Q3 2021 Bright Health Group Inc Earnings Call
Okay.
Hello, and welcome to Brighthouse grapes that cool Chow 2021 earnings conference call.
My name is Lauren and I'll be coordinating youku today.
If you would like to ask a question. During your presentation you may G site by dialing into the culture at school impression staff, Mitch Boardwalk and your telephone keypad.
I will now turn the call over to the Brighthouse great.
Good morning, and welcome to bright health groups third quarter 2021 earnings Conference call. A question answer session will follow bright health group's prepared remarks as a reminder, this call is being recorded leading the call today are bright health groups, President and CEO, Mike <unk>.
CFO and Chief administrative officer, Cathy Smith.
Before we begin we want to remind you that this call may contain forward looking statements under U S. Federal Securities Law. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports.
That we file with the Securities and Exchange Commission, including the risk factors in our current and periodic reports, we file with the SEC, except as required by law, we undertake no obligation to revise or update any forward looking statements or information.
This call will also reference non-GAAP amounts and measures a reconciliation of the non-GAAP to GAAP measures is available in the Companys third quarter press release available on the company's Investor Relations page at investors that bright health group Dot Com <unk>.
Information presented on this call is contained in the earnings release, we issued this morning and in our form 8-K to be filed November 12, 2021, which may be accessed from the Investor Relations page of the company's website I will now turn the conference call over to Bright Health Group, Chief Executive Officer, Mike Mike.
Good morning.
Thank you for joining bright help groups third quarter earnings call.
We're pleased to update you on our performance as well as the continued momentum around our aligned and integrated model.
Before I turn it over to Cathy Smith to cover our Q3 results year to date performance and refined outlook for the year I will provide brief remarks.
On our business strategy, including proof points and progress towards building the first fully aligned national integrated systems of care.
Notable headwind and tailwind impacting our business.
And our positioning for 2022.
We will then open it up for questions from the audience.
We always start with our mission, which is central to what we do at bright Health group.
Making health care REIT together is built on the belief that by connecting and aligning the best local resources in health care delivery with the financing of care, we can deliver better outcomes at a lower cost for all consumers.
Great help group is building a truly unique model that we believe will transform how health care is delivered.
We believe when health care is delivered in a fully aligned and integrated model, we can bend the cost curve and most importantly enhanced value for both consumers and providers.
We're encouraged and humbled by the significant growth our business continues to generate.
We continue to exceed our internal expectations driven by strong bright health care membership.
As consumers continue to entrust us with their health and wellbeing.
We now expect enterprise revenue between $4, one and $4 $2 billion in fiscal year 2021.
Meaningful base to continue building our business into the future.
As the company is still building scale, we expect to see some quarterly variation, but we maintain our long term outlook that we believe will deliver more consistent results and shareholder value over time.
The third quarter was challenging due to a confluence of factors that disproportionately impacted us.
First on top of our significant 2021, ACA open enrollment growth effective on one 121, we grew in year and average up 30000 gross new members every month from March to August as a result of the extended 2021 special enrollment period.
With a heavy concentration in Florida, and North Carolina.
This resulted in a significant influx of new members with a shorter duration during the year.
Second the South East, where we have the largest membership concentration was hardest hit by the COVID-19 Delta variant.
In the third quarter centers for disease control and prevention data indicated COVID-19 related hospitalizations in the region more than tripled compared to the second quarter.
This had a meaningful impact on our medical utilization in the quarter and meant that health care capacity was largely prioritize to treat COVID-19 related needs.
Due to these factors we were challenged to engage with members. During this period as we typically would consistently throughout the year, which is critical to performance.
This hampered our ability to accurately capture the risk of our members and therefore, our estimated 2021 risk score is lower than we had originally anticipated.
This resulted in an increase in our risk adjustment payable and a corresponding decrease in our reported premium revenue.
While we experienced a modest reduction in utilization from certain non COVID-19 related procedures.
The impact of direct Covid utilization and the change in the estimated risk score for our population resulted in an increase in our overall medical cost ratio for the third quarter.
Kathy will discuss this in greater detail later on.
We believe matching payments or population health status is needed to align incentives and drive performance in the direct to consumer market How's.
However, with a predominantly new and rapidly growing business pop.
Population health risk is difficult to estimate in the near term, but improves as our markets in populations mature.
Late September and early fourth quarter indications show COVID-19 greatly subsiding.
Especially in the South east and we've been able to engage more significantly with our members, especially in our owned and managed clinics.
This is particularly positive as we build long term relationships with our consumers.
Most importantly, despite these challenges we see strong evidence that when we deploy our fully aligned model.
Deliver demonstrably better results.
Looking at year to date performance, our business has driven exceptional growth with solid operating results.
The differentiation, we are driving through our fully aligned model gives us additional conviction in our approach and strategy.
Over the past five years, we have built bright help group into a tremendous platform for growth.
We are raising guidance on our end of year fiscal year 2021 bright health care membership from 650000 to 700000 in.
An increase of nearly 8%.
Which gives us confidence in the upper end of our prior revenue range.
As I mentioned earlier, we now expect fiscal year, 2020, one revenue of $4, one to $4 $2 billion net of risk adjustment.
As of September 30th Bright health care serves over 720000 members across our commercial and Medicare advantage lines of business up eight 7% from the end of the second quarter and 247% compared to the third quarter of 2020.
New Hell also continues to demonstrate strong growth and performance year to date with a total of 131 owned and affiliated primary care clinics.
Serving over 170000 patients under value based arrangements.
As we announced shortly after our last earnings call. We are continuing to bring our differentiated model of aligned and integrated care across the country.
In 2022, our geographic footprint will span 17 states and 131 markets.
<unk> the expansion of new helps owned and affiliated care delivery assets into Texas and North Carolina.
We continue to frame our business around the same five key themes, we presented last quarter as we update you on our progress.
One we have demonstrated extraordinary growth rate.
Great health care enrollment exceeded our internal expectations driven by the extended 2021 special enrollment period for IOP and continued in your growth in Medicare advantage.
Two we have delivered consistent performance our management of underlying medical costs. Excluding Covid has performed according to our internal expectations and our overall year to date performance is solid considering our growth rate and the impact that COVID-19 Delta variant Disproportionally.
Head on our business in 2021.
Three we are driving differentiation through new health.
We're seeing proof points that highlight the power of our fully aligned integrated systems of care. We are aggressively expanding this model in Florida, and we are also bringing it to Texas and North Carolina in 2022.
We are on track to open 25 de novo clinics or more next year.
We are also adding more affiliates into our fully aligned model, where providers are clinically financially and technologically aligned with bright health care.
In addition to the payers we serve today, we are seeing significant interest from new external payers and expect strong growth in non affiliated revenue in 2022.
Four we.
We are building one technology platform.
Our technology platform is starting to demonstrate measurable results as we continue investing in the Bios infrastructure and docs wad consumer and provider facing tools.
We have also accelerated our timeline to integrate to one platform, which result in some near term cost structure headwinds, but will provide the long term benefits of better insights.
And better service at a lower cost.
We are making progress on integrating the health plan assets, we acquired with integration for all corporate office and support functions expected to be completed in 2022.
We now expect full operating platform unification to occur within our commercial business in 2023.
And finally five.
We expect continued future growth in 2022 we expect four primary avenues for growth.
First continued vertical integration of new help with bright health care.
Second solid growth throughout 2022, and our core Medicare advantage markets with a focus on complex patient populations specific ethnic communities, requiring cultural competent care and service models and states with large <unk> Aegean opportunities.
Third competitive positioning and IOP, both across existing markets and the expansion of our addressable market through entry into new states, including Texas, Georgia and California.
Three of the largest markets in the nation.
At the same time, we will remain disciplined in our growth.
Making appropriate rate adjustments based on our 2021 experience and competitive positioning.
And fourth diversification of new help revenue to include a more material contribution from external sources.
With these themes in mind I will turn to a brief update on our business.
We have strong conviction in our model that aligns the financing of care with the delivery of care.
We are focused on serving the consumer and retail health care marketplaces, including the individual exchanges Medicare advantage and other emerging direct to consumer models.
Additionally, we expect the health care market to continue moving toward consumer directed health solutions, including increasing Medicare advantage penetration and employers shifting to models that enable employee choice.
Our aligned and integrated care model, which is purpose built around the needs of the consumer not the broad PPO networks in the past is well positioned to address these market trends.
As I mentioned earlier I'm, perhaps most excited about the proof points that we're seeing in our new health business.
Despite the confluence of challenges in Florida that I mentioned earlier, we are seeing differentiated results for the population of members attributed to fully align providers within our integrated systems of care when compared to other members and the broader care partner network.
For example, our.
Our <unk> team members and are fully aligned model today.
Have a 22% lower relative medical cost ratio.
21% lower inpatient admissions and.
And 13% lower emergency Department visits.
Additionally across our fully aligned providers, we are trending towards 70% engagement with our attributed population by year end.
And we are seeing approximately 20% of our visits in a virtual setting.
These results are proof points of our aligned and integrated model in action.
In Florida, approximately 45% of our IFC membership is attributed to our fully aligned providers today.
And we expect this to increase as we continue to add capacity and expand new health clinics and affiliates in South, Florida and new markets.
We are seeing these results extend beyond our IOP of population as well with similar strong performance with our fully aligned providers, serving our Medicare populations in California, and Central Florida.
Our central Florida risk bearing alignment model has consistently demonstrated low seventy's medical cost ratios.
This aligned model, where we build a longitudinal relationship over time is core to our differentiated offering serving all consumers through the exchange marketplace and Medicare related products.
Overall.
I'm pleased with our performance in the face of a uniquely challenging year.
But more importantly, I'm optimistic about our prospects for the future.
We view the headwinds is near term.
And remain positive on the outlook for 2022.
The strong membership growth to date demonstrates our ability to take share in competitive markets and highlight the appeal of our aligned and integrated model and consumer driven markets like <unk> and Medicare advantage.
Our growth has afforded us a terrific business to build off as we enter 2022.
We have a strong Medicare advantage book of business that we will continue to build on in our core markets next year.
Additionally, with historically competitive retention rates in the ISP market.
Longer relationships with our members and.
And more members engaged with are fully aligned care providers, we are positioned for better patient management and risk score capture in 2022.
We believe we are well positioned with our planned pricing in 2022 to gain members and continue to deliver affordable health care, while improving margins.
And finally, we expect to build on the strong performance of our new help model in 2022 with the expansion of our owned clinics and affiliated providers.
Supporting our bright health care entry into Texas and expansion in North Carolina.
We see additional growth opportunities in contracting models that leverage the strength of our new health business.
We're participating in the direct contracting program and expect it to be a meaningful contributor to new health business in 2022.
With significant runway for growth in the future.
We also continue to see an opportunity to grow the new health business with external Payors, which is a testament to the appeal of the fully aligned model and enables us to continue to diversifying revenue for new health during 2022 and beyond.
We now expect new help 2022 revenue to be at least two and a half times, our 2021 guidance for revenue excluding investment income.
Which will be a meaningful contributor to our consolidated performance.
With that I'd like to thank our team our care partners and hand, it over to Cathy Smith, our CFO and chief administrative officer to take us through the numbers.
Thank you, Mike and good morning, everyone I'll begin by walking you through our Q3 and year to date results and will then provide updated guidance for 2021 full year outlook as well as some initial comments on 2022.
Our third quarter results reflect continued robust membership and revenue growth.
Health group consolidated revenue increased 206% year over year to $1.1 billion in Q3.
Brian Healthcare segment revenue for Q3 grew 188% year over year to $996 million and knew how third quarter segment revenue of $223 million compares to just under $10 million in the prior year.
Our third quarter gross margin was 27 $7 million and our adjusted EBITDA declined year over year to a loss of $245 $9 million with both impacted by the elevated COVID-19 costs and the risk adjustment cumulative catch up Mike detailed earlier.
Given these factors we view our year to date, we don't is more representative of the performance of our business.
The increases in medical costs due to COVID-19 and the headwinds associated with risk adjustment are reflected in our medical cost ratio in the quarter.
On a reported basis, our third quarter 2021 N P or at the enterprise level, whereas the 103% up from 91% in the third quarter of 2020.
Covid had a negative impact on our I N C R.
That's 540 basis points compared to 390 basis points in Q3 of 2020.
As Mike indicated, Florida, and North Carolina, two of our largest fake saw significant increases in COVID-19 cases, and hospitalization disproportionately impacting brighthouse and driving our total COVID-19 expense in the third quarter up nearly 66% from Q2 with our commercial Covid extent.
More than 160% compared to Q2.
Despite the higher incidence of Covid in both states non until the utilization remained slightly below normalized levels in Q3 and in line with our internal forecast.
However, the combination of our substantial in your ISP membership growth and Covid driven capacity constraints created challenges in our ability to see patient capture underlying health status and fully code for risk adjustment impacting our forecast for risk adjustment payments.
Our growth from the 2021 enrollment period and FEP meant 85% of our end of September IFA membership across the country was new to the organization in 2020 one.
Passenger constrained third quarter represented a meaningful timeframe relative to the duration of our consumer relationships.
Looking specifically in Florida.
<unk> represented over half of our ISP membership as of September 30th and more than 95% of our members are new adds this year due to service area expansion strong OUP growth on one line and membership growth during every month through September.
Our mix of new versus returning members is significantly higher than the average for ISP plans in the state, which has seen approximately 40% of their membership coming from new adds in 2021, making it more challenging for brighthouse capture underlying risk and impacting our risk adjustment, scoring the negative impact from risk adjustments.
Morning, including a true up for the first half of 2021 we're significantly larger than the benefit from lower medical costs associated with non COVID-19 utilization.
Resulting in a large net negative impact in the quarter.
The change in our estimated risk adjustment payable accrual for the year resulted in a cumulative of $174 million impact to Q3 revenue, representing an NCR headwind of approximately 200 basis points.
Of this $134 million $89 million was related to the first half of 2021 and when combined with $7 million of negative prior period medical cost development represents a total prior period development impact of approximately 900 basis points.
Turning to our year to date 2021 results compared to the first nine months of 2020, our revenue increase of 262% reflects our strong membership growth, including the contribution from S. A peak year to date Brighthouse group revenue with over $3 billion with.
With a quarterly variation in our medical cost ratio due to COVID-19 and risk adjustment. We viewed the year to date results is a better indicator of the performance of our business.
Our year to date adjusted EBITDA declined to a loss of $291 million from a loss of $81 million in the prior year period, but was a similar percentage of revenue in both periods.
We continue to make progress on our operating cost ratio with a year to date ratio of 25, 4%, reflecting a 540 basis point improvement compared to the first nine months of 2020, we are seeing a benefit from top line growth in our operating expense leverage partially offset by broker commission expense associated with them.
New member growth.
However, we realize we are at a peak of education peak as we consolidate our systems and processes.
The year to date MCR performance in both of our businesses is solid given the challenges this year of Covid unprecedented growth and extended 2021 special enrollment period with a year to date MTR is 93% compared to 81, 6% in the prior year period.
The costs in 2021 impacted our NCR by 420 basis points compared to 290 basis points in 2020.
Those business lines with them Bright health care were impacted by Covid third party Dear to date MTR for our commercial business was 87, 1%, while the reported year to date MCR for Medicare advantage business was 97, 5%.
Overall, despite headwinds to our business in 2021, we continue to see the power of our fully aligned care delivery model in action as it improves our ability to onboard and care for new members and manage through the challenges of rapid membership growth. We have a good book of business with underlying medical costs.
In line with our expectations. The integrated care model provides a significant advantage compared to traditional networks and highlights why we are deploying this approach in our largest fastest growing markets.
Well our prior medical cost guidance included an expectation for Covid related costs. The increase in the third quarter was substantially more than we forecasted the impact of Covid costs combined with our revised expectation for risk adjustment payments tries to change to our full year 2021 nickel cost ratio.
Our cast looking.
Looking at Covid related expenses in more detail Covid expenses in the third quarter were nearly $56 million and had a negative impact to our medical cost ratio of 540 basis points in the quarter to date. The third quarter was our highest quarter of COVID-19 expenses due to our increase in membership relative to 2020.
And higher until the cases in our major geographies.
There was a meaningful shift in COVID-19 expenses in the third quarter toward the commercial business, where prior quarters were more evenly split between Medicare advantage and commercial.
As Mike indicated earlier, we expect fourth quarter non until that utilization to be in line with typical seasonal trends. We are already seeing COVID-19 cost decrease in the fourth quarter and are forecasting COVID-19 related utilization modestly below the levels seen in the first two quarters of 2021.
Looking at our new health business, we serve over 170000 patients under value based arrangements, reflecting strong organic growth and the closing of the central acquisition at the start of Q3, the New health business includes 131 managed and affiliated wristband clinics and new health works with over 249000 care.
Our partners New health continued to drive strong growth through 2021 and is well positioned for expansion in 2022.
Revenue for our new house business in the nine months ended September 30 was $385 $7 million, reflecting strong organic growth one quarter of contribution from the Central Medical Holdings acquisition and the contribution from investment income.
Year to date revenue represents growth of over 1300 per cent compared to the prior year, our new health business in the third quarter benefited from investment income of $46 $3 million, increasing total year to date investment income to a $109 million excluding the benefit from the investment income the year to date revenue growth.
For new health is over 900%, we now expect approximately $475 million of full year revenue for our new health segment or approximately $575 million inclusive of the $109 million year to date investment income.
As we look to 2022, the new health business will become a more meaningful contributor to our overall revenue and performance as we've shared we are opening at least 25, new clinics across four key markets. We also expect to bring over 300, new providers into our affiliate model, we expect to grow new house external Rev.
New true the direct contracting program, where we expect to begin recognizing revenue in January of 2022, when the performance period commences as well as with numerous external payers, allowing new help to continue contributing to the overall business any capital efficient model.
We are excited about the growth potential of our new health business next year.
Yeah.
Turning to our balance sheet as of September 30th 2021 we had approximately $500 million in nonregulated liquidity, including $353 million in highly liquid cash and investments and $149 million in passive equity investments classified as short term.
In the third quarter, the largest changes to our nonregulated cash position came from cash deployed for our central acquisition and regulated legal entity capital infusions to support our growth.
This figure does not include $748 million of additional cash and equivalent held by our regulated insurance subsidiaries, which will continue to be sufficiently capitalized at levels above regulatory minimums to allow for continued growth during.
During the first nine months of the year, we generated over $230 million in operating cash flow and received $887 million in net proceeds from our IPO as of September 30, we had no borrowings under our $350 million credit facility.
We are updating our full year 2021 outlook and we now expect enterprise revenues to be in the range of $4, one to $4 $2 billion the top half of our prior guidance range.
Upward revision was driven by strong bright health care membership growth and an increase in new health investment income, partially offset by the change in our estimated risk adjustment payable.
We expect our enterprise medical cost ratio to be above our prior guidance and are forecasting a reported MTR of 92, 5% plus or minus 50 basis points.
This upward revision reflects the 150 basis points of incremental Covid expenses, and 400 basis points of risk adjustment pressure with the remainder primarily driven by pent up demand and a percentage of new enrollees.
Our full year forecast reflects a view that COVID-19 costs in Q4 are modestly below the expense levels in Q1, and Q2 and non COVID-19 utilization returns to the trend of increasing activity throughout the year consistent with historical seasonality.
We are also adding forecasted guidance on adjusted EBITDA for full year 2021 in a range of a loss of $550 million to $600 million on a segment basis. Our revenue forecast reflects an estimate of approximately 700000 and of your members for bright health care, a nearly 8% increase from our prior guidance.
We are also forecasting full year 2021, new health revenue of $575 million or approximately $475 million excluding investment income.
And an expected intercompany revenue elimination of $350 million.
We will be hosting an investor day on December 7th in New York and expect to provide guidance for 2022 at that time suffer now I'll provide some items to consider for 2022 forecast.
We're excited about the growth potential for our new health business next year and given the growth opportunities. We have previously discussed we now expect new health revenue to be at least two and a half times, our 2021 guidance for revenue excluding investment income.
We expect to continue to grow our aligned model with bright health care expand our external value based relationships and capitalize on the large opportunity in D. C. Our external relationships are expected to drive meaningful growth in non affiliated revenue as we go into 2022.
We continue to view, our brand health care business as well positioned in our core commercial and Medicare advantage market.
Our commercial business, we are entering four new states for 2022 and offering ISP plans in California for the first time.
In Medicare advantage, we are focusing on the five T currently representing over 98% of our M. A membership. We believe this focus will improve performance over time as we move to one Medicare advantage platform and ultimately achieve a four plus star rating.
This more focused M&A strategy is also a better use of our capital.
We will remain disciplined on pricing across our markets with our pricing, reflecting our aligned care delivery model and the expansion of our new health business, we expect more modest membership growth after an unprecedented year in 2021.
In 2022, we expect a reduction in COVID-19 related costs, a greater contribution from retained members and an extension of our fully aligned integrated system of care to improve risk adjustment accuracy across both our commercial and Medicare advantage lines of business.
As COVID-19 levels have decreased in Q4, we are already seeing better member engagement, which is improving our ability to capture and accurately code the health status of our members.
Although we have sufficient liquidity to meet our growth outlook and expected performance.
Always plan to seek additional growth capital as our business requires.
We continue to evaluate alternatives for raising new capital and our largest investor has indicated their intention to participate in any capital raise we pursue in support of our growth plans at or above their pro rata ownership levels.
We will provide additional detail on our plans around capital requirements at our Investor Day next month.
Before I turn the call back to Mike.
I appreciate our amazing bright hill team across the country working together, we are changing health care. Additionally, I want to thank our shareholders for their continued support as we build a national integrated system of care now here's Mike for some closing remarks.
In summary, we remain positive on the growth we've demonstrated so far in 2021 and the strength of our fully aligned integrated care model in the face of substantial growth.
In a uniquely challenging year.
I'd like to thank the nearly 3000 bright health employees, who are hard at work executing on our strategic priorities and making health care REIT by working together.
I believe we are well positioned to capitalize on this era of consumer choice in health care.
And look forward to keeping you all updated as we progress through the year.
I wanted to introduce two additional colleagues that will join Kathy and I for the question and answer session.
<unk> CEO of our new health business as well as Simeon gentleman.
<unk> of our bright health care business.
Operator, let's open it up to questions.
Of course.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Please also limit yourself to one question on today's Q&A session.
Preparing to ask your question piece I'm sure you'll see some muted lately.
Just ask a question. Please press star followed by one.
Our first question comes from Kevin Fischbeck from Bank of America, Kevin. Please proceed.
Okay.
Okay, great. Thanks.
I guess I appreciate it.
Fact that growing as quickly as you are during a global pandemic that.
Quarter to quarter MLR is going to be choppy I guess, we'd just love to hear your perspectives about your visibility into where things stand or stand today and in particular.
How confident you are in kind of about that cost outlook as you.
Prices for next year.
Ability to go to.
Make sure that you are going to see that margin improvement.
In 2022 that you expect.
So Kevin I got the second part of this is Mike. Thanks for the question I got the second part, which I'll ask <unk> to talk about on the first part are you referring to.
The remaining of the year 2021 outlook for medical cost ratio.
Well I think that as it comes in two parts right you've got the base for this year and then you've got the growth into next year. So just trying to get a sense of how confident you are in the rest of this year and then how confident you are and how you expect things to progress into next year that visibility.
Yeah. So I mean, the medical cost ratio when you take a look back look back.
Given our significant growth.
Throughout the year the thing that we were very we very much been focused on is the.
The book of business that we price for as we've always talked about we price to our underlying.
Our capabilities and our underlying cost structure and.
And we target a population and we're really pleased with the memory composition of the book of business that we've had when you compare the growth, especially take Florida, given the size of it and compare that book of business to our over more mature book of business, they're very comparable.
So that gives us a lot of.
Conviction that we can price for the population that we seek to serve given our capabilities as we've talked about a key differentiator for US is new health are fully aligned model and so when you when you when you add that in we believe we've got a strong.
Predictability or at least understanding of our underlying cost and we manage that this year. So if you look at our medical expense.
We've been pretty consistent throughout the year and we're pleased with that.
Big Challenge for US this year in terms of medical cost ratio has been the confluence of factors that I talked about impacting risk adjustment and it's all about consumer engagement and having consumer engagement throughout the year. When you take the strong starting growth that we had on one one when you couple it.
With in year growth, which is a unique factor this year and the ACA marketplace with the extended you're all special enrollment period during a time period when the Delta Covid impact disproportionately hit Florida. So we basically had the care resources constrained focused on Covid.
That limited our ability to engage with our with our consumers and accurately code and understand the health status of the population. So that's been the biggest variation that we've had and as Kathy said, we in our prepared remarks, we view that as a tailwind going going forward into next year, because we see.
Some strong signs encouraging signs from our fully aligned model, especially our own care centers, but also our affiliates and engaging with consumers. So we think that leads to predictability and consistency and improve performance going into 2022 with that assuming can you answer the question on pricing.
Sure Mike. Thank you I appreciate the question Kevin.
The basics here are our pricing philosophy as you heard from Mike is we always we always price to our underlying cost structure and capabilities and that has not changed going into 'twenty two.
We believe as you heard from both Mike and Kathy's earlier comments that bright health care is partnership with new well it gives us a clear medical cost advantage and we're excited about about that.
Specifically, our 2022 pricing is based on our historical experience.
And it includes some ongoing COVID-19 costs.
2022 pricing also includes general medical utilization returning towards a more normalized level.
So hopefully that answers your question Kevin.
Next question please.
Our next question comes from the line of Lisa Gill from J P. Morgan Nisha. Please proceed.
Thanks, very much good morning, and thank you for all the detail.
I know, it's probably a little early to talk about membership and I'm sure you'll talk about this in December but can you just give us any idea one how membership in both MAA and kind of our Charlotte.
So it is trending versus your expectations and then too.
Think about really fully engaging with with the population as you talked about for 2022, you talked about 70% engagement. This year can you maybe just talk about what your goal would be.
Sure. So we have just.
Without getting too far ahead of us.
Since we're in the early stages of OUP, we're well into AEP. It's early we don't want to get too far into predictions for next year, Although we see encouraging signs you know given our bar our positioning and in the markets that we're participating in so we feel we feel good about that and we're excited to share an update at the Investor day.
With respect to engagement, where where what we are what we highlighted was engagement within our fully aligned model. So one of the benefits of having a.
Managed and owned care resources is you can deploy those resources to go after engaging with consumers in a different way then maybe you could in a broad open network, where you really have no no no control and so what we're excited about was when we came out of the Delta variant is it.
<unk> subside late in the third quarter, but into the fourth quarter, you know, we ramped up our engagement with our consumers through in person visits outreach.
Actual visits as we said, 20% in our virtual visits and we plan on getting to about 70% of our patient population and those fully aligned clinics, we do not see that same level of activity in our non affiliated clinics and frankly thats one of our challenges.
So what we're excited about is next year as Kathy said, we're increasing our capacity through our own centers.
We're also bringing in more aligned affiliates.
We can engage with them to help target the population.
And then we're expanding taking that model and expanding it into Texas, and North Carolina, and so that leaves us that gives us encouraging signs that we will have better engagement next year on top of that next year. We've got a strong base to work from we've got a recapture that'll be more similar to the market as opposed to coming into our new.
Year, where we've got.
As Kathy said, 5%.
<unk> in Florida, So with all those factors we feel it.
It is an encouraging sign for US and then in terms of a target I think our target between 80% and 85% is a reasonable target for our fully aligned.
Engagement and that's.
That's that's what we think that's good for health care, we think that's good for consumers.
<unk>, a longitudinal long term relationship between physicians and their clinical teams with patience is a good thing and we want to encourage that and promote that and we think that delivers.
A better result than the broader marketplace.
Great. Thanks for the kind of next question.
Okay.
Our next question comes from the line of Joshua Raskin from the starting wage that Joshua Your line is now open.
Hi, Thanks, good morning.
First just a clarification on you know I keep hearing pricing to your underlying cost structure, but you've got a combined ratio for the year, so far of 115% so.
It doesn't sound like that means your pricing to a target margin and the positives right. So when you think about 2022, just a clarification on what exactly does that mean pricing for our cost structure still assuming loss or do you actually think that means margin and then my real question is just it sounds like $500 million of cash. If you include the investments.
You know, you'll lose $300 million in the fourth quarter based on guidance and I assume something similar in 2022, I know you alluded to a capital raise could you just give us some more color do you think that's going to be.
Straight equity do you think that'll be converted like are you looking at different things I'm, just curious as we sort of think about the short term needs for capital.
Yes so.
To clarify the question on <unk>.
Pricing to our underlying cost structure and capability.
It's really but when we make those comments were focused on our underlying unit costs for medical expenses and our expected utilization from the population the risk of the population we serve and we talk about underlying capabilities. The more aligned we are the more we're able to integrate our data integrate clinically and have financial alive.
The better we perform overall so if you go back to that slide that we introduced with our fully aligned model and how it performs versus the broader market of our population. That's really what we're talking about we think that's a key differentiation for us going forward, obviously, we like the price to profitability Josh to the Bottomline.
But as of now as Kathy said, we're we're inefficient given just the lack of scale that we have and we're making significant investments to expand and grow our business. So scale matters. We believe we have a pathway to profitability.
And that over time as we gain scale as we build in productivity getting to one platform and we don't have as much expansion cost we're going to drive to those target margins that we're talking about so when we're talking about our underlying capabilities and costs. We're really focused on our underlying medical cost. If you will so our MCR and then.
The last question around capital Cathy can you answer that yes, so Josh as I said in my prepared remarks first off good morning, we continue to evaluate all our alternatives for raising new capital. So no specifics today will give us more details at our Investor day, but we're really fortunate to have the continued support both are part of our board and.
Our largest investor.
And with their indication that they will participate any capital raise we do and pursuant to part of our growth plans at their pro rata ownership level, so more details to come.
Next question. Please thanks, Josh.
Our next question comes from the line of Ricky Goldwasser from Morgan Stanley Ricky. Please go ahead.
Yeah, Hi, good morning so.
One follow up question in an N of one sort of a real question sort of follow up on an unconscious question on just liquidity and investment.
My point.
Are you.
What do you think that you can do to kind of like it did at the balance right between investing in growth investing in infrastructure.
Expansion versus kind of a nice cash position because you have kind of like you gave us kind of a set list of investments that you need to do right. The investment in the infrastructure and it clearly is very important in building clinics and in the technology and also investing in in membership growth. So how do you balance these priorities.
Is it as you are kind of like facing.
Some sort of kind of like a more limited at all okay and then.
When when when we think about I think I heard you say, 70% engagement in their fully inline clinics.
If we think about kind of like your overall membership one what percent of your membership is actually seen in either newer health or full or affiliated clinics.
And what is the percent of kind of like wellness visits that you are seeing with members that are kind of like seen in non affiliated clinics I think that's just going to give us a good sense.
How to think about 2022 top line and in the ability to to risk adjust.
So I want to come back to that second part I think I missed one component of it but I'll start with just balancing the liquidity and capital priorities. So obviously we're focused on.
Managing and optimizing our capital.
All of our shareholders and generate an optimal returns we made strategic decisions to to get to scale and and we've been doing that through market expansion and both IOP as well as Medicare advantage.
As we think about the long term.
Sorry, let me just speak more to the near intermediate term, we obviously are paying attention to the capital required to grow we've got strong support from our existing insider and investors our board for our growth plans and so we're going to continue on that growth plan, but we're all we also as you've noted in some.
Our comments, we are investing in new health and.
And growth in new health, and we believe we're going to be able to control generate external revenue and margin from it.
External sources, if you will and Thats a much more capital efficient model going forward, so there'll be instances.
Where we will.
Focus on core markets only we may take a step back as we did during COVID-19 Ricky when we decided not to expand in any new markets in 2021, so where we have to prioritize and Max a maximize our existing cash position, we're going to make those tough decisions and we have we've proven that in the past.
So and where we're going to benefit from capital efficiencies over.
Overtime is through scale, but also through new sources of revenue and new health your question around.
Around 70% engagement with fully aligned provider. So today about 120000 of our lives are within are fully aligned clinics next year, given our expand our capacity expansion in Florida, we expect that to increase significantly we were also in Texas.
Greater proportionate share of our members that we expect in Texas will be and are fully aligned model.
When you take the two a significant amount of our membership will be within the fully aligned model in big markets of ours.
Just as soon not get into percentage today, we will be more clear on that is we have a better line of sight to the growth or to the enrollment in both of those markets, but youll know that it'll be significantly larger than it is today does that answer your question Ricky.
There's some level of I guess do you have any maybe you can share with us as those members that are not affiliated.
Mm mm clinics.
What percent of them have seen and had kind of like wellness visits just to get a sense for her ability to risk adjusted next year.
I don't have that exact in that percentage for the non affiliate.
But we can follow up later today between Steve and Kathy you can get you a more specific number.
Great that'd be great. Thank you.
Next question please.
Our next question comes from Jack O'brien from Piper sounds like Jeff. Please go ahead.
Hi, good morning, Thanks for taking the questions I wanted to ask about the member base and you know really as it relates to growth and risk adjustment just looking forward I think ultimately will be looking at the net result of open enrollment, but wanted to ask what are the internal leading indicators, telling you about retention trends for your exist.
The member base and and do you have any different assumptions around retention for loyal members versus open enrollment members versus members that came in during the C. P. This year.
Well I'll start and swimming and add a few if you have any additional color. So.
Early on we're seeing encouraging signs in terms of retention.
In our existing markets through an OUP.
And but.
We're generally expect to be at market performance in terms of retention.
But I.
Early in early on we're seeing we're seeing encouraging signs I'm not sure. We if we look at S&P versus OE P. In terms of the difference. There are members served for US. So we look at them overall at the end of the year and we're obviously trying to renew them. So I'm not sure. We distinguish that Simeon do you have any answers for that.
We've had we got a couple of elements I don't have the numbers in front of me, but although we do watch and study the SCP.
Renewal activity compared to new OE team members compared to.
The members that renewed on one one.
I just don't have that in hand right now.
No that year to date, we feel good about our.
Overall persistency of the entire the entire book of business has been has been good this year through through the end of the third quarter. So so we feel good about overall and has contributed to total growth for the company on a year to date basis consistency has been strong.
Just looking at SVP, given the newness of it and the uniqueness of the extended program. It's early in the data. So we are watching and monitoring it on a on a monthly basis don't know what the impact will be in OUP as of yet but.
But we are obviously seeking market type retention.
Thanks next question for Craig.
Oh, sorry, Jeff are you going to say something.
I think Jeff where he is now muted do you want me to mute your line.
Sure he might have a follow up that I missed I'm, sorry, I didn't mean to cut them off.
Hum.
Of utilization in Florida, and the growth there.
Have you segmented retention with the integrated care population versus the non integrated as we think about how that applies to your membership base going forward.
I missed the first part on utilization you weren't there for whatever reason you weren't coming through but in terms of segmentation without getting into specific numbers. We do expect a higher retention within our fully aligned providers just because of the engagement that we've had and building that relationship with them.
So we do expect that but again, we're going to be building capacity and bringing more affiliate.
Physicians into both Florida as well as we expand into Texas. So we do expect greater.
Retention with our aligned physicians.
Got it thanks.
Thanks next question.
Okay.
Lauren.
Okay.
Our next question comes from the line of Ralph Giacobbe from Citi Route. Please go ahead.
Okay.
Thanks. Good morning, certainly appreciate the difficulty in matching population to health status, you know given the growth but.
Why wouldn't that also be a challenge next year, given all of the new market entry and and maybe even perhaps some headwind from turn in the existing book just given some of the displacement we saw as a lower cost option in many of the existing markets and then just a quick follow up earlier can you give us a percentage at all of his either historically or going into 'twenty two of what <unk>.
<unk> of your existing membership you would expect to to retain.
Yeah.
Well so.
There are some things that we believe are tailwind for us obviously next year, we don't expect to have the CP is the same type of challenge that we had this year.
But.
Scale and having an existing book of business take Florida as an example, we start from a very different position we start from.
Comparable incumbent in the market. We know we will know the patient base, while we will have come up short vis vis our expectations. This year, we're ramping up engagement as we said earlier within our fully aligned model and we think with stronger retention rates within our existing clinics.
We're going to start from.
From a point of strength. So we're excited about that with respect to going into new markets, yes, it's going to be challenging, but we always assume even this year, we assumed going in in year. One you are going to be under coated visa b. The health status of the population that you manage just like Medicare youre going to be under COVID-19 different than I am.
Though risk.
The risk adjustment is reset every year, it's a relative measure to the market. So incumbents are advantaged and its reset on a yearly basis. So the more members you can get in early on to treat them for their underlying conditions that you know about because you've got data on them. The more advantage you are to getting to a accurate code.
<unk>.
Risk, scoring for the population that you serve.
As we go into future markets like Texas as an example by having a greater proportion of our share in our clinics. We can direct those resources to engage early on with that population through our predictive modeling to our health risk assessment and rewards program and through and through our outreach as we attribute lives to our patient base.
And we've learned a lot through that process in Florida.
And we were we felt good about the activity that we had in Florida fans entering into Delta of Covid in the in the summer months, coupled with the significant growth we were seeing in F&B. So when you take those two factors away combined with our expansion of new health and are fully aligned model.
<unk> expansion in Florida, and then expansion into Texas.
We feel really good with encouraging signs that we're going to do better and show improvement from risk capture going forward and then retention will talk more about our retention rates as we get more data at our Investor day, we'll have more information on that and be more explicit we'll do that then thanks Rob.
Okay last question please.
Our last question comes from the line of Justin Lake from Wolfe Research Justin. Please go ahead.
Thanks, Good morning, a couple of things here first the trying to piece through the filings are theres a lot of questions around exactly how you price 2022. So I was hoping you might be able to just tell US you know on your existing book of business on a member weighted.
Average basis.
What kind of price increase.
We would see.
For 2022 versus 2021, and then as you look out to 2022 on the.
The new markets.
I know you said youre going to be you're going to be building a bunch of centers in places like Texas, where it looks like you are pretty well positioned.
<unk> from a price perspective at least can you tell us if you need it.
Those center offerings is that where youre going to be is that what you're going to have the alignment, Mike or you're going to.
Do you also have some partnerships there as well.
Thanks.
Yes, So let me start with the latter half and I'll ask Jaime and if you want to talk about specific rate increases I'm not sure we want to get into that.
Generally speaking Justin we price to what we believe our competitive position is we're focused on affordability. We're obviously pricing as we've said before to our underlying cost and capability.
So a relative measure of price increase.
There is a nuance by market by product that I'm not sure it's easy to simplify.
But if you just look at Texas as an example, as I said, we're building 22 clinics at least.
To open in Houston and Dallas.
And the greater proportion of our membership today is expected to be in those in those clinics plus we are partnering with aligned fully aligned.
Groups that where we can integrate as I said from a clinical financial and technological perspective, and so the bulk of our membership will be either in our centers or with a fully aligned.
Partner, and we think thats going to advantage us and Thats really how we priced our priced our business I mean, you want to talk about or at least high level the strategy.
The strategy into next year was again as I mentioned earlier to fully reflect our anticipated COVID-19 costs next year and those are fully reflected and some modest some changes in utilization to bring utilization back to a more normalized level, what it ends up being on an overall.
All percentage basis, and revenue is going to depend on consumer choices associated with their bronze silver gold decision, making and of course, the weighting we have in each market as well. So we're getting down to a specific percentage year over year is not something I think we have enough information to give you say, maybe we can do more on that on Investor day.
But the pricing does fully account for and fully accommodate all of the underlying structural changes.
And Kathy have mentioned and associated with the network development driven through new health and then just and just to be specific on Texas because we.
Part of our core to our strategy is to price to a more narrow offering with our aligned clinics in centers.
And as you saw in our prepared remarks, you saw some of the performance proof points that we raised in Florida, we're bringing that same capability to Texas and that gives us encouraging and encouragement that we.
We can perform at those levels and so we're excited about that thanks for the question.
So with that thank you for your time today, and we look forward to keeping you updated on our progress Lauren back to you for any remarks.
Yeah.
Okay. This concludes today's call. Thank you for joining and I Hope you all have a lovely rest of your day you may now disconnect your lines.
Uh huh.
Yeah.
Okay.
Okay.
Yeah.
Okay.
Okay.
Yeah.
Yeah.
Okay.
Okay.
Yes.
Yes.
Sure.
Okay.
Yeah.
Yeah.
Okay.
Yes.
Yeah.