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Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Marketplace Risk Adjustment Program
On July 7, 2018, the Centers for Medicare and Medicaid Services (CMS) announced that a February 28, 2018 ruling in the U.S. District Court for the District of New Mexico prevents CMS from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year, until the litigation is resolved. In light of a contrary decision by the U.S. District Court for the District of Massachusetts, the government moved the New Mexico district court to reconsider its decision, and CMS is currently awaiting the court’s ruling. On July 30, 2018, CMS published in the Federal Register the final rule that reissues, with additional policy explanation, the risk adjustment methodology that CMS had previously established. Due to the reissuance of the rule, the risk adjustment program for the 2017 benefit year will proceed, with solely a one-month delay — from August 2018 to September 2018 — in collection settlement. 
As reported in Note 2, “Significant Accounting Policies,” our Marketplace risk adjustment payable amounted to $1,159 million as of June 30, 2018, and is reported in “Amounts due government agencies” in the accompanying consolidated balance sheets.
California Medicaid Expansion Risk Corridor
In the second quarter of 2018, California health plans participating in the Medicaid Expansion program received unofficial and unverified information that CMS did not approve premium rates for the state fiscal year ended June 30, 2017. It is our understanding that, as a condition of approving the rates, CMS may require the application of a risk corridor similar to the risk corridor that was in effect for periods prior to July 2016. The risk corridor for that prior period applied a minimum medical loss ratio (MLR) of 85% and a maximum MLR of 95%. It is our understanding that the state of California is currently evaluating what actions it will take, if any, with respect to the 2016-2017 rates and risk corridor issue. The potential impact of retroactively reinstating a minimum MLR requirement, if effected, would be a reduction to premium revenue relating to 2016 and 2017. Such an adjustment for these prior periods, if effected, could have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Regulatory Capital Requirements and Dividend Restrictions
Our health plans are subject to state laws and regulations that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state. Regulators in some states may also attempt to enforce capital requirements that require the retention of net worth in excess of amounts formally required by statute or regulation. Such statutes, regulations, and informal capital requirements also restrict the timing, payment, and amount of dividends and other distributions that may be paid to us as the sole stockholder. To the extent our subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based on current statutes and regulations, the net assets in these subsidiaries (after intercompany eliminations) which may not be transferable to us in the form of loans, advances, or cash dividends was approximately $2,008 million at June 30, 2018, and $1,691 million at December 31, 2017. Because of the statutory restrictions that inhibit the ability of our health plans to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by the parent company—Molina Healthcare, Inc. Such cash, cash equivalents and investments amounted to approximately $350 million and $696 million as of June 30, 2018 and December 31, 2017, respectively.
As of June 30, 2018, our health plans had aggregate statutory capital and surplus of approximately $2,152 million compared with the required minimum aggregate statutory capital and surplus of approximately $1,180 million. All of our health plans were in compliance with the minimum capital requirements at June 30, 2018. We have the ability, and have committed to provide, additional capital to each of our health plans as necessary to ensure compliance with statutory capital and surplus requirements.
Legal Proceedings
The health care industry is subject to numerous laws and regulations of federal, state, and local governments. Penalties associated with violations of these laws and regulations include significant fines, exclusion from participating in publicly funded programs, and the repayment of previously collected revenues.
In the ordinary course of business we are involved in legal actions, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. We have accrued liabilities for certain matters for which we deem the loss to be both probable and reasonably estimable, but the outcome of legal actions is inherently uncertain and our estimates of such losses could change as a result of further developments of these matters. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery or factual development to enable us to reasonably estimate a range of possible loss. An adverse determination in one or more of these pending matters could have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Steamfitters Local 449 Pension Plan v. Molina Healthcare, Inc, et al. On April 27, 2018, the Steamfitters Local 449 Pension Plan filed a class action securities complaint in the Central District Court of California against the Company and its former executive officers, J. Mario Molina, John C. Molina, Terry P. Bayer, and Rick Hopfer, Case 2:18-cv-03579. The complaint purports to seek recovery on behalf of all persons or entities who purchased Molina common stock between October 31, 2014, and August 2, 2017, for alleged violations under Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. The plaintiff alleges the defendants misled investors regarding the scalability of the Company’s administrative infrastructure during the identified class period. The Company believes it has meritorious defenses to the alleged claims and intends to defend the matter vigorously.
States’ Budgets
Nearly all of our premium revenues come from the joint federal and state funding of the Medicaid and Children’s Health Insurance Program (CHIP) programs. The states and Commonwealth in which we operate our health plans regularly face significant budgetary pressures.