Business Combinations

9 Months Ended

Sep. 30, 2020

In the third quarter of 2020, we closed on two business combinations in the Health Plans segment, consistent with our strategy to grow in our existing markets and expand into new markets. For both transactions, we applied the acquisition method of accounting, where the total purchase price was allocated, or preliminarily allocated, to the tangible and intangible assets acquired and liabilities assumed, based on their fair values as of the acquisition dates. We expect to complete the final determination of the purchase price allocations as soon as practicable, but no later than one year following the closing date in accordance with Accounting Standards Codification Topic 805, Business Combinations. The table below illustrates the intangible assets acquired, by major class, for the two acquisitions. Acquisition-related costs were insignificant.

New York. On July 1, 2020, we closed on the acquisition of certain assets of YourCare Health Plan, Inc., a Medicaid health plan, for a cash purchase price of $42 million. In connection with this transaction, we added approximately 47,000 Medicaid members in New York. We recorded goodwill of $31 million for this transaction, which is deductible for income tax purposes. The goodwill recorded relates to future economic benefits arising from expected synergies to be achieved, including the use of our existing infrastructure to support the added membership.

Kentucky. On September 1, 2020, we closed on the acquisition of certain assets of Passport Health Plan, Inc., a Medicaid health plan. Effective on that same date, the Kentucky Medicaid agency approved the novation of Passport’s Medicaid contract to Molina Healthcare of Kentucky, Inc. As a result, we added approximately 325,000 Medicaid members in Kentucky. As of September 30, 2020, the purchase price allocation was preliminary due to the proximity of the acquisition date to September 30, 2020, and the time and level of effort required to develop fair value measurements for the assets acquired and liabilities assumed.

The estimated total purchase price of $60 million includes our initial cash payment of $20 million in September 2020, plus estimated contingent consideration which consists primarily of an amount due to the seller for members we enroll in the open enrollment period for the 2021 plan year, over a minimum threshold, which resulted in an initial contingent consideration liability of $40 million. We expect to settle this liability in the first quarter of 2021. Contingent consideration liabilities are remeasured to fair value at each quarter until the contingencies are resolved with fair value adjustments, if any, recorded to operations. See further information in Note 5, “Fair Value Measurements.” We recorded goodwill of $27 million for this transaction, which is deductible for income tax purposes. The goodwill recorded relates to future economic benefits arising from the assembled workforce, and the future growth associated with the member contract rights that are incremental to the contract rights identified.

The following table presents the intangible assets identified in the transactions described above. The weighted-average amortization period for the identified intangible assets, in the aggregate, is 10.7 years.


	Fair Value		Life

	(In millions)		(Years)
Intangible asset by type:
Contract rights - member list	$	24	5	-	10
Trade name	15				16
Provider network	8				10
	$	47