Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 21, 2011. I would now like to turn the conference over to Juan José Orellana, Vice President of Investor Relations. Please go ahead, sir. Juan José Orellana: Thank you, Andre. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the second quarter ended June 30, 2011. 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. Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act, including, without limitations, statements regarding expected rate revisions, enrollment in business growth, utilization and unit cost reductions, and an upward revision of our EPS guidance for fiscal year 2011. 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 for fiscal year 2010, our Form 10-Q quarterly reports and our Form 8-K current reports. These reports can be accessed under the Investor Relations tab of our company website or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of July 21, 2011, 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 molinahealthcare.com. I would now like to turn the call over to Dr. Mario Molina.

Thank you, Juan Jose. Hello, everyone, and thank you for participating on the call. Today Molina Healthcare reported earnings per diluted share of $0.38 for the second quarter of 2011. A 41% improvement over the second quarter 2010. We are pleased with these results, which reflect our continued strength and momentum in the Medicaid space, as well as the strategic benefits derived from our diversified business. Even more exciting, though, are the many opportunities over the next few years. These include upcoming Medicaid managed care procurements, ABD population expansions, dual eligible special needs plan expansions and MMIS procurements. With half of the year behind us, the close of the second quarter provides an appropriate point to review the progress of our business, and to talk about the developments since our most recent Investor Day, last January. At that time, we talked about the key measures of our financial performance: revenue, medical cost and administrative cost. Let's review each of these measures in greater detail and spend some time discussing the drivers behind each of them. Premium revenues in the second quarter grew approximately 16% over the same period last year. At our January Investor Day, we said that our revenue growth would primarily be driven by membership increases and membership mix as opposed to premium rate increases. Our results so far this year have been consistent with that expectation. So far, 2011 has seen an acceleration of the transition of the aged, blind and disabled beneficiaries into Medicaid managed care. During the first half of the year, we added 30,000 new ABD members in the Dallas-Fort Worth service area. As of today, we've added 5,000 new ABD members in California as a result of that state's expansion. We expect that our ABD membership in both Texas and California will continue…

Thank you, Mario. Earnings per share for the quarter were $0.38 and as Mario mentioned earlier, up 41% from a year ago. Net income for the quarter was $17 million or 65% over last year. I am pleased to say that this is the highest net income we've ever reported for a second quarter. In addition, the $34.8 million we report for the first 6 months is the highest net income we have ever reported for the first half of the year. EBITDA was up 37% over the same quarter last year. Operating revenue for the quarter was $1.2 billion, up $168 million, or approximately 17%, from the second quarter of 2010. Our health plans currently serve 1.6 million members. Our total enrollment grew by 147,000 members, or 10%, over the second quarter of 2010. That includes the addition of the Wisconsin plan, as well as the new CHIP and ABD contracts in the state of Texas. Medicare enrollment exceeded 26,000 members, up 29% from the same quarter last year. As Mario discussed, organic growth in our legacy states appears to be moderating. Premium revenue grew 16% in the second quarter of 2011, compared to the same period last year, due to membership and PMPM revenue increases of approximately 10% and 5%, respectively. Medicare premium revenue was $96 million for the first 3 months -- or for the 3-months ended June 30, 2011, compared with $68 million for the 3-months ended June 30, 2010. As we discussed in January, the rate environment remains difficult. Premium rate changes for the second half of the year are as follows: In Missouri, we received a blended increase of approximately 5%, effective July 1, 2011. In New Mexico, we received a blended reduction of approximately 2.5% effective July 1, 2011. In Utah, we received…

[Operator Instructions] Our first question comes from the line of Chris Rigg with Susquehanna.

Just want to make sure I understand the outlook. You did $0.75 in the first half of the year. That looks like it was negatively impacted by this acceleration of some cost in Idaho by the tune of about $0.09 to $0.10. Is it right to think that the core business is looking for sort of a 5-ish cent headwind in the second half of 2011? You know again, operating on the assumption that the MMIS business reduced earnings roughly $0.10 in the first half but that will not occur in the back half of this year.

Oh, boy. Chris, I hate -- you know I always hate to point to one thing or the other that magnifies it. When we look at the back half of the year, when I looked at what we had projected in January, which ones of those trends were coming in, in line or ahead so medical utilization was more favorable. I think if you go back to what we projected for MCR for the entire year, it was around 84.2%, 84.3%, somewhere in that neighborhood and we're already there. But we are looking at some pretty healthy -- we are looking at some changes to the downside in terms of rates in places like New Mexico, Utah and as I said, California and Texas have signaled downward.

Okay. What -- Florida should have some rate changes coming up this fall. What are you guys thinking you might see there at this point?

At this point, we don't know.

Okay, because they're looking at some, I think, hospital fee schedule reductions 4 to 10-ish percent, something along those lines. So do you think you can still come out with a net positive or a net negative or flat? Any directional sort of flavor you could provide would be great.

Hi, this is Mario. We have seen some decreases in utilization, which we're pleased with in Florida. We still think there's a rate problem specially in Broward County. So, we are looking to see what the state does to address those issues. We'll continue to work on lowering our cost as best as we can. But I think part of the Florida story depends on what they do with the premium rates.

Okay, and then my last question. It looks like -- is it fair to assume that, knock on wood, the worst will be behind you in Idaho after this, really in this -- through the second quarter of this year?

This is Terry. Yes. The fact that we've been able to exit pilot and we're a year or so post-go live much of the stabilization the system is underway, so we'll be looking forward to getting to more predictable operating levels going forward.

Our next question comes from the line of Josh Raskin with Barclays Capital.

Question for John, and I didn't hear it in the prepared remarks, but I see it in the press release. Just to what seemed to be one-time items, I guess, the first in Utah where you talked about the recognition of some premium revenue without any expenses in 2Q. I sort of size that at $0.09 and then there was another $0.02, this is my calculation, at least there's another $0.02 from the premium deficiency reserve reversal in Wisconsin, so I guess an aggregate of $0.11 in the second quarter. I'm just curious those 2 items, were they expected? Was that part of guidance or is that just part of the boost that we're seeing for the full year guidance? And how should we think about that as you were thinking about the second quarter?

It's Joe speaking. Obviously, when we gave guidance back in January, we knew there were going to be challenges in Wisconsin and there was an increment built into that point for the Utah settlement. We were anticipating that.

So both of those numbers were in the guidance?

Yes.

But there -- I guess just in terms of sort of just forward-looking, you would consider these to be one-time in nature, is that fair?

A lot of it is on Wisconsin, Josh, it's John. It depends on how Wisconsin actually performs in the back half of the year. If the performance for one reason rather improves then we might be able to reduce the liability we put in for the premium deficiency reserve. But at this point, we haven't put in anything more guidance on Wisconsin.

Got you. Okay, that's helpful. And then just Texas. It sounds like ABDs -- sounds like there's some challenges from an MLR perspective. And I guess Texas put out some financial information for all of you and the competitors in there. And it looks like your G&A ratio is actually trending a little bit above your peers as well. I'm just sort of curious because you're going through the RFP opportunities in Texas. How should we think about that performance in light of what is coming up in terms of awards? And maybe remind us how important financial performance is relative to their expectations and maybe where service ranks for you guys, et cetera.

Well, Josh, we talked about the Texas RFP, I think, in January. Obviously, Texas is a state that we put a lot of effort into, getting into it a number of years ago. And we've had some success in getting contracts for the rural CHIP and for the STAR+PLUS. So we are doing our best in Texas. Texas is not much different, I think, than Ohio was several years ago or than California was. We go through some challenges, we focus in on what needs to be fixed and we fix it, and look at Ohio now. Couple or 3 years ago, it looked pretty bleak. So we continue to invest in both our network, refining our network, medical management and fine-tuning the service so that we can achieve and maintain our NCQA accreditation because ultimately it's taking care of the patients that's the most important thing for us.

John, you understand because I can't ask about Ohio anymore. I have to start asking about Texas. And then last one, just in Idaho. I hate to sort of belabor this one. It sounds like you're out of the pilot phase, it sounds like now you can recognize or I guess you can bill for certain costs. Does that mean Idaho is break even until the big CMS approval or does it mean you're just getting a portion of your cost covered and it's still not going to keep you whole, I guess, the rest of the year?

Josh, it's Joe speaking. A couple of points. The exit from pilot is a milestone that's unique to the contract. And yes, the exit from pilot will trigger a milestone payment from the state to us. As far as the contract being break-even or not, essentially, after the adjustment we made at June 30, the contract is break-even going forward through the termination of its initial term. Obviously, after the initial term we expect it, like all of our MMIS contracts as they mature, to be considerably more profitable.

Okay, okay, so we're just waiting to -- sort of break even until we hear the next milestone.

No, essentially break-even as we project it now. Break-even through the termination of the initial contract.

Our next question comes from the line of John Rex with JPMorgan. John Rex - JP Morgan Chase & Co: I was just wondering if you could just give a little more color or specifics on exactly what those measures are you did undertake in Texas? And kind of what some of the most problematic areas are; you cited personal care services and such.

This is Terry. Let's also keep in mind that putting the ABDs in managed care in the Dallas-Fort Worth area was a first-time event for many of those folks, so this is an educational process. There are continuity of care requirements in the initial period of the contract where you are really not permitted by the state contract to make many changes. So as we do in all of the other markets, we're approaching our cost in 2 ways. One, is to improve our unit costs. Now that we're bigger, and we have some sense of what our enrollment is, we're in a position to negotiate better unit costs with our providers and that would include the home care providers, as well as others providing service and secondarily the utilization. So we are going full force to monitor the services that are authorized and ensure that they're in compliance with state regulation. And most of you know, this area has potential for abuse and we're committed to making sure that folks get the services they need and that are allowed under the state agreement. John Rex - JP Morgan Chase & Co: So is home care the biggest issue that you're seeing right now? I mean, if you, it is?

I'll tell you a little bit more about it. It's the personal care services arrangements by which folks who are in their homes instead of institutionalized are receiving more than what you might think of as traditional home care but any -- an array of services in the home. John Rex - JP Morgan Chase & Co: So should we think about it that you're finding instances of like 24/7 home care or something like that, and that's what you're dealing with or...

It's not always 24/7, it will depend on what the members' needs are. It might be need for assistance in daily living, support services during the day. John Rex - JP Morgan Chase & Co: Okay, and then just broadly, your other utilization commentary. I think similar to last quarter, I think you cited a decline in inpatient bed days. It looks like you're citing that this time also broadly across the book. Can you kind of spike out any specifics there in what you're seeing driving that?

This is Mario. I think it's a combination of a sort of a secular trend. I think everyone is seeing decreases in utilization. I think we've also been working to improve our medical management to be sure that we are having the right people in the hospital at the right time and eliminate overutilization. So it's a maturation of some of our medical management as well. But I think it's a combination of those 2. John Rex - JP Morgan Chase & Co: And Mario, is OB still having an impact there? Are you still seeing declining birthrates or has that stabilized and started trending up again?

No, the birthrates seem to be flat.

Our next question comes from the line of Scott Fidel with Deutsche Bank.

Just a first question just on the Medicaid Solutions business. And it might be helpful if you have an updated estimate on the cost of services ratio for the full year just given that the quarterly trends have certainly been bouncing around quite a bit on the margin side in that business in the last few quarters.

Hi, it's Joe speaking. I think if you will look at the second half of the year standalone, you might look to 10% to 12%.

Okay, that's helpful. Then second question, Mario, maybe if you can give us your latest read on the intelligence that you're hearing out of Washington. Just on the deficit reduction discussions and how those impact Medicaid. Clearly, events are moving by the second there, but maybe just a summary would be helpful.

Did you mention intelligence and Congress in the same sentence?

That I did and that was -- I don't know what I was thinking there but...

Well, the whole thing is really very much up in the air. I think there are things that could be done, like the acceleration of the movement of the Duals into managed care, that can really help with this deficit issue, at the same time providing the same or frankly better levels of care for the beneficiaries at a lower cost. One of the things we see with the Duals is that frequently, when they get into managed care, they have somebody to help them. And it's really interesting some of the calls we've gotten on our member services line, people saying things like, "I've never really had anyone help me before." So I think that is something that could be a win for the patients and a win for the budget. Beyond that, I don't really want to speculate as to what Congress is going to do.

Okay. Then just any updates you can give us on Louisiana. I know you don't usually talk about sort of bidding on a new business, but is it your expectation that we should hear an update on that on Monday?

You know I don't know what's happening with the bids in Louisiana, so I can't tell you.

Okay. Then just last question. Just going back to California ABD. Any initial sense of how the utilization is tracking down there? I know you just started ramping up there in June, but just any sense of initial cost relative to expectation? And then do you have an estimate for how much ABD membership you're expecting to have in California in the back half of the year?

Well, what I would say on that is that we've had ABD members on a voluntary basis in California for some time. We have contracts and networks put together. So it's a little bit different scenario than what you have in Texas where you rolled a lot of people into a new system. As far as we can tell right now, the utilization in California appears to be consistent with previous experience. As far as the estimates of the enrollment, we gave an estimate at the Investor Day and I think we're going to stick with that. That was about 12,000 members.

Our next question comes from the line of Ken Lavine with UBS.

As was referenced in the call earlier, to see that TANF enrollments have been largely stable since the latter part of 2010. I was just curious about the levers of that stable memberships just in terms of this -- do you see anything in terms of changes perhaps in the trajectory of monthly gross adds versus maybe being offset by people staying on Medicaid longer and if there's any kind of numbers you put around that?

This is Mario again. I don't want to get into specifics, but I think that generally speaking, what we have seen is a flattening out of the enrollment, and this reflects a modest improvement in the economy. At the same time, the requirement for maintenance of effort is also helping to maintain the current levels. I don't anticipate big changes either upward or downward over the next couple of quarters unless we were to take market share but I mean it's -- I think that the Medicaid population has stabilized and growth will moderate over the next few quarters.

Okay, I got it. It's helpful. And also in Ohio, you guys have done a great job there. The recent strong margins certainly look to reflect that. And I was just wondering how the impending RFP might change the margin trajectory there. Is this something that may drive some sort of margin reset to an extent in the first year of the renewal, assuming that you retain the business?

Ohio has not typically done a price bid in the previous RFPs that we've looked at, so we certainly will be going to a rate discussion with the state for an effective date of January 1. We are also anticipating the carve-in of the pharmacy benefit back in later this year. So those things will have some impacts that we really can't quantify at the moment.

Our next question comes the line of Brian Wright with Citadel Securities.

Could you just walk us a little bit through the decision to increase the completion factor to about 150 basis points year-over-year this quarter? Because it just seems a little at odds with the per-member inventory at the end of the quarter being flat year-over-year?

Are you talking about claims reserves, Brian? It's Joe.

Yes, exactly.

Yes. We developed our claims reserves essentially just based on what our actuaries develop and obviously reviewed by the actuary team of our independent auditors. I don't know that there is a specific intent to change completion factors. It is just more or less what falls out of the analysis. Obviously, days in claims payable is down, but I would also point out that our run out from 12/31/10 is again very consistent year-over-year.

Okay, and then lastly, with the potential -- if you just give us an update on the Louisiana or the MMIS contract down there. You're protesting it. So because it's under protest, you're not going to make any decisions as far as asset kind of impairment or anything like that until that protest is either won or lost or whatever? Is that?

Brian, it's Joe speaking again. Let me talk a little bit about that. A couple of points to bear in mind. First of all, even if we were to lose that contract, we're going to continue to serve the state while the new system is developed for several years. So we have -- when we lost the contracts, we did undertake a potential impairment analysis and that analysis as of today indicates that even if we were to lose that contract, we would not have any goodwill impairment of the MMIS goodwill.

Our next question comes the line of Carl McDonald with Citigroup.

Could you remind me on the 55,000 Medicaid lives in Florida, the breakdown between reformed counties and non-reform counties? I remember, in fact, I think the bulk of it is in reform counties.

Yes, I think it's about 60/40 reform and a big chunk of that's Broward County.

Okay. And is it right to think about the cost pressures that you're seeing in Florida relating primarily to the reformed counties? Or is it more widespread across the entire book?

I think that Broward County is front and center in terms of things that have to be addressed.

And then the other question is just, Utah has talked about some potential changes to their Medicaid program. It sounds like moving away from managed care to something else more like an accountable care organization. I'm just interested in your thoughts on that in terms of likelihood of that change happening and then also if it does, the timing around that.

Carl, I wouldn't say that that's 100% accurate. I mean, what the state of Utah wants to do is they want to put more members into risk environments. We are, right now, the only plan that's fully at risk in Utah. The other 2 plans that take care of Medicaid beneficiaries are not at risk. So it's really -- and they're provider-based systems. So the whole notion of accountable care organizations really is to draw those folks into a greater risk contract arrangement.

[Operator Instructions] Our next question comes the line of Sarah James with Wedbush.

It looks like there was somewhat of an uptick in physician and outpatient costs, and I'm wondering how much of this is pricing versus volume. And if it is volume, is this being driven by some new populations coming on or a possible shift of where people are choosing to get the care done?

Sarah, this is John. I think there's a couple of factors there. One, we did terminate some capitated contracts and moved them to fee-for-service so you would see an increase in physician and outpatient services. And then also with the increase in membership in Dallas for the STAR+PLUS, there's an lot of outpatient services. The personal care services that Terry talked about earlier would be classified as outpatient services. I think those are the 2 primary things. We're not really seeing across-the-board rate increases in physician unit cost.

And is there any update on some of the MMIS RFPs? I know Vermont and Arkansas were expected out around this time.

I'm sorry, Sarah, could you say it again, you kind of faded out at the end.

Sorry, I was wondering if there's any update on the MMIS RFPs possibly for Vermont or Arkansas?

Vermont had an RFP and they decided to pull it and are re-examining the direction they want to go. Arkansas, I think, is still in drafting if I'm not mistaken.

But it's really in the question. It's in the question period for bidders.

Our next question comes from the line of Charles Boorady with Credit Suisse. Charles Boorady - Crédit Suisse AG: First question, on Texas, just, you talked about the challenges there, and I'm just wondering how long they take to address and approximately when do you expect the loss ratio to get into your targeted range.

Charles, that's a really good question. I think that there's a certain amount of pent-up demand in Texas that we're seeing with the move of the STAR+PLUS patients into managed care. I think that there is a certain maturation that has to go on of that health plan in terms of gearing up their management systems. I think we're a little bit behind the curve there. And it will take in the order of a few quarters I would imagine. I can't give you an exact answer. It's going to be what it turns out to be. It's certainly getting a lot of attention and somebody mentioned about the resources. I think that we're putting a lot of resources into Texas right now. And part of that is not only to deal with the STAR+PLUS utilization that we're seeing in Dallas but also to build in preparation for the contracts that will come with the next RFPs. So there's some infrastructure building going on there as well. Charles Boorady - Crédit Suisse AG: Got it. And you used to show -- I remember a few Investor Days ago, you had a chart showing how as new lives aged, the loss ratios improved because of the sort of pent-up demand as they first enrolled. So is this sort to be expected, kind of a typical experience and one that we should expect with any start-up market in new populations coming in? Or would you also say that there is certain execution failures that you need to address, things that went wrong operationally that shouldn't have gone wrong?

Charles, first of all let me compliment you on your memory. That's pretty good because that was about 3 Investor Days ago we did that chart. I think that our expectation is that Dallas will follow the same pattern. I think where it's different in Dallas is that the initial spike is higher than we are used to seeing and that surprises a bit. But we're confident that as it follows the same pattern and we put in things like prior authorization for certain services as the cognitive care requirements come away and as we renegotiate contracts especially with the myriad of home care providers and sort of narrow the network down that we'll get some traction on the medical cost side.

This is Mario. I think there are a lot of parallels with what we saw in Ohio. Small health plans struggling with some growing pains. As the membership grows, we'll be in a better position to go back to some of the providers and get better contracts. I think that the medical management staff will mature over time. I also think it's an interesting contract with California because in California, you have mandatory enrollment of the ABD patients but we've already had voluntary enrollment. So there are some patients that have already enrolled on a voluntary basis and we have experience with them. We also have a much larger contracting base in California just because we've been here for a long time and have lot of members. So that's why I think California is a little bit different than what we're seeing in Texas.

And let me add one more thing and, not to beat a dead horse, but the Dallas contract is unique in that inpatient is carved out, behavioral health is carved out and pharmacy is carved out. That presents 2 challenges. One, it presents a challenge for folks to have to manage that to make sure that we're providing the right services and not providing services that the state has carved out and carved out really for the right sides. So it's also a challenge for the state to make sure that they've nailed the right side adequately. Charles Boorady - Crédit Suisse AG: So when we hear from Texas in a few weeks about your wins and we try to model your wins and the ramping up of some of these ABD lives with the new contract, is it fair to say that we should not expect the loss ratio to be quite this high? It should be high but not quite this high because of some of the unusual situations like the home care and other things that you talked about that affected this business?

I would say that that's a fair statement from about 50,000 feet. But then I'd also encourage you to come talk to us in September when we have our Investor Day because I would imagine that this would be one of the primary topics we'll talk about. Charles Boorady - Crédit Suisse AG: And Ohio, since Josh kind of -- he said that he can't ask about it anymore, I'll pick up that baton. You're doing great there, and I just want to confirm that's a calendar year end right before you get new rates. Am I right on that? And then what would you expect the state's response to be in light of your success there in keeping costs low. What would a normal loss ratio fee that you would expect going forward?

Well, normally-- well I should not say normally, the rate year for Ohio is a January to December rate year. It follows the calendar year. When we get the responsibility for pharmacy back in, and I believe it's October, there will be an adjustment for that benefit. When the states are setting the rates, individual health plan performance is a factor but it is not the only factor because there are other plans in Ohio that may be doing as well, better or worse than we are. So they've got to set a rate that's sort of across-the-board. I don't know what -- if Ohio has a targeted loss ratio or not. Charles Boorady - Crédit Suisse AG: Okay, and then just my last question. The drop in the days claims payable, I think, you addressed it a little bit. I'm not sure if I captured the essence of why it was down and whether you can share the prior period reserve developments that related to this year and that related to last year that were included in today's results.

Well, We always disclose prior period reserve development from 12/31 of preceding year and it's consistent with what we've seen in other years. 3/31 is a little bit immature right now to talk about. Charles Boorady - Crédit Suisse AG: Got it, okay. Can you tell us what you baked in, in the results you reported that related to 3/31?

We don't really look at it that way, Charles.

Our final question comes from the line of Scott Green with Bank of America Merrill Lynch.

So a question on Dallas. My understanding was that Amerigroup was managing some of these lives on an ASO basis before they transitioned to managed care? So I mean, did the population just have the traditional behavioral patterns of people in fee-for-service or what was that like when you brought some of those lives on?

Scott, I'm not aware of what Amerigroup was or wasn't doing in Dallas. So I can't comment on that. What we're seeing is, we are seeing some pent-up demand. We're seeing -- I think that one of the concerns was when folks found out about managed care and greater access to services, they utilized them. So whether that's ER or some of your primary care services or personal attendant services, we are seeing an increase in utilization for services.

And I think it's fair to say that the utilization patterns we're seeing in Dallas are different than what we are seeing in other parts of the state.

That's correct.

I mean, those are the factual things we can tell you. As far as what Amerigroup did, you can ask them when they have their call.

Okay, and they're different than other parts of the state just because it's an immature population or because of the home care stuff you described previously?

Part of it is the fact that it was fee-for-service before and other areas went to a more mature managed care market. Part of it is a different benefit pattern. I think in Houston, we have behavioral health carved in. So there are differences a lot in the contracts. That's why one of the nice things about the RFP is that it's going to be more uniform across the state in terms of the benefits that are carved in and carved out, and our responsibility will increase for things like inpatient and pharmacy.

Okay, all right. And then, are there any other states besides Michigan and Washington where members are transitioning to fee-for-service networks from capitation? Those were the only 2 out in the press release.

Because those were pretty big groups where we changed the contractual relationships. It happens to a lesser degree in other states, but Washington and Michigan had some pretty big groups that we did at transition.

And those are your re-contracting initiatives? I thought I remembered last conference call, you might have mentioned that the providers were increasingly preferring to participate in the fee-for-service networks instead of capitation?

That was the case in Michigan. I believe in Washington, it was just the economics didn't work out for us to continue the capitation contracts with those groups.

Okay. And so the MLRs in those markets actually fell sequentially. So you don't see when that transition happens to a fee-for-service network that just the incentives of the providers change and you see some utilization increase. You're not seeing any of that?

No.

Okay. So on the front page of the press release where you talked about fee-for-service and capitation cost up 2% sequentially. So I just wanted to make sure I understand that because there could be mix changes going on there too, but it is the way to think about that since the MLR excluding the Utah issue, the Utah payment that you received, and Texas, which is a new population. The MLR was essentially flat sequentially excluding those items, and I don't think rates changed sequentially between first quarter and second quarter. Is cost trend basically flattish sequentially? If your rates are kind of flattish sequentially and the MLR was flattish sequentially?

It's pretty flattish, yes.

And then for California, where you spoke about an expectation for a modest rate reduction. Is there any consideration in that for changes to the provider rates that were also proposed? Or is that a separate issue? Because I believe -- I recall in the budget proposal, there was a modest increase but also potentially a provider rate cut. So I'm not sure if you were netting those out or those are 2 distinct issues.

I think that those are 2 distinct issues. We know one and we don't know the impact. Or we've gotten information on one but not of the other. So that's why didn't explicitly say this is what California is doing to the rates.

Okay, but you said they're going down?

Correct.

We anticipate the premium rates will go down in California.

And then we're waiting to see on what happens with the provider rate issue?

Yes.

And you mentioned Broward County specifically a couple of times. I just wanted to make sure I understand. So is that a county potentially you would consider exiting if the rate update in September was not what you deem to be appropriate because before you kind of said that it's an investment market and you're going to stick it out like you do in other markets?

We need to see what happens with the rates for all of Florida and specifically for Broward County before we make decisions and want to call out that we may or may not exit the county.

This is Mario. Let me just also comment on that. When you look at the premium rates by county in Florida, they vary tremendously. And one of the things we're hoping the state will do is to come up with a little bit more uniform rates and spread the money around across all the counties. But having said that, we will give serious consideration to exiting Broward County if we can't get adequate rates. I mean, that's just the way it is. We've done that in the past in other states, in other areas. We're not afraid to leave a county if we have to. We will give it a good try. We'll work with the state and present our arguments as to why the rates need to be adjusted. But in the end, if the premium rates are just not adequate, we can't stay.

And Broward has been a challenging county. I think there are a couple of other health plans that exited in the last 12 months or so.

We're patient but there is a limit to our patience.

Okay, and you might be stress testing some of these limits as it relates to Broward. You're calling out Broward, it seems like. What -- can you tell us what the MLR is in Broward for your book?

No, we don't go down to that level of detail. We go to a lot of detail, but MLR by county is getting a little too granular.

Can you remind me how many lives you have in Broward?

On top of my head, I don't recall. I think it's about 60% of the total.

Yes, I think so. So it's probably 25%, 30%, 30,000.

Okay, because the MLR sequentially in Florida, it seems like it was basically unchanged up 35 basis points or so. But you're suggesting the Broward MLR deteriorated sequentially?

We're not suggesting anything right now. Broward is an issue. There are other issues in Florida that we're getting addressed. Some of these things that we're addressing are within our control, and some of them, like the rates are not completely in our control. So we are just going to work through the rate process and see what happens. Again, we'll update you when we have more information.

This concludes the question-and-answer session for today's call. I would now like to turn the call back over to Mr. Orellana. Please go ahead, sir. Juan José Orellana: Well, thanks everyone for joining us and as John mentioned, we will see you at Investor Day in September.

Ladies and gentlemen, this does conclude the presentation for today. We thank you for your participation and ask that you please disconnect your lines.