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Fair Value Measurements
 9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
We generally consider the carrying amounts of current assets and current liabilities to approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to the three-tier fair value hierarchy. For a description of the methods and assumptions that we use to a) estimate the fair value; and b) determine the classification according to the fair value hierarchy for each financial instrument, refer to our 2019 Annual Report on Form 10-K, Note 4, “Fair Value Measurements.”
As of September 30, 2020, our Level 3 financial instruments recorded at fair value on a recurring basis included contingent consideration liabilities of $40 million, in connection with the Kentucky acquisition described in Note 4, “Business Combinations.” Such liabilities are reported in “Accounts payable, accrued liabilities and other” in the accompanying consolidated balance sheets. The fair value of the contingent consideration was estimated using a
simulation-based option pricing model through the end of the measurement period of approximately 5 months, and included certain non-observable inputs. The key assumptions included a U.S. Treasury based risk-free rate of return, expected asset volatility of 35%, expected revenue volatility of 9%, forecasted membership enrollment, and other estimated revenue, asset and payment correlations and discount rates. The model produced an estimated range of undiscounted amounts Molina could pay under the contingent consideration arrangement of $25 million to $75 million.
Our financial instruments measured at fair value on a recurring basis at September 30, 2020, were as follows:
Observable InputsDirectly or Indirectly Observable InputsUnobservable Inputs
Total(Level 1) (Level 2) (Level 3)
 (In millions)
Corporate debt securities$1,041 $— $1,041 $— 
Mortgage-backed securities417 — 417 — 
Municipal securities168 — 168 — 
Asset-backed securities136 — 136 — 
Certificates of deposit5 — 5 — 
U.S. Treasury notes2 — 2 — 
Total assets$1,769 $— $1,769 $— 
Contingent consideration liabilities$40 $— $— $40 
Total liabilities$40 $— $— $40 
Our financial instruments measured at fair value on a recurring basis at December 31, 2019, were as follows:
Observable InputsDirectly or Indirectly Observable InputsUnobservable Inputs
Total(Level 1)(Level 2)(Level 3)
 (In millions)
Corporate debt securities$1,178 $— $1,178 $— 
Mortgage-backed securities420 — 420 — 
Municipal securities78 — 78 — 
Asset-backed securities127 — 127 — 
Certificates of deposit1 — 1 — 
U.S. Treasury notes86 — 86 — 
GSEs49 — 49 — 
Other7 — 7 — 
Subtotal1,946 — 1,946 — 
Call option derivative asset29 — — 29 
Total assets $1,975 $— $1,946 $29 
Conversion option derivative liability$29 $— $— $29 
Total liabilities$29 $— $— $29 
The net changes in fair value of Level 3 financial instruments were insignificant to our results of operations for the nine months ended September 30, 2020.
Derivatives
The following table summarizes the fair values and the presentation of our derivative financial instruments in the accompanying consolidated balance sheets:
Balance Sheet LocationSeptember 30,
2020		December 31,
2019
 (In millions)
Derivative asset:
Call optionCurrent assets: Prepaid expenses and other current assets$— $29 
Derivative liability:
Conversion optionCurrent liabilities: Accounts payable, accrued liabilities and other$— $29 
For additional information regarding our derivative financial instruments, see Note 11, “Debt,” and Note 12, “Derivatives,” in our 2019 Annual Report on Form 10-K.
In the first quarter of 2020, we received $27 million for the settlement of the call option derivative asset, and we paid $39 million to settle the outstanding $12 million principal amount of the 1.125% Convertible Notes, and settle the related conversion option. For more information, refer to Notes 8, “Debt,” and 9, “Stockholders' Equity.”
Fair Value Measurements – Disclosure Only
The carrying amounts and estimated fair values of our notes payable are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets.
 September 30, 2020December 31, 2019
Carrying
Amount		Fair ValueCarrying
Amount		Fair Value
 (In millions)
4.375% Notes
$789 $816 $— $— 
5.375% Notes
697 731 696 745 
4.875% Notes
327 337 327 340 
Term loan facility (1)
— — 220 220 
1.125% Convertible Notes (1)
— — 12 42 
Total$1,813 $1,884 $1,255 $1,347 
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(1)For more information on financing activities, refer to Note 8, “Debt.”