1179929--3/16/2009--MOLINA_HEALTHCARE

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A failure to accurately estimate incurred but not reported medical care costs may negatively impact our results of operations. The 2008- 09 recession and resulting pressures on state budgets may result in funding for Medicaid or CHIP that does not keep pace with the growth in member enrollment. There are numerous risks associated with the growth and operation of our Ohio health plan. If our government contracts are not renewed or are terminated, or if the responsive bids of our health plans for new Medicaid contracts are not successful, including the 2009 bids of our Michigan and Missouri health plans, our premium revenues could be materially reduced and our operating results could be negatively impacted. We derive our premium revenues from a relatively small number of state health plans. Portions of our premium revenue are subject to accounting estimates or retroactive adjustment. Our business may be negatively affected by major governmental health care reform proposals. In the event the grandfathering of the Medicaid managed care organization provider tax in the states of California, Missouri, and Ohio is not extended past September 30, 2009 or replacement state programs are not enacted, the Medicaid funds available for managed care organization in those states, including for our health plans, could be materially reduced. A sustained drop in the rate of interest earned on our invested balances could adversely affect our revenues. If we are unable to achieve our projected growth in Medicare members or our projected medical care ratio with respect to our Medicare program, our results of operations could be adversely affected. Failure to attain profitability in any new start-up operations could negatively affect our results of operations. Difficulties in executing our acquisition strategy could adversely affect our business. Restrictions and covenants in our credit facility may limit our ability to make certain acquisitions or reduce our liquidity and capital resources. Adverse credit market conditions may have a material adverse affect on our liquidity or our ability to obtain credit on acceptable terms. Ineffective management of our growth may negatively affect our business, financial condition, or results of operations. Any changes to the laws and regulations governing our business, or the interpretation and enforcement of those laws or regulations, could cause us to modify our operations and could negatively impact our operating results. Funding under our contracts is subject to regulatory and programmatic adjustments and reforms for which we may not be appropriately compensated. We face periodic routine and non-routine reviews, audits, and investigations by government agencies, and these reviews and audits could have adverse findings, which could negatively impact our business. Our business depends on our information and medical management systems, and our inability to effectively integrate, manage, and keep secure our information and medical management systems, or to successfully migrate our main data processing facility to the new facility we are constructing in New Mexico, could disrupt our operations. Because our corporate headquarters are located in Southern California, our business operations may be significantly disrupted as a result of a major earthquake. If we are unable to maintain good relations with the physicians, hospitals, and other providers with whom we contract, or if we are unable to enter into cost-effective contracts with such providers, our profitability could be adversely affected. Regulatory actions and negative publicity regarding Medicaid managed care and Medicare Advantage may lead to programmatic changes and intensified regulatory scrutiny and regulatory burdens. If a state fails to renew its federal waiver application for mandated Medicaid enrollment into managed care or such application is denied, our membership in that state will likely decrease. We face claims related to litigation which could result in substantial monetary damages. We are subject to competition which negatively impacts our ability to increase penetration in the markets we serve. If state regulators do not approve payments of dividends and distributions by our subsidiaries, it may negatively affect our business strategy. Unforeseen changes in regulations or pharmaceutical market conditions may impact our revenues and adversely affect our results of operations. Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results, and stock price. Volatility of our stock price could adversely affect stockholders. Members of the Molina family own a majority of our capital stock, decreasing the influence of other stockholders on stockholder decisions. It may be difficult for a third party to acquire our company, which could inhibit stockholders from realizing a premium on their stock price. We do not anticipate paying any cash dividends in the foreseeable future. Changes in accounting may affect our results of operations. Our investments in auction rate securities are subject to risks that may cause losses and have a material adverse effect on our liquidity. The value of our investments is influenced by varying economic and market conditions, and a decrease in value could have an adverse effect on our results of operations, liquidity and financial condition. An unauthorized disclosure of sensitive or confidential member information could have an adverse effect on our business.

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1179929--3/16/2009--MOLINA_HEALTHCARE_INC