has been a very big financial impact for us in the Washington plant year-over-year. Investments grade programs are up there and we have seen the decrease in our NIC utilization. I think, John, that we did get a rate increase as we said in Washington of about 5% effective January 1, 2008 and I believe commensurate with that, there will probably be some provider changes. So we are not expecting that 5% to drop to the bottom line.

Yeah. Furthermore, I think you need to be aware that there are changes in seasonality as well. So, we may see some increase in hospital utilization. The thing that we did well in the fourth quarter was we had a low utilization in the hospital services for Washington.

But I guess at this point, in the light of the rate increase effective January 1, we should probably expect that this loss ratio still stays in the high 70s rather than getting it into the 80s. Would that be a correct assumption?

You know, I think we are going to have to stick with our guidance and I do not think that we are really anticipating that the numbers were going to go down. I think that we are fortunate that we had a strong fourth quarter but utilization was lighter than we anticipated and I would not expect that necessarily to go on.

Okay. The next, in California and the enrollment there; was that all about San Diego? In terms of the enrollment increase in that market?

No, we also did. As Mario have said, one of our competitors in Sacramento County left that market and we actually ended up picking up purchasing their Sacramento contract; that was about 4,000 members in Sacramento.

In Sacramento. And when did you pick up in San Diego again?

The San Diego you are talking about or in advance, so what you are seeing there, John, is if you are looking between September 30th and December 31st, we are seeing about 4,300 members, I think, coming on to the acquisition in Sacramento, and the rest is just organic growth.

Okay. Alright.

That is where you see some improvement there in the growth side lately.

Okay. Thank you.

And our next question comes from the line of Carl McDonald of Oppenheimer. Please proceed with your question.

Thank you. Just a couple of more Ohio questions. The first is on terms of the CFC roughly 86% loss ratio projection, can you please remind us if there is any seasonality we should think about in terms of the fourth quarter number of roughly 86% and then also what the rate action was for the population in ’08?

I think the seasonality, Carl, we have been in Ohio for I think now five quarters more, this quarter is more or less; so it is hard to really judge that it is a one time quarter seasonality but generally speaking, the fourth quarter and the first quarter tend to have the highest medical process for us. Secondarily, our CFC rates for Ohio were basically flat but we have talked about some re-contracting efforts that our plan did during 2007. Most of those will take effect either January 1, 2008, I think a couple of them took place in the fourth quarter and maybe a little bit too early to see the effect of that, but see how it would be better for us in our confidence and the Ohio rate targets, our MCR targets rather, is the re-contracting and the utilization improvements that we are seeing.

Yeah. We also think there would be some improvements in the pharmacy side as well.

This is the second question, it is just a followup in terms of the potential impact to the loss ratio, were you would have picked up some membership from WellPoint. I guess the CFC, overall, is lower than the consolidated but I also remember the central region, or at least I recall the central region is having a higher loss ratio potentially than from any other regions given the specific provider environment in that region.

We really do not break out the medical care ratio by regions but I will say that the central region was one of the primary areas that we have refocused on and we are able to re-negotiate a couple of the big provider contracts there.

Also remember that roughly half of the CFC membership is in the central regions so it is a big part of our numbers right now, on the yearly average basis.

Our next question comes from the line of Mike Lee of (inaudible) Boston. Please proceed with your question.

Yeah, hi. Sorry I hear your situation but at the moment, I do not have any background with. When I think of your company, I guess I think of the Hispanic population and, lately, the western part of the country, I was really surprised when I saw this deal with United American Health Care, sorry, which is basically a Southern African-American. Is this what you guys are really interested in broadening in that marker or maybe you are already there, I do not know. Did they contact you or did you contact them, I mean I was a little surprised, maybe I do not know that about your company when your name showed up.

Well we currently have operations in nine states; the ethnic background of our members varies widely from various locations from state-to-state, even within a state. In California, over half of our members are Hispanic but in other markets, that is not the case. We are interested in serving low-income families and individuals through government programs like Medicaid, SCHIP, and Medicare without a particular geographic bias. So we are in Michigan but we are also in Texas; we are in New Mexico, Nevada, and Washington; so we cover a pretty good distribution of the states.

I mean did you contact them or were you interested in getting into that market in those areas, in that area?

Well one of the things we have talked about in some of our investor days is the criteria that we use in identifying new market entries, and certainly Tennessee fits the criteria; it has a large Medicaid population for mandatory enrollment state….

Do you think that the state would make a good partner? So those are the kind of things that we are looking at and…

So you are not just going to say, which is a perfect state for Medicare?

It certainly fits the profile.

Yeah, I see. I got it. Alright, thank you very much and good luck.

Thank you.

Thank you. Our next question comes from the line of Gregory Nersessian - Credit Suisse, please proceed with your question.

Hi, good evening. My first question has something to do with the capital infusion in Ohio or whether in the other states. Is that based on having losses in Ohio in 2007, is that a Department Of Insurance requirement based on losses in 2007 or is that based on projected losses in 2008, and I guess there is a risk for further capital infusions in 2008.

Okay, Greg, it is Jo. You know, we have been talking about this since we went in to Ohio, that rapid growth of enrollment, of course, triggers with it medical care costs which are the basis for the risk-based capital calculation the Ohio regulators hold us to, is that 300% of the risk-based capital requirement by Ohio regulation. A typical state is 200%. So it is a very capital intensive regulatory environment there, and this is pretty much in line with what we had been talking about the last year or so just in terms of what would be required there. Anyway, if were half the growth next year that we have this year, we would have to put up much more money in; we would like that opportunity but we do not see it happening. So I think you can just view this as had bringing Ohio up to the requirements per plan of their size. Remember, we do not have to find those regulatory requirements until December 31 of every year.

Okay, I see.

If you go back to our schedule, you will see that we almost doubled our Ohio enrollment, but the important thing to note is the majority of the new membership we got this year came at the higher premiums because of ABD members.

Alright, okay. So it is a function of your growth in the state, not necessarily your financial performance?

Yeah, it is all work related.

Okay, and then you mentioned the lower (inaudible) on the Star Plus. I guess maybe if you could just provide a little bit more color on what drove that lower NLR and why you think it is going to move higher in 2008?

Greg, this is Joe speaking. You know, frankly, we are a little bit puzzled by the cost associated with those rates ourselves. It is a pretty good environment there for us even in the Star area, it is just that the Star Plus line really stands out because it is proportionately so much more of our revenue there. I think that this points to a lot of what we have talked about in the past; the uncertainty, the moving into new markets. Star Plus, is essentially a new product from an MHO perspective, and that always creates uncertainty in the rates that the states are going to pay us. We tend to focus on some-times fees; what if the rates are set too low? Perhaps, sometimes the rate can be set too high. I just think it is a practical matter if those rates are simply not going to be sustainable in turn.

So is a function of the rates that you are getting related to the rates that you are paying providers, not necessarily a function of utilization being…?

Well, no. Actually the patient is part of it. I think all of that factors in.

Okay, this is a last quick one. I am just curious if you have seen any indication of a spike in flu-related activity. I know a couple of years ago you had a stronger and later flu season, and that fact is in the first quarter results. Any sign that that may have been the cases this year?

This is Dr. Siegel, we are seeing increase in terms of across the country, the flu epidemic, and in our own population we are seeing an increase in respiratory illness, not necessarily related to the flu. So, at this point, we still are in a watchful waiting mode and we have a lot of confidence in the fact that we had a flu initiative last year, we have a flu initiative this year which was really enhanced over last year and we are, and hoping that there will be some impact from those increased activities around flu prevention.

Okay, great. Thank you.

(Operator instructions) Our next question comes from the line of Matthew Perry of Wachovia, please proceed with your question.

Hi, good afternoon. Most of my questions were answered but I do have One Question. Two part question, actually. Did you give guidance for a 2008. MCR in California?

No. Generally speaking, Matt we do not state-specific MCR guidance. However,we did go in a lot of details in Ohio because a lot of folks were asking us about Ohio.

Sure. And if I think about California, 88% MCR in ‘06 down to something like 82% in ’07 maybe 100% due to rate increases butif we think about the long term outlook in California and if we look back at the history, I guess the question is do you think that MCR down at that 82% level is sustainable for any long period of time?

I think what we have said in the past is that, I think our guidance reflects this, that we think an MCR in the mid-80’s is probably appropriate and as you have seen numbers can fluctuate from year-to-year, from state-to-state, you really need to look at the aggregate. And while one plan might have an increase this year, another plan might offset it with a decrease. And what of the things we want to emphasize is it is really important to look at the over all consolidated numbers, not focused excessively on one plan or another.

Sure. And actually one final question. Correct me if I’m wrong here but I know you have some growth in your snip plans, am I remembering incorrectly, didn’t you offer a few traditional Medicare Advantage Plans targeted at new people slightly above the medicated kind of qualification and could you comment on how those might have been doing?

This is Terry, you are correct. So let us just review. Effective January 1, 2008, we are operating in seven states, not only (inaudible) or dually eligible plan, but we did enter the market focusing on the lower income beneficiaries that would be appropriate for our delivery system. So we are still in that marketing opening moment period though members in what you are calling regular Medicare are still free to select plans through the end of March.

Ok. Alright. Thanks.

Our last question comes from the line of Mr. James Charlotte of Steifel Nickolaus. Please proceed with your question.

Thanks. Do you remain interested in the Tennessee Eastern Region, as well as the West?

We are looking at the Tennessee Eastern Region.

And I have a follow up on New Mexico, (inaudible) guidance it seems that second half that you retained current membership at 85% NLR. Also, I’m assuming you are retaining the same PMPM on those people?

I believe so, no rate increases.

This is Jo speaking, there was no rate increases (inaudible) in that.

Ok. Thanks.

There are no further questions, I’ll now turn the call back over to you.

Thank you very much for joining our call. I will talk to you next time.

Ladies and gentlemen this concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.