Q4 2022 Oscar Health Inc Earnings Call
Speaker 2: Good afternoon, my name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's 2022 4th Quarter and Full Year Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Speaker 3: After the speaker's remarks, there will be a question and answer session. To ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn it over to Cornelia Miller, Vice President of Corporate Development and Investor Relations to begin the conference.
Speaker 4: Thank you, Regina, and good evening, everyone. Thank you for joining us for our fourth quarter and year-end 2022 earnings call, where we'll discuss our execution against our annual plan, our expectations around insurance coprofitability, and our path to total coprofitability. I'm Maria Flasser, OSTRS co-founder and chief executive officer.
Speaker 5: and Sid Sankaran, I'll first Chief Financial Officer, will host this afternoon's call, which can also be accessed through our Investor Relations website at ir.hioster.com.
Speaker 6: Full details of our results and additional management commentary are available in our earnings release, which can be found on our investor relations website. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Let us know down in the comments what you thought of this item and how it brought the HTML to your attention.
Speaker 7: Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our quarterly report on Form 10Q for the quarterly period ended September 30, 2022, filed with the SEC, and our other filings with the SEC, including our annual report on Form 10K.
Speaker 8: to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the description below.
Speaker 9: today.
Speaker 10: For the past five years, we have seen a 75% compound annual growth rate for direct and assume policy premiums. We have improved the medical law ratio by approximately 12 points since 2017. Our net promoters' co-ows increased more than 20 points for the same time periods. Our members were the first to get access to free virtual urgent care.
Speaker 11: Our three-door drug list has made medications more affordable for them. In our $0.00 VOTER Permakir Medical Group has been helping more of the members get importance prevented of care.
Speaker 12: Fast forward to today, the fourth quarter capped off a transformative year for the company. We have talked a lot about how 2022 was a year of monumental growth for the business. We need a doubled membership and cross the one million member milestone. And while that is impressive, what's more impressive for us is how we managed that growth.
Speaker 13: We knew that heading into 2022 the step change in membership required us to put all of our focus on operating at scale And that our technology our operations and our people would be under pressure to deliver our targeted AMLR and expense ratios
Speaker 14: To meet these challenges, we organized the company around three key objectives, medical cost management, sculpting the portfolio, and admin cost management. As our year-end results show, we were able to execute against the plan we set out for the business in these areas, and we applied our learnings gathered throughout the year to position the company for profitability.
Speaker 15: Let's first take a look at the medical cost management.
Speaker 16: Despite doubling in size and welcoming a large number of new members that we knew little about.
Speaker 17: We reduce the medical loss ratio by 360 basis points hitting 85% for 2022.
Speaker 18: We applied the best of our technology to our efforts and we also spent the year implementing and scaling the traditional managed care processes in medical hospital management.
Speaker 19: We re-aligned operations against a more localized operating model to respond to regional trends more quickly. And we developed target medical cost mitigation strategies.
Speaker 20: We were able to drive higher utilization of less invasive, more cost effective procedures and reduced hospital and rehabilitation rates supported by changes to medical policies and by thoughtful case management.
Speaker 21: We also applied our member engagements to medical cost management. Utilizing our campaign builders capabilities, the team developed campaigns and strategies to ensure our members seek the highest quality, lowest cost options for side of care and for drugs.
Speaker 22: We believe that our member-engaged model allowed us to make further progress in bringing down medical costs in 2022 in a very excited year for what else we will deploy in the course of 2023.
Speaker 23: With regards to the seconds of our levers, put four wheels calpting.
Speaker 24: Getting into 2023, we prioritized margin over growth in our IFB strategy, and we took high single-digit rate increases on average across the book.
Speaker 25: Our localized operating model has also enabled us to restructure our networks in certain markets.
Speaker 26: reduce unit costs and drive improved quality with a provider partner.
Speaker 27: We continue to sculpt upper folio, both in terms of plant designs and markets.
Speaker 28: to ensure we allocate a capital in places we view as most attractive and most sustainable.
Speaker 29: As the third lever, we tackled the challenges of bringing down our administrative costs. Throughout 2022, we took a disciplined approach to expense management.
Speaker 30: which improved our insurance company abbing ratio by 125 basis points year-to-year.
Speaker 31: This work, which includes leveraging our technology defines fixed admin cost efficiencies across our customer service operations.
Speaker 32: as well as increasing automation throughout our clinical operations.
I said that's up very well for 2023.
As part of this app and efficiency work, we also moderated the acquisition costs of our 2023 IFP book, and we took other decisive cost actions that positioned us to enter the year with a lower cost base.
Overall, coming into 2023, on the cost and margin side, we have already completed much of the work. We needed to achieve our 23 targets.
and with a greater portion of our book consisting of returning members from ever before in our history.
We have better line of sides into our member population and the related cost structure.
In summary, we proved our technology comes scale and they continue to be able to use for efficiency going forward.
We also did all of this while delivering an all-time high-knit promoter score of now 47.
In 2023, we expect the majority of our tech resources will be focused on impacting insurance company operating results.
In the year term, that means less focus on growing plus Oscar platform revenue. That being said, we have continued to develop our first plus Oscar standalone module, campaign builder, and doing this quarter, we signed our first campaign builder deal with a south Florida based MSO, which is leveraging the tool to power their value-based care operations, drive primary care utilization and manage medical spends.
We intend to grow a campaign builder at the Affordable Peace, with a Model Solar Peace in 2023, as we build our execution muscles here and ensure a successful deployment with our initial clients.
As we think about plus Oscar Longer term, we believe that focusing our take on increasing efficiency and profitability in our insurance business.
or translates to even better capabilities we can bring to the markets.
And before I hand it over to SITS, I want to talk about what we like to call internally the Oscar Magic, remember engagements.
This part of our company continue to be a differentiator for us in 2022. We maintain high levels of digital engagements and as our membership has grown and changed from a demographic perspective we have added channels to increase engagement with members who have historically been harder to reach.
If you want example here, an SMPain belongs to drive active renewals and auto pay and abominance. That campaign saw about a 33% response rates compared to about a 2% rate you would get for a similar email campaign targeting similarly non-digital engagement members. And then 78% of those members that responded yes to keeping their plan ultimately renewed into their same plan.
and nearly 10% activated auto-pay.
We made some exciting strides towards leveraging this member engagement engine with our provider partners as well. We told you that here we are investing to bring our tools to bear for providers and we've begun to use our real-time data more and more to deepen our provider relationships on the ground.
with the most closely aligned provider partners we have. We are co-creating campaigns to improve outcomes and to lower total cost of care.
For example, we spend 2022 piloting campaigns focused on annual wellness visits.
Closing heat escapes and other care quality campaigns.
In fact, you can see a demo of this technology on our IR side, IR.hiosk.com. I think, Liliya, right? Yes, go there and click. And we are excited to scale these campaigns and with new ones throughout 2023 as well.
There's a lot of success we think in 2022 and that gives us a strong momentum into 2023 across the business.
And here we believe we are better positioned than ever before to hit profitability based on this execution in 2022.
He's got a very clear roadmap for the organization to achieve our goals for the year, which is profitability and natural business in 23 and total company profitability in 2024. And we believe we have enough cash to get us there and sit with walking through the plan for this in his part of the prepared remarks.
Fundamentally, Oscar is a growth company and we are positioned well in any environment where the consumer has increasingly greater choice than buying power.
The ACA continues to be the fastest growing health insurance segments projected to hit 20 million and rollies in the near term. And we see shifts to what programs like individual coverage, age raise as another signal that the marketplace offers unique value for individuals increasingly also employers.
With these market tailwinds, we are excited to return the top line growth in 2024.
Now with that, let me get Sid on here and he will walk you through the numbers in more detail.
Thanks Mario, and good evening everyone. It's great to be back and I've enjoyed reconnecting with all of you again.
Our full year 2022 results were largely consistent with our expectations and guidance range.
We believe last year's performance offers a solid baseline for our 2023 targets, which I'll discuss in greater detail in a few moments.
Turning to the results, we end of the year with nearly 1.2 million members, reflecting growth of 93% year on year.
A robust membership growth also drove a direct and assumed policy premium significantly higher.
Full year direct and assume policy premiums increased 99% to $6.8 billion driven by membership, mixed shifts to higher premium plans, rate increases, as well as improved lapse rates and higher SUP growth rates in the second half of 2022.
Even with our sizeable membership growth, our 2022 medical loss ratio improved 360 basis points year on year to 85.3%.
primarily driven by lower COVID costs, mix and pricing, as well as execution on our total cost of care program.
Excluding negative prior year development of $28 million in the calendar year, the MLR would have been 84.8%.
Our fourth quarter MLR of 91.6% improved 630 basis points you're on here.
largely driven by the same factors as the annual MLR.
However, the quarter includes $13 million of favorable intra-year development driven by favorable reserve-reserving trends relative to our pricing assumptions.
Partially offset by a more cautious view on 2022 risk adjustment given our growth.
Overall, claims trends have been favorable in total, with inpatient and professional utilization coming in better than expected.
Offset and parked by higher Rx than the projected.
Riching to our admin costs are insure co-administrative expense ratio improved 125 basis points year on year to 20.6%.
Driven by operating leverage benefits and efficiencies from our enhanced scale.
partially offset by higher distribution expenses.
Our fourth quarter InsureCo admin ratio of 22.3% improved 220 basis points year on year due to the items I just mentioned. Our overall combined ratio, the sum of our MLR and admin ratio, was 105.8% for the full year 2022, an improvement of 490 basis points year on year driven by the aforementioned improvements in each of the individual metrics. We believe our nearly five points in margin improvement coupled with our top line growth.
demonstrates the power and sustainability of Oscar's model through disciplined execution of our business plan. Our adjusted admin expense ratio, which includes expenses in our holding company, was 24.6% in 2022.
primarily due to operating leverage and scale efficiencies. The fourth quarter, our adjusted admin expense ratio is 26%, and add an improvement of 840 basis points here on view. Moving to our overall company profitability, our adjusted EBITDA loss was 462 million for the full year 2022, which was in line with our initial guidance range for the full year. This was better than our most recent expectation due to higher than expected net investment income in the fourth quarter.
as well as admin savings to right size our cost as we tightly manage headcount ahead of 2023. The full year adjusted EBITDA loss reflects a 7 point year over year improvement as a percentage of premiums before quarter share reinsurance.
an increase of $26 million a year, which was largely driven by higher premiums. The fourth quarter adjusted EBITDA reflects a nine point year on year improvement as a percentage of premiums before C2 reinsurance. Turning to the balance sheet, we ended the year with $3.2 billion of total cash and investments, including $340 million of cash.
in order to ensure we maintain a strong balance sheet.
As we look to 2023, we intend to continue to be disciplined and are already executing on our plan to improve core margins and profitability.
This is reflected in our 2023 guidance, which we'll discuss today.
Our outlook for the year reflects largely stable premiums year on year with continued meaningful combined ratio and adjusted the dawn improvements.
driven by targeted actions the company has taken and will continue to implement to reach profitability.
Specifically, we expect our Director to assume policy premiums would be in the range of 6.4 to 6.6 billion dollars.
This is consistent with our prior commentary, but our membership will be largely flat between 2022 and 2023.
As a reminder, we proactively work with regulators to pause accepting new members in Florida. And therefore, we do not expect new enrollments in that state the first half of the year.
We expect to begin receiving Medicaid redetermination members in the rest of our states beginning early in the second quarter.
Overall, we're projecting lower SEP members as a portion of the overall book this year.
This should be favorable to our NLR, however it will be a net hudwin to premiums.
Our expected medical loss ratio range of 82 to 84% reflects over 200 basis points of improvement at the midpoint versus last year.
Driven by rate increases, mixed shifts, and total cost of care management programs.
We are renegotiating our PBM contract, which will result in meaningful savings beginning in 2023.
and is an example of one of our cost of care initiatives.
We do expect our MLR seasonality will look similar to last year, albeit with a more modest slope.
We expect our insure co-admin ratio will be 17 to 18 percent, reflecting an improvement of 300 basis points year on year at the midpoint.
I'm merely due to the identified cost settings that we've discussed previously.
These savings largely consist of lower distribution expenses and vendor savings achieved by our increased scale.
Unfortunately, the majority of these savings have already been achieved. And as a result, we are turning our attention to generating further efficiencies for 2023 and beyond.
We expect our admin seasonality will be different from last year, with the first quarter highest, and decline gradually throughout the year, with 3Q and 4Q ratios fairly similar.
We would call out that for 2023 we were targeting a combined ratio at or less than 100%.
We are entirely focused on execution here. As this remains the primary metric, we use to assess core business margins and profitability.
In order to better allow investors to understand the profitability dynamics of our statutory insurance subsidiaries and their underlying capital profile, we're introducing a new metric.
Earn sure co-adjusted EBITDA.
which includes the combined ratio, investment income, and the cost of our Quotashare re-insurance.
We believe this metric will allow investors to better understand the capital and cash flow relationship between our insurance subsidiaries and our parent company.
Unlike our competitors given our startup nature, Oscar has historically not had meaningful investment yield on our portfolio relative to market competitors who have had longer duration portfolios yielding 3% or more.
With the return to a more normal interest rate environment, investment income is expected to have a significantly positive impact on the insure-cooked profitability in 2023.
We ended 22 with $2.9 billion of cash and investments that are subsidiaries.
For 2023, we are estimating our cash and investment portfolio will yield 3.5 percent, with the range of 3-4 percent for the year, depending on Fed actions in the shape of the yield curve.
With respect to our Quotisher Re-Inference Agreements, we have restructured our Quotisher contracts to maintain a similar seating percentage year-on-year while lowering the cost.
I'd also note that our new quotasher contracts required deposit accounting upon their 1-1 effective date.
So you will see a diminimous amount reflected in re-insurance premium seated going forward.
Incorporating all these items, we're projecting solid earnings and capital positions for our insurance company.
For 2023, we project our insurance company, Adjusted E-Datau, will be 20 million to 120 million dollars, resulting in profitability across the entities.
We are reaching to our total code. We participate in an adjusted and inexpensive ratio range of 20.5 to 21.5%.
An improvement of 360 basis points you're on your at the midpoint largely due to cost savings previously outlined.
In 2022, admin services revenue was $61 million and we generated a modest bottom line margin.
For 2023, we agreed to terminate the health first arrangement and will receive no further free income while incurring a modest amount of transition-related costs.
For our ongoing plus Oscar arrangements, we expect fees of approximately $20 to $25 million generating a positive contribution to our results in 2023.
Are projected adjusted e that the loss range of 175 million to $75 million reflects an improvement of $335 million year-on-year at the midpoint.
Largely driven by improvement in our core underwriting margins, as well as meaningfully higher investment income with rising interest rates.
The midpoint of guidance reflects approximately five points of improvement in the adjusted that the loss is percentage of premiums before seated reinsurance year-on-year.
We enter the year with a very strong balance sheet, including $340 million of parent cash and investments.
In our base case, we believe we have sufficient rational liquidity to fund the company to total company profitability, which is expected next year.
Specifically, we expect limited capital contributions to the insurance subsidiaries in 2023, with potential upside in our free cash flow driven by our insurance company, AdjustedEat.Profitability.
This is a substantial improvement from 2022 where we infused $420 million into our sub-sidieries due to growth in that losses.
As a reminder, as our insurance insurance subsidiaries become profitable, they will upstream tax sharing payments from the subsidiaries to our holding company.
We do not expect to be a cash taxpayer at the holding company for the foreseeable future given our sizable deferred tax asset.
Given our substantial progress on insurance company profitability, our holding company costs net of revenue or now the primary use of funds for the company.
As we said previously, we are targeting total co-profitability in 2024.
With that, let me turn it back to Mario for his closing remarks.
the fim best
On my Gevonkgan, there are six dialogues of hard data, so I will close out with some very simple thoughts.
The risk equation for a company has changed dramatically towards the positive. We are projecting full company profitability next year and we expect we will have enough cash to get us there. We've done the work to bring down our medical law situation line with other industry incumbents. Our admin costs are coming down in line with our plan. We took on membership this year at the Stable margins that's up for the future.
We have a different share of products in the fastest growing insurance markets in the country. It remains attractive to brokers and members alike.
Having our own infrastructure that has proven scalable and being clearly advantaged in our ability to engage with members, those are massive differentiators.
We are builders and I find it personally very exciting to continue to build on top of this infrastructure. There is ample runway to get even more automated and efficient and that is where we will continue to focus in the coming year.
So the 2023 plan is straightforward. We know what needs to be done. We simply need to continue on the path that we are on
Before I close, I'd like to thank the Oscar employees who have been so committed to building on the momentum of the past few years.
We have great ambition and an even greater team. And with that, let's turn it over to the operator for the Q&A portion of the call.
At this time, I'd like to remind everyone in order to ask a question, simply press star, then the number one on your telephone keypad. Our first question will come from the line of Michael Hobbs Morgan Stanley . Please go ahead.
Hi, thank you. So I understand the fear you're targeting lower distribution expenses and vendor savings from increased balance. I think you had mentioned the majority of the savings were already achieved and now you're focused on further efficiencies. I was wondering if you could talk about what these efficiencies are.
how that can yield additional savings and whether that presents opportunities for upside earnings. And also on health first, I think you mentioned incurring a modest amount of transition related costs. How should we think about the magnitude of those stranded costs? Sure.
Yeah, Michael, let me take the first question and then you can talk about the second part of the question.
You know, I would point you back to the three levers we tackled in 2022 Across admin medical cost management and portfolio scalding in all three of these we have more I think way more room to go Start with the admin sides
We renegotiate things like chart collection vendor contracts, pretty much every medical management vendor we have contracts there, PBM vendor, things like that. Where the additional savings lie in the future is, in my view, a lot in further automation. Really across our claims operation, across our eligibility and billing operation, across our billing operation.
from primary membership growth, is automating more of these types of conversations. As an example last year on the customer service sites, we're sending a lot more conversations through this automated systems that can ping directly into our real time systems, whether it's about a literally claim status, things like that, both in the provider service and customer service sites.
Could we be on the second question? Some question costs? Yes, sure. Thanks, Michael. Appreciate the question. Really with respect to the runoff expenses, there's some modest expenses performing runoff services in 2023. We wouldn't expect them to occur in 2024, and we really wouldn't comment beyond that.
Got it, thank you. And the bike is squeezed one more in. If I'm not mistaken, I think Ford is one of the most capital and central states. I think the statutory cap requirements are something like 25% for the first five years, but I believe Oscar first entered Ford back in 2019, so presumably.
You'll be nearing the end of that. So you might get a decent chance of cash back. So wondering is that true? And if so, what would the timeline be on receiving that cash? And would your statutory capital requirements drop to 10% or 15% thereafter? Thank you.
Michael again, thank you for that. It's a great question. Yes, your read of the statutory regulations is consistent with ours and those start-up seasoning requirements would effectively run through the end of this year. Beyond that, we think as Maria said, we have a lot of potential to the company.
Our next question will come from the line of Jonathan Young with Credit Suisse. Please go ahead.
I think to take my question. I just want to hit on redeterminations and how you're thinking about the risk pool of the members that you may end up recapture. Do you have an assumption of how many members you think that you will actually gain from redeterminations and kind of how you think about their MLR coming on to your books later in the year?
in pricing and also in the guidance for 2023. I would not call the material to either premiums, neither premiums nor medical law so issue. Generally, I would say in anything that increases the ACM market size is a great thing, will have side effects and make the market even more stable and attractive and so on.
So I think long term this is clearly a great thing. When it comes to growth, we expect, like everybody else, obviously, it needs to start in April . It is still not quite clear over what timeframe they will come in. The states have not given clear guidance. Some states will go population based, others time based. When we look at when those members rolled into the Medicaid rolls, it's actually quite linear.
states there. In Florida, as said, we don't expect to participate in this in the first six months of the year because the membership limitation for rains in place until then. And so when we then have participated on the medical hospital side, we share what others have seemed to pick up on the market, which is that the acute of the tumors will likely be high.
Romans who come with that sort of MLR penalty, then do look like pretty much everybody else in the year after that. So we're going long term great for the markets, short term would be in our headwinds, but I'll close out by saying both on the growth sides and on the MLR sides. Quite likely quite immaterial to the projections for a 2023 for us.
Okay, great. And then just on some of the automation that you were talking about in order to improve your operating efficiency, would that require any further investments that would be needed for 2023 or does your current capital planning account for all that and there's no need for extra investments?
Thanks. No action investments really our current capital planning is based on. Essentially following the plan will aid out and everything to talk about knows of face case cash plan. In short, probability 23 total, probability 24 is all very consistent with that.
And so we really expect in fact to be at the tail end of a whole bunch of multi-year investments. For example, the claims we've been building internally is really kind of in the last sort of component still being fine tunes. Essentially at the end of the investment cycle they are and that's to us is very exciting because.
That system is the one that's already answering, you know, we use hand questions on the ability and claims and stuff like that and various provider facing and member facing service lines and a lot more automation. I think we can get in all of these aspects.
Your next question comes from the line of Gary Taylor with Cowan. Please go ahead.
Hi, good evening.
A couple of questions. First one I just want to start with, if you could tell us, I mean, where do you see enrollment landing at 1Q and...
year end. I didn't see any enroll in the guidance and the release. Yes, it's yeah, I think, you know, we obviously haven't explicitly called that out in the in the guidance. I think with respect to membership, I think we have highlighted that we expect membership to be roughly stable year on year.
We are importantly to point you to this. We are projecting lower overall FCP members as a portion of the overall book. And as a reminder, that will result in lower member months, year on year, but as a positive tailwind to the MLR. I think Mario commented nicely on Medicaid re-determination. So.
You know, the net net of all of that as it flows through to premiums is, you know, we'll have slightly different member months dynamics than we've seen. And that's what's really driving the direct and the premiums down modestly over year.
But should we be thinking that the business has some normal attrition from the first quarter through the year, would redetermination sort of backfill that?
Enrollments more stable.
Does that make sense? Yeah, I mean, if you think of the business, there is some normal course churn in the book, which is effectively lapses offset by initiation. One of the key points we're just calling out here is we'd expect new initiations in year to be lower than they would have been historically, because SCP will be a small proportion of the books.
this year. Yeah we generally like that whatever a market share trends we have an open romance flow through this special Roman as well and that's how we set up the guides.
And then my second one was just going to risk adjustment. I agree, I think, to be honest, doubling your enrollment, improving your year-over-year, and bringing MLR down.
Here in our basis point is actually really great performance to be proud of for sure. If when we do that final settlement of the risk adjustment next June , what you've approved there proves to be sound, I know you suggested just a little more conservatism.
the figure you booked in the 4Q. So just wanted to give you a chance just to address where you think you're at for year-end and how that will settle up in June .
Yeah, well, I mean, I think Gary, your highlight and key point obviously, you know, the final date will be out in June and we'll be able to, you know, make final judgments at that point. I think given the dynamics in the marketplace, we just thought it would be prudent to be cautious, I think in particular in the second half of the year and you saw.
certain carrier exits and certain markets, including in Florida. And so given that, you know, we thought it would be prudent to overlay some judgment to be a little more cautious on risk adjustment than we might have been in years prior, but we always are open and flagging that that's a risk. And so we think we've been thoughtful about it.
One more quick if I could. Will it be 2022 in SureCode eBUT under the definition you're using going forward?
Yeah, I think at this point just for accounting purposes, we haven't disclosed that, but as we think about financial disclosures going forward, we'll think about what could be helpful to analysts and investors there and come back to you. I think you have a good line of sight into the holding company, so what I would tell you
Great. I just wanted to make sure I understood what you were trying to say about investment income. It sounds like that's a bigger tailwind than you thought it was going to be. Are you saying that that's part of how you're getting to break even this year or even excluding that? You would have been comfortable with the break even.
dynamic or is that always part of the calculus it's just what do you think the street didn't didn't catch on to
Well, I think I'd reiterate a couple of points. You know, as we think about our core underwriting profit, we're targeting combined ratio less than 100. So at the core, that's what we really want to use as the metric to measure the business.
We were making a second subtle point is, obviously, externally analysts investors try and do peer comparisons of, you know, ultimately gross margins, net margins, and how that compares to peers. Our investment income over the years, given our being a startup, has been effectively been Endeavor
while our competitors have effectively had 3% investment yield. So now that interest rates have in some ways normalized, you're now going to be able to include investment income and your model for Oscar similar to what you would use at other competitors. And we've given you a little bit of an indication. We think that'll be about 3.5% this year in our base case.
anywhere from 3 to 4%. And so that's obviously structurally with the ability to extend duration and look more like other, what I would call normal insurance companies, I think that is a great kind of normalizer for us now. When you look at our results versus other people in this guidance.
All right, great. And then I guess you guys mentioned the $20 million size for the exchanges over time. That's a still a pretty big growth rate from where we are this year. But this year membership is flat when the industry grew.
quite well because of all the actions you mentioned earlier. Are we done with those actions? Should we start to think about you guys growing in line or faster than the industry or to make that you know transition to the final profitability? Are there still things we should think about that say yeah you know you won't grow quite as fast as the industry for another year or two?
Kevin, so you thought, say one, as we have a long term goal for growth and we're not moving away from that. I think that there is a lot of growth power stored up in the company that would have even come through more in last open Romans, having not taken some of the actions we talked about.
working through things like service area expansions for next year. So we're back in the playbook essentially of figuring out where we can best grow with the best unit costs with the best responsible sustainable margin profile. Because we're not going to go back to prior years of margin profiles we can just stay in that's for sure.
And as said talked about, we also still have a good amount of regulatory reserve capital against which we can grow in the various places we're in. And so that certainly feels like something we want to tackle for next year. On top of that, in terms of the other thing I've mentioned is that I would not exclude.
continue to work on portfolios counting if there are areas we are in where it's not working, where we don't see ourselves building sustainable business, then we will continue to look at those, give those a hard look and see if we want to continue to be in those. But of course that's a high bar because generally I think we've now really built some...
a very good local model of growth, happy members, happy brokers and providers who work with us closely.
Our next question will come from the line of Josh Raskin with Neffron Research. Please go ahead.
All right, thanks for being, appreciate taking the question. Midpoint of MLR guidance of 83, you know, call it down 230ish basis points, you over a year. How much of that is reflective of pricing actions that you took and how much of that is medical management?
techniques to improve relative to overall trend. I kind of ask that question in light of needing to sort of turn off or cap the membership in Florida, just to make sure there's no sort of mismatch there. Earlier, if you think about changing the membership as a study?
Yeah, I think Josh and I see her from you. I'll take that one. I don't think there's any mismatch there to use your words. I mean, obviously, I think Mario highlighted, you know, rate increases in the high single digits, which we view an excess of trend. You know, very disciplined, I would say pricing across.
our market was certainly a key element of the business plan. You know, we were trading off, frankly, profitability for growth this year, which was the biggest consideration. And I think, secondly, I think there's real dollars embedded in the MLR savings, such as the TDM contract I mentioned.
We're renegotiating along with that rate increase above trend that is really pushing us to where we want to be on the MLR side. And then it looks like guidance implies about 195 million of corporate costs or you know, sort of parent level overhead. What was that number in 2022 and how should we be thinking about that?
in a sort of after 2023. The first point, this answer once surprised to you is down. If you really as we look at that, I think that we're very focused on expense management when you begin to start decomposing us versus peers. I think if you look at Oscar now,
relative to competitors, I think folks have to acknowledge the really meaningful progress we've made on MLR and that's why I appreciate some of the comments and questions today. Clearly what you've heard from Maria and myself and certainly the rest of the management team with Scott and the lesson, we are absolutely focused on that cost line and I think you should...
expect us to continue to get better operating leverage out of our cost base, you know, as you model the company forward. I can't believe we made it to the probably towards the end of the call without utilization question on the existing quarter. MLR came in a little bit better than we were looking for. I don't know if there were any. I heard the
prior to peer-reserve development relating to the current year, but anything else you would point out in terms of MLR trend for the quarter?
Nothing in particular for the quarter. I think as we look at the year that the inpatient and professional utilization, as I mentioned, came in better than expected. You know, Rx savings was came in for the year higher than we had anticipated price for. So there's been a lot of focus on our total cost of care.
around PBM and Drung Spend, which is why we've highlighted this other element of our renegotiating PBM contract, which we think is a nice tailwind for our results as we go forward.
Our next question will come from the line of Nathan Rich with Goldman Sachs. Please go ahead.
Great, thanks for the questions. Maybe first just building on the MR comments from the last question. I'd just be curious to get your view longer term where you think MR needs to be to kind of reach the profitability path that you laid out for the business. And I guess you looked at potentially return to growth. Would you kind of expect to keep MR either in the range?
the business. Certainly that means as we look at 24 there's still more work to do on pricing for some margin expansion. And then again our total cost of care savings program I think has generated real benefits as we work with our actuaries. And so a big chunk of the resources and kind of human capital companies really focus there.
on all the components of better medical cost management. Now, sometimes that bit may sound unsexy to you, but it's the meat and potatoes blocking and tackling of running a managed care company. And I think the team is entirely focused on that. And that's why we're confident we think we can get there.
Yeah, I think that it's just, you know, we've been this market now for the longest really of almost anybody else in this market. And it's quite clear that purely leading with price when you don't have the unit costs, you know, the management and so on does not work. We're not going to go back to the whole space, certainly from a pricing perspective. I don't think the market will either, by the way.
So for us, this is a matter of in which markets can we build networks with providers who will over time share risk with us. We can build the modes around longer retention, longer tenure members who will want to be with those providers. And in those markets, I think we have a huge amount of growth potential still. And so therefore, MLR wise, low 80s and...
not going back to the previous days of Trenus and how we're on the price side there. Great. I just wanted to ask a quick follow up if I could, I think following up on Gary's questions on the risk adjustment payable. I guess, you know, with the slower growth that you, within the business this year, I guess, would you expect to be in a receivable Natomiast moremore? Okay? Everything will become firmer. Oh, okay.
position for the current year and I guess when do you kind of feel like you get better visibility on that?
Well, we wouldn't anticipate being in a receivable position, but we would assume that the payable would be coming down modestly as we look forward. And risk adjustment is a pretty big focus area for us, given the nature of our membership and demographics are.
Pretty similar, I mean, to point you to an important comment that may have been lost in our prepared remarks, which is this is really the first time that OSCQR has had this level of stability in its membership. And so we know the membership population, we have strong data on that population and so
we actually think that's beneficial from the perspective of reducing volatility. Yeah, and maybe as another piece of data there, our silver makes this large existence, as I mentioned, it's sort of in the 60s, right? And that's by itself likely means that we're just not going to be a receiver from the pool, but a peer into the pool because it's still a little bit different than
other market participants there and we've been moving to the right direction. We've priced some great, I think, plans and other metal tiers as well that work well. But that means we likely have lower claims for than others, but higher RA payouts and are comfortable with that as long as you manage the RA well, in which I think we at this point do.
We've been moving to the right direction. We've priced some great, I think, plans and other metal tiers as well that work well. But that means we likely have lower claims than others, but higher RA payouts and are comfortable with that, as long as you manage the RA well, in which I think we, at this point, do. Thank you.
Our final question will come from the line of Stephen Baxter with Wells Fargo. Please go ahead.
I guess first, I'd like to get a sense of how you guys think about potential changes or maybe improvement to the risk pool and whether anything like that has been considered in the MLR outlook you provided today. And secondly, let me just get your perspective on maybe Florida as a whole. It looks like the growth there has gotten to the point that I think around 13 or 14 percent of the state population has signed up for the exchanges. And at the national level, I think that's more like a 4 or 5 percent number. So just let me get a sense of what you think is happening in Florida and whether that potentially could be more like what other states look like over time. Thanks.
I'd like to get a sense of how you guys think about potential changes or maybe improvement to the risk pool and whether anything like that has been considered in the LRL. I'll look you provided today. Secondly, let's get your perspective on maybe Florida as a whole. It looks like the growth there has gotten to the point that I think around 13 or 14% of the state population has signed up for the exchanges. At the national level, I think that's more like a 4 or 5% number. So just let's get a sense of what you think is happening in Florida, whether that potentially could be more like what other states look like over time. Thanks. Yeah, Steve, a quick question. So when...
I think about 40% of all wealth can get to go out and Spanish. This is a fair bit of immigration population and so on, that that's, we want to go into the ACA, but even the bigger driver is a very, very active broker base. And Florida is almost unique in that regard. I mean, some of the same brokers in general ages, we have been working with very closely for the past Columbia's, have now made their way to Georgia and other states as well. But those brokers have been incredibly effective at finding folks who should get coverage. And I think the statistics are that's something like...
I'm going to put you to this now, but some large percentage of uninsured people in the US could get effectively still free healthcare in the ACA. So that I think is a population that you have not seen sign up in other states where people where they haven't been told that by a broker that they could get that and those folks are in the markets.
in Florida. I think that's what's happening in the state there. Going forward, you know, in all of the ways you point out the still plenty of growth, I mentioned this briefly before. We continue to see interesting dynamics in the individual coverage, HRA space. It's again, kind of some of the Florida brokers and general agents who are saying, hey, I'm able to turn companies.
over into defined contribution type health plans, which is individualizing them in the ACA, and to us, I could be a whole nother growth wave that we're very excited about, so come forward.
Thanks. I think that could you just touch on me and maybe how you got your thinking about the risk pool dynamics as the market continues to grow on 23rd through, kind of put in the redistribution fees aside.
Yeah, sorry, forgot about that one. So generally what you see in the ACA is that if you've had more growth, it tended to bring down the average risk score. Now, there is clearly risk score trend in the markets, meaning every year all insurance companies...
tend to get better at collecting risk scores and recapture rates and things like that. So you sort of always have been in that race of making sure you don't fall behind there and we're very aware of that. But generally the risk pool comes down when the pool expands and I would think that that would again have happened coming into this year.
make big assumptions around this. And some partly because, you know, we didn't want to be too, again, exposed in terms of whatever happens in the SEP. And I could see a situation where SEP members coming in, drive the pool up, but then the more recent growth has driven it down. So that's kind of overall about the same. But as I mentioned before, and I'll just...
We say it again from a metal mix perspective and also from an average age perspective actually we have about the same population as before and so to us.
that generally means there isn't anything there that will be somehow too concerned with with getting the risk pool wrong as far as the overall markets. But obviously, these are all the things you're watching and there's the same weekly report So, what we're sitting there and so, you know.
cheering when it comes in the way we expect and I'm looking forward to the next time that will happen.
Okay, thanks. We then just want super quick follow up of play on just in the PVM contract. Like it sounded like you are really negotiating or it already has been done. I just been trying to clarify whether we should think about, you know, there's an impact beyond 2023 that we should be considering or is the impact fully captured in the 2013 guide. Thanks.
Yeah, no, thank you, Steve. It's a great, great question. And it's, you know, I think we've always talked about this, about the benefits of increased scale. And so, yes, we are in the final, final steps of renegotiating that PBM contract. And it's structured in a fashion that will provide us benefits in 2023 and beyond. So think of it as multi-year.
Yeah, I think for us this was a good example of we've reached a certain level of scale now that enables us to take these kind of steps that maybe at lower scale wouldn't have been the case and that's something we intend to also press on going forward.
And we have no further questions at this time. Ladies and gentlemen, that will conclude today's meeting. Thank you all for joining. You may now disconnect.
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