Q3 2024 Oscar Health Inc Earnings Call
Earnings Conference call at this time, all participants are in listen only mode. Please be advised that this call is being recorded you'll have the opportunity to ask questions. During the Q&A session and if you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Angela: Good morning. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's 3rd Quarter 2024 Earnings Conference Call.
At this time, all participants are in listen-only mode. Please be advised that this call is being recorded. You will have the opportunity to ask questions during the Q&A session.
Speaker Change: If you would like to withdraw your question Press Star One again. Thank you I will now turn the conference over to Chris <unk>, Vice President of Treasury and Investor Relations.
And if you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Chris <unk>: Good morning, everyone. Thank you for joining us for our third quarter 2024 earnings call Mark Bertolini, Oscars, Chief Executive Officer.
If you would like to withdraw your question, press star 1 again, thank you. I will now turn the conference over to Chris.
Speaker Change: Scott Blackley, Astor's, Chief Financial Officer will host this morning's call.
Potochar, Vice President of Treasury and Investor Relations.
Speaker Change: This call can also be accessed through our Investor relations website at IR Dot Hi, Oscar Dot com.
Good morning, everyone.
Speaker Change: Full details of our results and additional management commentary are available in our earnings release, which can be found on our investor Relations website at IR Dot Hi, Oscar Dot com.
Speaker Change: 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 1095 <unk>.
Speaker Change: 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 10-Q for the period ended June 32024 filed with the Securities and Exchange Commission and other filings with the SEC, including our quarterly report on Form 10-Q.
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.
Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors.
Speaker Change: For the quarterly period ended September 32024 to be filed with the SEC.
including those discussed in our quarterly report on Form 10-Q for the period ended June 30, 2024, filed with the Securities and Exchange Commission, and other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended September 30, 2024, to be filed with the SEC.
Speaker Change: Such forward looking statements are based on current expectations as of today.
Oscar: Oscar anticipates that subsequent events and developments may cause estimates to change.
Oscar: 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.
Angela: Such forward-looking statements are based on current expectations as of today. OSCQR anticipates that subsequent events and developments may cause estimates to change.
Oscar: 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 third quarter earnings press release available on the company's Investor Relations website at IR Dot Hi, Oscar Dot com.
Angela: 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.
Speaker Change: With that I would like to turn the call over to our CEO Mark Bertolini.
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 third quarter earnings press release available on the company's investor relations website at ir.hiosker.com.
Mark Bertolini: Good morning, Thank you, Chris and thank you all for joining us.
Mark Bertolini: This morning, Oscar reported positive third quarter results, our strong results were driven by above market growth.
Mark Bertolini: Disciplined execution and improved financial performance underlying our third quarter results, we reported revenue of $2 4, billion% to 68% increase year over year are.
Speaker Change: With that, I would like to turn the call over to our CEO, Mark Bertolini.
Mark Bertolini: Good morning. Thank you, Chris, and thank you all for joining us.
This morning, OSCQR reported positive third quarter results. Our strong results were driven by above-market growth, disciplined execution, and improved financial performance.
Speaker Change: Our medical loss ratio increased 80 basis points to 84, 6% with overall utilization modestly favorable relative to our expectations.
Speaker Change: We achieved total company adjusted EBITDA of $312 million year to date, representing a $246 million increase year over year. In addition, we reported a year to date profit of $179 million, a $300 million improvement over the same period of last year.
Speaker Change: Underlying our third quarter results, we reported revenue of 2.4 billion dollars, a 68% increase year-over-year.
Speaker Change: Our medical loss ratio increased 80 basis points to 84.6%, with overall utilization modestly favorable relative to our expectations.
Speaker Change: We achieved total company adjusted EBITDA of $312 million year-to-date, representing a $246 million increase year-over-year.
Speaker Change: Oscar is executing against our plan and driving profitable growth. We remain on track to deliver total company adjusted EBITDA profitability and also expect to achieve net income profitability. This year.
In addition, we reported a year-to-date profit of $179 million, a $300 million improvement over the same period of last year.
Speaker Change: Our strong momentum sets a solid foundation for 2025 and positions us to achieve at least 20% revenue CAGR and 5% operating margin by 2027.
Speaker Change: Oscar is executing against our plan and driving profitable growth. We remain on track to deliver total company adjusted EBITDA profitability and also expect to achieve net income profitability this year.
Speaker Change: Scott will review, our third quarter results in a few moments first I will cover key business highlights.
Our strong momentum sets a solid foundation for 2025 and positions us to achieve at least 20% revenue CAGR and 5% operating margin by 2027.
Speaker Change: Oscar closed the first nine months of 2024 with approximately 165 million members, a 68% increase year over year.
Speaker Change: We added more than 73000 members in the quarter as SCP additions further decelerated.
Scott will review our third quarter results in a few moments. First, I will cover key business highlights.
Speaker Change: We continue to expect MLR performance of SCP members to be a tailwind in 2025 as we retain these members and engage them through our technology.
Speaker Change: Oscar closed the first nine months of 2024 with approximately 1.65 million members, a 68% increase year-over-year.
Speaker Change: Our technology is also further optimizing our operations as we grow.
Speaker Change: We added more than 73,000 members in the quarter as SCP additions further decelerated.
Speaker Change: In the quarter, we prototypes and AI tool that extracts data to prevent fraud waste and abuse. We also launched AI programs for Oscar providers to enhance member speed to care, including a clinical intake bought that gathers information for quicker diagnosis.
Speaker Change: We continue to expect MLR performance of SEP members to be a tailwind in 2025 as we retain these members and engage them through our technology.
Speaker Change: Our technology is also further optimizing our operations as we grow.
Speaker Change: And a feature that pre populates preventative screening recommendations based on medical history.
Speaker Change: In the quarter, we prototyped an AI tool that extracts data to prevent fraud, waste, and abuse.
Speaker Change: Our technology continues to enhance our growth and position us to efficiently scale. The business. We continue to expect double digit market growth through the 2025 open enrollment period year over year.
Speaker Change: We also launched AI programs for OSCQR providers to enhance member speed to care, including a clinical intake bot that gathers information for quicker diagnoses and a feature that pre-populates preventative screening recommendations based on medical history.
Speaker Change: The Oscar experience will now be available to more individuals families and businesses in new markets across our 18th state footprint.
Our technology continues to enhance our growth and position us to efficiently scale the business.
Speaker Change: Huskers expansion increases our total addressable lives to approximately $11 million, an increase of 700000 lives year over year.
Speaker Change: The Oscar experience will now be available to more individuals, families, and businesses in new markets across our 18-state footprint.
Speaker Change: Our average rate increase is approximately 6% compared to 7% for the overall market.
Speaker Change: We priced for trend and expect that our disciplined pricing strategy and total cost of care initiatives will drive meaningful margin expansion next year Oscar is giving our fast growing and diverse member base more health insurance choices. In this open enrollment first we launched a new multi condition plan that helps members manage diabetes pulmonary and <unk>.
Speaker Change: Oscar's expansion increases our total addressable lives to approximately 11 million, an increase of 700,000 lives year-over-year.
Speaker Change: Our average rate increase is approximately 6%, compared to 7% for the overall market.
Speaker Change: We priced for trend and expect that our discipline pricing strategy and total cost of care initiatives will drive meaningful margin expansion next year.
Speaker Change: Cardiovascular diseases, together, which can save members, 25% or more.
Speaker Change: This solution builds from our diabetes care plan, which has reduced member costs and is a strong performer in our book.
Speaker Change: Oscar is giving our fast-growing and diverse member base more health insurance choices in this open enrollment. First, we launched a new multi-condition plan that helps members manage diabetes, pulmonary, and cardiovascular diseases together, which can save members 25% or more.
Speaker Change: Second we introduced a tech first HMO that delivers frictionless experiences our technology addresses known pain points for members and providers like no other hmos before at the.
Speaker Change: The solution builds from our diabetes care plan, which has reduced member costs and is a strong performer in our book.
Speaker Change: The product gives us an opportunity to access new member segments across markets.
Speaker Change: Third we rolled out a new Spanish first solution <unk>, which builds on the success of our Ola Oscar program the.
Speaker Change: Second, we introduced a tech-first HMO that delivers frictionless experiences. Our technology addresses known pain points for members and providers like no other HMOs before it. The product gives us an opportunity to access new member segments across markets.
Speaker Change: The solution prioritizes, the preferences of Hispanics and Latinos, who make up nearly one third of our member base connecting them to our health care community that shares their cultural heritage. Finally, we are making Oscar the carrier of choice for employers through aircraft in.
Speaker Change: Third, we rolled out a new Spanish first solution, Buenos Salud, which builds on the success of our Ola Oscar program. The solution prioritizes the preferences of Hispanics and Latinos who make up nearly one-third of our member base.
Speaker Change: Employers can now offer defined contributions to their employees to access Oscars suite of products. We are working with a variety of aircraft platforms to transition mid and large size employers to the individual market <unk>.
Speaker Change: connecting them to a health care community that shares their cultural heritage.
Speaker Change: Finally, we are making OSCQR the carrier of choice for employers through ICRA. Employers can now offer defined contributions to their employees to access OSCQR's suite of products.
Speaker Change: Industries with large populations of part time independent and gig workers are prime candidates.
Speaker Change: In addition, our team is partnering with stretch dollar to help small businesses with fewer than 50 employees access the ICA and drive employee sign ups during open enrollment.
Speaker Change: We are working with a variety of ICRA platforms to transition mid and large size employers to the individual market. Industries with large populations of part-time independent and gig workers are prime candidates.
Speaker Change: Most of this group is either new to insurance or is facing double digit rate increases on their small group plans.
Speaker Change: The ACA has created the largest risk pool in the industry with significantly lower cost trend and is an attractive option for businesses of all sizes.
Speaker Change: Most of this group is either new to insurance or is facing double-digit rate increases on their small group plans.
Speaker Change: In summary, our plan is working <unk> on a clear path to sustainable growth and profitability, our consistent execution positions us to achieve our 2024 targets.
Speaker Change: The ACA has created the largest risk pool in the industry, with significantly lower cost trend, and is an attractive option for businesses of all sizes.
Speaker Change: Oscar has multiple pathways to achieve our long term strategic goals and we are becoming a large scale player.
Speaker Change: We are maturing our markets strategically growing in new markets and attracting new consumer segments.
Speaker Change: In summary, our plan is working. OSCQR is on a clear path to sustainable growth and profitability. Our consistent execution positions us to achieve our 2024 targets.
Speaker Change: I am confident in our growth I am confident in the Oscar team Inc.
Speaker Change: Oscar has multiple pathways to achieve our long-term strategic goals, and we are becoming a large-scale player. We are maturing our markets, strategically growing in new markets, and attracting new consumer segments.
Speaker Change: I am confident about the future of the individual market.
Speaker Change: Oscars continued expansion underscores the value of the HCA for Americans across party lines we.
Speaker Change: We are building a consumer marketplace that meets expectations for choice quality and affordability.
Speaker Change: I am confident in our growth. I am confident in the Oscar team. I am confident about the future of the individual market.
Speaker Change: People want the freedom to buy and use health insurance products tailored to their needs.
Speaker Change: Oscars continued expansion underscores the value of the ACA for Americans across party lines.
Speaker Change: Like they do in every other part of their lives that is what the Oscar experience is all about and what our steps toward a larger individual market creates for individuals families and businesses.
Speaker Change: We are building a consumer marketplace that meets expectations for choice, quality, and affordability. People want the freedom to buy and use health insurance products tailored to their needs.
Speaker Change: Before I close I want to thank the Oscar team for their hard work and kicking off what I am sure will be a successful open enrollment.
Speaker Change: like they do in every other part of their lives. That is what the Oscar experience is all about and what our steps toward a larger individual market creates for individuals, families, and businesses.
Speaker Change: We look forward to continuing to deliver strong results I will now turn the call over to Scott Scott.
Scott Scott: Thank you Mark and good morning, everyone.
Scott Scott: Our third quarter and year to date results demonstrate consistent solid execution, we grew membership by 68% year over year and reported nearly $312 million of adjusted EBITDA and approximately $179 million of net income year to date.
Speaker Change: Before I close, I want to thank the OSCQR team for their hard work in kicking off what I am sure will be a successful open enrollment. We look forward to continuing to deliver strong results. I will now turn the call over to Scott. Scott?
Scott: Thank you, Mark, and good morning, everyone. Our third quarter and year-to-date results demonstrate consistent, solid execution.
Scott Scott: Total revenue increased 68% year over year to $2 4 billion in the third quarter, driven by higher membership and year over year rate increases.
Scott: We grew membership by 68% year-over-year and reported nearly 312 million of adjusted EBITDA and approximately 179 million of net income year-to-date.
Scott Scott: We ended the quarter with approximately 165 million members, a strong increase of 68% year over year.
Scott Scott: Membership growth was driven by above market growth during 2020 for open enrollment strong retention and CP member additions.
Speaker Change: Total revenue increased 68% year-over-year to $2.4 billion in the third quarter, driven by higher membership and year-over-year rate increases.
Scott Scott: Consistent with our expectations at CP member additions decelerated in the third quarter.
Speaker Change: We ended the quarter with approximately 1.65 million members, a strong increase of 68% year-over-year.
Scott Scott: Turning to medical costs, the third quarter medical loss ratio increased by 80 basis points year over year to 84, 6% Pri.
Speaker Change: Membership growth was driven by above-market growth during 2024 open enrollment, strong retention, and SEP member additions.
Scott Scott: Primarily driven by higher STP membership and a late summer cobot uptick.
Scott Scott: Which were partially offset by favorable prior period development.
Speaker Change: Turning to medical costs, the third quarter medical loss ratio increased by 80 basis points year-over-year to 84.6%, primarily driven by higher SEP membership and a late summer COVID uptick.
Scott Scott: Overall utilization trends were modestly favorable relative to our expectations.
Scott Scott: As we have previously stated STP members added in the second half of the year carry an in year MLR headwind, primarily due to partial year risk adjustment dynamics and the short window for utilization and risk when they do occur.
Overall utilization trends were modestly favorable relative to our expectations.
Scott Scott: We continue to expect that the strong growth in STP membership will be a tailwind to next year.
Scott Scott: Switching to administrative costs, the third quarter SG&A expense ratio improved by approximately 360 basis points year over year to 19% driven by higher fixed cost leverage and variable cost efficiencies.
Speaker Change: We continue to expect that the strong growth in SEP membership will be a tailwind to next year.
Scott Scott: Our third quarter, adjusted EBITDA loss of approximately $12 million improved by $9 million year over year.
Speaker Change: Switching to administrative costs, the third quarter SG&A expense ratio improved by approximately 360 basis points year-over-year to 19% driven by higher fixed cost leverage and variable cost efficiencies.
Scott Scott: Our strong operating results to date position us well to deliver on our total company adjusted EBITDA profitability target this year.
Scott Scott: Shifting to the balance sheet, our capital position remains very strong.
Speaker Change: Our third quarter adjusted EBITDA loss of approximately $12 million, improved by $9 million year-over-year. Our strong operating results to date position us well to deliver on our total company adjusted EBITDA profitability target this year.
Scott Scott: We ended the third quarter with approximately $3 7 billion of cash and investments, including $260 million of cash and investments at the parent.
Scott Scott: Through the first nine months of the year, the parent received approximately $130 million of capital distributions from our insurance subsidiaries.
Scott Scott: As of September 32024, our insurance subsidiaries had approximately $1 billion of capital and surplus including $575 million of excess capital, which was driven by our strong operating performance.
Speaker Change: Through the first nine months of the year, the parent received approximately $130 million of capital distributions from our insurance subsidiaries.
Scott Scott: We continue to believe our excess capital positions us well to fund future growth and allows us additional opportunities to optimize our capital position over time.
Speaker Change: As of September 30, 2024, our insurance subsidiaries had approximately $1 billion of capital in surplus, including $575 million of excess capital, which was driven by our strong operating performance.
Scott Scott: Let me now turn to updates to our 2020 for full year guidance.
Scott Scott: We are raising our guidance for total revenue by another 200 million to a range of $9 2 billion to $9 3 billion, reflecting higher membership driven by SCP member additions and more favorable lapse rates as compared to our expectations.
Speaker Change: We continue to believe our excess capital positions us well to fund future growth and allows us additional opportunities to optimize our capital position over time.
Speaker Change: Let me now turn to updates to our 2024 full year guidance.
Speaker Change: We are raising our guidance for total revenue by another 200 million to a range of $9 2 billion to $9 3 billion, reflecting higher membership driven by SCP member additions and more favorable lapse rates as compared to our expectations.
Scott Scott: Our revenue guidance has increased by $900 million since our initial guidance earlier this year.
Speaker Change: We are raising our guidance for total revenue by another $200 million to a range of $9.2 billion to $9.3 billion, reflecting higher membership driven by SEP member additions and more favorable lapse rates as compared to our expectations.
Scott Scott: We now expect the medical loss ratio towards the high end of our prior range of $85 to 81, 5% driven primarily by the STP membership risk adjustment dynamics that I mentioned previously.
Speaker Change: Our revenue guidance has increased by 900 million since our initial guidance earlier this year.
Speaker Change: Our revenue guidance has increased by $900 million since our initial guidance earlier this year.
Scott Scott: We continue to expect risk adjustment as a percentage of premiums to be largely consistent year over year.
Speaker Change: We now expect.
Speaker Change: Back to medical loss ratio towards the high end of our prior range of 85 to 81, 5% driven primarily by the STP membership risk adjustment dynamics that I mentioned previously.
Speaker Change: We now expect a medical loss ratio towards the high end of our prior range of 80.5% to 81.5%, driven primarily by the SCP membership risk adjustment dynamics that I mentioned previously.
Scott Scott: Switching to SG&A, we now expect an even lower SG&A expense ratio in the range of 19, 4% to 19, 6% driven by greater fixed cost leverage.
Speaker Change: We continue to expect risk adjustment as a percentage of premiums to be largely consistent year over year.
Scott Scott: We expect total company adjusted EBITDA to be towards the high end of our range of $160 million to $210 million.
Speaker Change: Switching to SG&A, we now expect an even lower SG&A expense ratio in the range of 19, 4% to 19, 6% driven by greater fixed cost leverage.
Speaker Change: Switching to SG&A, we now expect an even lower SG&A expense ratio in the range of 19.4% to 19.6% driven by greater fixed cost leverage.
Scott Scott: And in addition, we expect to achieve net income profitability. This year another important milestone for Oscar.
Speaker Change: We expect total company adjusted EBITDA to be towards the high end of our range of $160 million to $210 million.
Scott Scott: Looking ahead to 2025, we are encouraged by our competitive positioning and expect meaningful margin expansion to be driven by our disciplined pricing strategy total cost of care initiatives and administrative savings.
Speaker Change: We expect total company adjusted EBITDA to be towards the high end of our range of $160 million to $210 million.
Speaker Change: And in addition, we expect to achieve net income profitability. This year another important milestone for Oscar.
Speaker Change: And in addition, we expect to achieve net income profitability this year, another important milestone for Oscar.
Scott Scott: We look forward to sharing additional details when we provide 2025 guidance during our fourth quarter call.
Speaker Change: Looking ahead to 2025, we are encouraged by our competitive positioning and expect meaningful margin expansion to be driven by our disciplined pricing strategy total cost of care initiatives and administrative savings.
Speaker Change: Looking ahead to 2025, we are encouraged by our competitive positioning and expect meaningful margin expansion to be driven by our discipline pricing strategy, total cost of care initiatives, and administrative savings.
Speaker Change: With that I'll turn the call over to the operator for the Q&A portion of the call.
Scott Scott: Yeah.
Speaker Change: We look forward to sharing additional details when we provide 2025 guidance during our fourth quarter call.
Speaker Change: We will now begin the question and answer session. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise their hand and join the queue. If you would like to withdraw your question simply press Star One again, we do request please limit your call.
Speaker Change: We look forward to sharing additional details when we provide 2025 guidance during our fourth quarter call.
Speaker Change: With that I'll turn the call over to the operator for the Q&A portion of the call.
Speaker Change: With that, I'll turn the call over to the operator for the Q&A portion of the call.
Speaker Change: You we will now begin the question and answer session. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise their hand and join the queue. If you would like to withdraw your question simply press Star one again.
Scott Scott: Austin to one question and one follow up only and your first question comes from the line of Stephen Baxter with Wells Fargo. Your line is now open.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 and your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Stephen Baxter: Hi, Thanks, Good morning, I was hoping you could expand a little bit on your competitive positioning for 2025 and I. Appreciate you said.
Speaker Change: A question. Please limit your questions to one question and one follow up only and your first question comes from the line of Stephen Baxter with Wells Fargo. Your line is now open.
Speaker Change: We do request to please limit your questions to one question and one follow-up only. And your first question comes from the line of Stephen Baxter with Wells Fargo. Your line is now open.
Stephen Baxter: 6% rate increase in the market that seven it does seem like there's a bit of.
Stephen Baxter: A bar Bell out there you have certain players that are pricing closer to flat, maybe due to minimum MLR requirements or some things of that nature and then also some larger players that seem like they're essentially restructuring their book I'd Love. If you could characterize how the competitive environment looks now versus how you might have thought it look you know call it three to six months ago.
Stephen Baxter: Hi, Thanks, Good morning, I was hoping you could expand a little bit on your competitive positioning for 2025 and I. Appreciate you said.
Hey!
Speaker Change: Hi, thanks. Good morning. I was hoping you could expand a little bit on your competitive positioning for 2025. I appreciate what you said.
Speaker Change: 6% rate increase in the market that Seth and it does seem like there's a bit of.
Speaker Change: 6% rate increase in the markets at 7. It does seem like there's a bit of a barbell out there. You have certain players that are pricing closer to flat, maybe due to minimum MLO requirements or something to that nature, and then also some larger players that seem like they're essentially restructuring their book. I'd love if you could characterize how the competitive environment looks now versus how you might have thought it looked, you know, call it three or six months ago. Thanks.
Speaker Change: A bar Bell out there you have certain players that are pricing closer to flat maybe do you think about the MLR requirement or something to that nature and then also some larger players that seem like they're essentially restructuring their book, but if you could characterize how the competitive environment looks now versus how you might have thought about call. It three to six months ago. Thanks.
Stephen Baxter: Okay.
Speaker Change: Thanks Steven.
Speaker Change: Good point out first that our average rate increase was about 6% versus the market of southern.
Speaker Change: <unk>.
Stephen Baxter: And we think that the market is largely rational and stable from a pricing standpoint, again I would remind people that you have to think about where your pricing is versus you were in prior years, It's yours.
Speaker Change: Thanks, Steven I would point out first that our average rate increase was about 6% versus the market at seven.
Speaker Change: Thanks, Steven. I would point out first that our average rate increases about 6% versus the market at 7%.
Stephen Baxter: It's a series of time series that you have to watch and so we believe everybody is in a good place. There are always a few players in a few markets who chase after share we don't think that's sustainable.
Speaker Change: And we think that the market is largely rational and stable from a pricing standpoint, again I would remind people that you have to think about where your pricing is versus you were in prior years, It's yours.
Speaker Change: And we think that the market's largely rational and stable from a pricing standpoint. Again, I would remind people that you have to think about
Stephen Baxter: And we believe that.
Speaker Change: where your pricing is versus you were in prior years. It's a series, a time series that you have to watch. And so we believe everybody's in a good place. There are always a few players and a few markets who chase after share. We don't think that's sustainable.
Stephen Baxter: The market is going to be a pretty stable market Fisher, we're confident of that.
Speaker Change: It's a series of time series that you have to watch and so we believe everybody is in a good place. There are always a few players in a few markets who chase after share we don't think that's sustainable.
Speaker Change: Okay got it and just.
Speaker Change: Just to expand a little bit on the S&P pressure I appreciate the commentary that the additional <unk>.
Speaker Change: And we believe that maam.
Speaker Change: Decelerated during the quarter, but I guess just to understand why there is more pressure than you might have thought before or theres still more lives in aggregate than you expected or are there costs higher than you expected or is the risk adjustment impact worse than you thought for some reason I'm trying to understand that piece of it a little better too and if you're willing to size the drag from S&P and tied your EBITDA guidance, obviously I appreciate.
Speaker Change: and we believe that the market is going to be a pretty stable market this year. We're confident of that.
Speaker Change: The market is going to be a pretty stable market. This year, we're confident of that.
Speaker Change: Okay got it and just.
Speaker Change: Just to expand a little bit on the S&P pressure I appreciate the commentary that the additional.
Speaker Change: Okay, got it. And just to expand a little bit on the SEP pressure, I appreciate the commentary that the addition...
Speaker Change: <unk> decelerated during the quarter, but I guess just to understand why there is more pressure than you might have thought before or theres still more lives in aggregate than you expected or are there costs higher than you expected or is the risk adjustment impact worse than you thought for some reason I'm trying to understand that piece of it a little better too and if you're willing to size the drag from S&P inside your EBITDA guidance, obviously I appreciate.
Speaker Change: decelerated during the quarter, but I guess just understand why there's more pressure than you might have thought before. Are there still more lives in aggregate than you expected? Are there costs?
Speaker Change: At that level too thanks.
Speaker Change: Yes, good morning, Steve.
Speaker Change: higher than you expected or is the risk adjustment impact worse than you thought for some reason? Just trying to understand that piece of it a little better too And if you're willing to size the drag from SEP inside your EBITDA guidance, obviously, I appreciate that level of insight too. Thanks
Speaker Change: So with respect to SCP.
Speaker Change: Obviously, we increased our our topline revenue guidance.
Speaker Change: As reflected in the fact that we've had more S&P additions than what we had anticipated at the beginning of the year.
Speaker Change: At that level it can take two thanks.
Speaker Change: Yes, good morning, Steve.
Yeah, good morning Steve.
Speaker Change: And even through the third quarter.
Steve: So with respect to SCP.
Speaker Change: The performance of the CP members has been.
Speaker Change: Obviously, we increased our our topline revenue guidance.
Speaker Change: So with respect to SCP, obviously we increased our top line revenue guidance, which is reflective of the fact that we've had
Speaker Change: And right on track with what we would expect.
Speaker Change: As reflected in the fact that we've had more SCP additions than what we had anticipated at the beginning of the year.
Speaker Change: Utilization has been on track with our expectations to slightly favorable so.
Speaker Change: More SEP additions than what we had anticipated at the beginning of the year and even through the third quarter.
Speaker Change: And even through the third quarter.
Speaker Change: The story I think for the quarter is performance underwriting performance of the book is strong and what we would have anticipated and the story is just we've got more of these members than we entered had initially expected you are seeing that both in the top line as well as in the bottom line performance of the company.
Speaker Change: The performance of the FEP members has been.
Speaker Change: The performance of the FCP members has been right on track with what we would expect. You know, utilization has been
Speaker Change: Right on track with what we would expect.
Speaker Change: Utilization has been on track with our expectations to slightly favorable. So the story I think for the quarter is performance underwriting performance of the book is strong and what we would have anticipated and the story is just we've got more of these members than we entered had initially expected you are seeing that both in the.
Speaker Change: on track with our expectations to slightly favorable. So, you know, the story I think for the quarter is, you know, performance, underwriting performance of the book is, you know, strong and what we would have anticipated. And the story is just, we've got more of these numbers than we had initially expected.
Speaker Change: And.
Speaker Change: We do anticipate that the growth that we've seen is slowing and will slow into the fourth quarter.
Speaker Change: We've seen that deceleration already occur.
Speaker Change: Top line as well as in the bottom line performance of the company.
Speaker Change: You're seeing that both in the top line as well as in the bottom line performance of the company. And, you know, we do anticipate that the growth that we've seen is slowing and will slow into the fourth quarter. We've seen that deceleration already occur.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: Okay.
Speaker Change: We do anticipate that the growth that we've seen is slowing and will slow into the fourth quarter.
Speaker Change: Okay.
Speaker Change: And do you want to repeat here.
Speaker Change: Second part of your question on adjusted EBITDA.
Speaker Change: We've seen that deceleration already occur.
Speaker Change: Okay.
Speaker Change: Yes.
Yes.
Speaker Change: And do you want to repeat your.
Speaker Change: And do you want to repeat the second part of your question on Justin Davidow?
Speaker Change: We'll come back to that one I guess later in the call.
Speaker Change: The second part of your question on adjusted EBITDA.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of John Ransom with Raymond James Your line is now open.
John Ransom: Hey, good morning.
Speaker Change: We'll come back to that one I guess later in the call.
Speaker Change: We'll come back to that one, I guess, later in the call.
John Ransom: First question before the follow up I mean going back to your analyst day.
Speaker Change: Okay.
John Ransom: You provided a roadmap to a 20% CAGR to 2027.
Speaker Change: Your next question comes from the line of John Ransom with Raymond James. Your line is now open.
John Ransom: Now that the revenue base. So how should we think about that 20% CAGR coming off the higher revenue base or is there some adjustment that would kind of put that 27 number right where you started.
John Ransom: Hey, good morning. So, my first question before the follow-up, I mean, going back to your analyst day, I mean, you provided a roadmap to 20% CAGR to 2027. Now that the revenue base is higher,
Speaker Change: Yes.
Speaker Change: <unk>.
John Ransom: Now that the revenue base. So how should we think about that 20% CAGR coming off the higher revenue base or is there some adjustment that would kind of put that 27 number right where you started.
Speaker Change: Look I think that the long term guidance, we're not going to make a update to that I would say that we are encouraged by our performance year to date in terms of growth I think that sets us up well to achieve 20% CAGR through 2007.
Speaker Change: Should we think about that 20% CAGR coming off the higher revenue base or is there some adjustment that would kind of put that 27 number right where you started?
Speaker Change: Yes.
Speaker Change: Morning.
Yeah, good morning. Look, I think that
Speaker Change: Look I think that the long term guidance, we're not going to make an update to that I would say that we are encouraged by our performance year to date in terms of growth I think that sets us up well to achieve 20% CAGR through 'twenty seven.
Speaker Change: We'll give you some more information about 25, when we do the fourth quarter call. This year, but I think that we won't be making any updates to the long term guidance at this time.
Speaker Change: The long-term guidance, we're not going to make an update to that. I would say that we are encouraged by our performance year-to-date in terms of growth. I think that sets us up well to achieve 20%.
Speaker Change: Great and then.
Speaker Change: My second question is if we just think about 'twenty four.
Speaker Change: Kager through 27. We'll give you some more information about 25 when we do the fourth quarter call this year but I think that you know we won't be making any updates to the long-term guidance at this time.
Speaker Change: We will give you some more information about <unk> 25, when we did the fourth quarter call. This year, but I think that we won't be making any updates to the long term guidance at this time.
Speaker Change: Should we apply the higher yeah, you're talking about like a 90% MLR for FEP members.
Speaker Change: Shall we attach that to say the revenue upside or is there more revenue that you're generating this year, where your MLR would expect the left end of 'twenty.
Speaker Change: Okay, Great and then.
Speaker Change: My second question is if we just think about 'twenty four.
Speaker Change: Great, and then my second question is, if we just think about 24...
Speaker Change: Should we apply the higher yes, you've talked about like a 90% MLR for S&P members, which shall we attach that to say the revenue upside or is there more revenue that you're generating this year, where your MLR would expect to lift and a 25.
Speaker Change: Should we apply the higher, you know, you talk about like a 90% MLR for SEP members, should we attach that to say the revenue upside or is there more revenue that you're generating this year where your MLR would expect to lift and to 25?
Speaker Change: I think that if you kind of the average the MLR.
Speaker Change: And look at our full year guidance, we do have SCP pressure, that's probably outsized compared to what we would anticipate in the future given the amount of Medicaid Redetermination, that's coming in so all.
Speaker Change: I think that if you kind of the average the MLR.
Speaker Change: All things equal the performance of the core book has been very much consistent with our expectations. This year. So.
Speaker Change: And look at our full year guidance, we do have SCP pressure, that's probably outsized compared to what we would anticipate in the future given the amount of Medicaid Redetermination that's coming in so.
Speaker Change: I would anticipate that absent STP you would have seen.
Speaker Change: Our lower MLR in the range of a little over a point for the full year.
Speaker Change: All things equal the performance of the core book has been very much consistent with our expectations. This year. So.
Speaker Change: Okay. Thank you.
Speaker Change: I'd anticipate that absent SCP you would have seen.
Speaker Change: Your next question comes from the line of Jessica Thompson with Piper Sandler Your line is now open.
Speaker Change: Lower MLR in the range of a little over a point for the full year.
Jessica Thompson: Hi, Thank you guys for taking the question I guess I would say.
Speaker Change: Okay. Thank you.
Speaker Change: That was just that the guide looks like and I'm glad to be their medical claims expense and its flat pantheon quarter over quarter or that risk adjustment payable shrink quarter over quarter.
Speaker Change: Can you just help us understand why either of those two things might occur.
Speaker Change: Definitely in the third quarter.
Speaker Change: Claims expense included some favorable prior period development, which which wouldn't repeat in the fourth quarter.
Speaker Change: Yes, I appreciate that question and.
Speaker Change: Looking at the.
Speaker Change: Implied fourth quarter MLR I would just make a couple of points.
Speaker Change: One I called out some of the the drivers in the third quarter that specifically Covid, which really was a third quarter phenomena. We saw that spike and then conclude before the end of the third quarter. So that won't continue.
Speaker Change: We expect SCP additions will be considerably lower in the fourth quarter. So we won't have that additional pressure.
Speaker Change: And then we have some payment integrity initiatives that we've been executing.
Speaker Change: Throughout the year, but are particularly picking up into the fourth quarter. So all those things we would anticipate will will result in a.
Speaker Change: Flatter growth in the fourth quarter versus kind of what we've seen historically and I know the guide points for the guidance that we put out.
Speaker Change: Got it and then can you can you maybe help us understand how you're risk adjustment and practice has kind of evolved over the last 10 years.
Speaker Change: Oh, yeah, how how the rest of that ethane and Kenneth process and also.
Speaker Change: Forecasting largest county has changed over the last few years can I get more accurate and higher fidelity to the ultimate.
Jason: Jason Thank you.
Speaker Change: Yes, I think on on risk adjustment.
Speaker Change: This is an area, where we do have a lot of history and strong modeling practices.
Speaker Change: Risk adjustment is always the most complicated estimate to make in our financial statements because we have to predict both our own risk score as well as the risk score of the market.
Speaker Change: And do that calculation every quarter on accumulative basis.
Speaker Change: We do get the Wakely information that helps us a lot with our relative position to the market.
Speaker Change: But we use that as an input to our modeling.
Speaker Change: And I would say that we've had a very consistent methodology for risk adjustment that has served us well.
Speaker Change: We've been fortunate to have very stable estimates with respect to risk adjustment, but you know that.
Speaker Change: I always want to caution it is the most challenging estimate that we have to make and there is at a high level of inherent volatility, but we do have strong practices consistent practices that we've been following for several years.
Speaker Change: Your next question comes from the line of Joshua Raskin with Nephron Research. Your line is now open.
Speaker Change: Hi, Thanks, Tim first one I guess I have to ask is just so top of mind, but the Investor day, you laid out that path to $2 25 in EPS and you included the assumption that the extended subsidies would indeed sun Sunset has there been any change in your thinking around that assumption or maybe any change in the estimated impact or no changes to the 225.
Speaker Change: We haven't made any changes to twenty-five Josh, but let me add a few points around it.
Speaker Change: We believe that both parties have an incentive to ensure that the program continues. We're currently at historic low in the U S of below 8% of uninsured going the other way would only confound the inflationary impacts that the.
Speaker Change: The current race focused around and resulted in the and President Trump former President Trump being reelected president.
Speaker Change: And so we believe that they have as much the Republicans have as much in interest in figuring out subsidies now will be exactly the same as they are now probably not there.
Speaker Change: There may be a change at the top end there may be shifts within the within the bands, but when you think about what's.
Speaker Change: What's required in that 63% of our membership in the HCA comes from Red States and Red States for them that we know of are already standing up their own state based exchanges that a this is a product that's here to stay and be there is every intention to make sure that we don't create an inflationary pressure as a result of pulling back.
Speaker Change: Subsidies in pushing people out of health care and into uncompensated care or even worse.
Speaker Change: And then pull out of pocket and increase their burden at home and being able to afford food gasoline and entertainment.
Speaker Change: Yeah that all makes sense, but I guess the base cases scale youre, assuming that 225 assumes they sunset if something were to change favorably I guess, you would revisit that number so I guess I would definitely.
Speaker Change: Yes, okay.
Speaker Change: And then the second question just around new product development you guys have had a couple of interesting releases I'm, specifically interested in that guided care HMO product, how that works or those members expect it to be more or less subsidized and then perhaps any updates on <unk> you guys have any membership estimates for 2025 as well.
Speaker Change: So I would I would start on.
Speaker Change: On the product sets.
Speaker Change: We believe that our rolling out of new products, particularly the HMO product and the HMO product focus was on how do we make it different than hmos in the past and it was about around building using our digital technology to create frictionless care in the eyes of the member.
Speaker Change: Which means we must facilitate the provider getting things like referrals and authorizations through digital means so that there isn't this laborious process of review.
Speaker Change: Rejections denials.
Speaker Change: And approvals so we've taken a hard look at how the product has worked in the past a hard look at our own population and we believe that this frictionless HMO product will be a real opportunity. We're launching it in a couple of markets. This year. It is our intention to use that to get back into California, we need some more work on the California side.
Speaker Change: Before we can present it to the regulators there, but the HMO product. We believe is in a really good place on aircraft. We have 3700 members as of now with open enrollment going on as we speak and a number of a number of markets. So we're we won't get ahead of ourselves in predicting but I will remind you that.
Speaker Change: Our overall three year plan had pretty low membership from the standpoint of the total revenue of the company and the plan. So we're not relying on aircraft for growth, we view or to hit our numbers. We're looking at aircrafts on opportunity that could be a tipping point that could even drive our numbers higher.
Speaker Change: Perfect. Thanks.
Speaker Change: Your next question comes from the line of Michael Hall with Baird. Your line is now open.
Speaker Change: Thank you.
Speaker Change: One of your peers recently mentioned in their expectation.
Speaker Change: Industry market growth of mid single digit dimension.
Speaker Change: I think the implementation of that agent of record loss policy sort of impacted their view on industry growth also one of your larger hospitals also mentioned, 8% to 10% growth assumption Joe given that all these expectations are different than your 15% growth assumption for next year I was wondering if you could discuss your view on.
Speaker Change: On 15% growth next year is that still your view how do you reconcile the difference there training you and your peers.
Speaker Change: So we continue to expect overall market to grow by double digits and open enrollment 25, so that's year over year.
Speaker Change: And we believe that's driven by continued Medicaid redetermination and enhanced subsidies. We believe the 15% may not be at the high end of the range given what that what CMS has done regarding strengthening of program integrity efforts. So it will have some downward pressure, but we still believe that we will see double digit growth in.
Speaker Change: In the Asia market overall, and again, we are launching the new markets. We picked up 700000, new Tam now to a total of $11 million for all of our markets that we are now.
Speaker Change: Open and running for in open enrollment.
Speaker Change: Again, it's obviously too early to talk about what open enrollment growth will be but we see that as an added opportunity for us to hit the 20% CAGR year over year going forward.
Speaker Change: Michael just add two quick things the.
Speaker Change: Because this comparison as open enrollment to open enrollment you have to consider the fact that we've already seen substantial growth for Medicaid Redetermination and the just the growth for Medicaid Redetermination I think gets you to mid single digits based on information that CMS has put out and then on top of that you've got the fundamentals that are underlying.
Speaker Change: The growth in the market that cannot be explained just by Medicaid redetermination.
Speaker Change: And we think those we're seeing those factors happening throughout the year, we would expect those to continue and Thats really the.
Speaker Change: The impact of the enhanced subsidy strong distribution, that's in place as well as growing gig economy, that's bringing new life into this marketplace. So we think all of those things.
Speaker Change: You're going to be a continued tailwind through open enrollment.
Speaker Change: Great. Thank you very much.
Speaker Change: At Investor Day, when you laid out your SG&A, 16% target for 2007, I believe youre asking an assumption for this year over 100 bps higher at the midpoint than where it is now expected to finish the year. So just given the pace of operating cost leverage are experiencing could you talk about your updated thoughts on SG&A.
Speaker Change: Now tracking much better than say 30 70 in your fixed variable, but could you talk about the opportunity opportunity to outperform 16% by 2007, and just given the nature broker commissions would it be reasonable to say sort of a very low point on the mature G&A profile would be somewhere in the low teens. Thank you.
Speaker Change: Yeah, Michael I'll start off and I'll turn it over to Scott as we look at our underlying operating costs, a key lever that we need to continue to pull to a proud of providing affordable product.
Speaker Change: And as we look at the next administration, we view that opportunity is creating freedom of choice affordability and product variation that allows people to have the plan that they believe they want and we believe thats consistent with the aims of the incoming administration. So an important part of it as <unk>.
Speaker Change: We look at our SG&A point in time now we have always more room to grow.
Speaker Change: For that kind of color I'll turn it over to Scott.
Scott: Yeah. So.
Scott: The.
Speaker Change: The improvement in the SG&A ratio that we've seen this year.
Speaker Change: Is roughly half of that is coming from fixed cost leverage and half of that is coming from variable cost efficiencies, which I think are the.
Speaker Change: The fact that we're able to actually drive improvements in both dynamics there.
Speaker Change: Really speak well to the opportunities for us going forward.
Speaker Change: Cost leverage obviously is a critical part of our arriving at kind of our long term destination on an SG&A ratio and Michael you you said that given kind of the the fact that you've got broker.
Speaker Change: Broker expenses you've got.
Speaker Change: Taxes and fees that really.
Speaker Change: Represent a very large share of total SG&A, you're probably in the right.
Speaker Change: Code in terms of you know.
Speaker Change: Low to mid teens of.
Speaker Change: The best that that.
Speaker Change: The efficiency could be I think that's a reasonable estimate, but we've still got significant opportunities to gain fixed cost leverage but we also are excited about our opportunities to drive down variable costs and a lot of the AI initiatives and other <unk>.
Speaker Change: the best that the efficiency could be. I think that's a reasonable estimate, but we've still got significant opportunities to.
Speaker Change: <unk> that we're running in house really speak to making our operating processes more efficient.
Speaker Change: And more scalable. So we think that we're just on the front end up being able to drive continued leverage in performance on the expense side and one more point in 'twenty five the administration has lowered the exchange fees as well, which has been and enhancement going into the year.
Speaker Change: Your next question comes from the line of Adam Ron with Bank of America. Your line is now open.
Speaker Change: Hey.
Speaker Change: Thanks for the question if we try to think about the jumping off point for MLR next year can you help us size the favorable development. This year that won't recur and aside from that should we assume that the point of FPP MLR that you mentioned that was dragging this year should come back or does that take a couple of years.
Speaker Change: Yes so.
Speaker Change: That when you think about the the MLR.
Speaker Change: From the perspective in the quarter.
Speaker Change: Hmm.
Speaker Change: We had favorable PPD, we had COVID-19 we at FCP.
Speaker Change: Covid was roughly 90 basis points year on a year over year basis in the third quarter.
Speaker Change: C P.
Speaker Change: This was.
Speaker Change: Higher than the impact of the C. P was more pronounced than the favorable impact of prior period development. So.
Speaker Change: When I look at the quarter, we were at 84 six on MLR, probably neutralizing those three effects that I just talked about you're somewhere in the low 83 range in terms of run rate.
Speaker Change: On MLR and.
Speaker Change: I think about the go forward impact of MLR.
Speaker Change: If we're in the.
Speaker Change: Mid 81 for the year, given our price position total cost of care, we think theres opportunities to continue to optimize on MLR. Obviously, there is a what you built into pricing and what you're allowed to fall to the bottom line does things always will impact the overall trajectory of MLR, but.
Speaker Change: Looking at where our MLR. This year is given some of the dynamics I just talked about in terms of SCP pressure and alike. We think that we've got a good chance to continue to improve that going forward.
Speaker Change: And then to your point about pricing for next year I think at your Investor Day, You said, you thought that long term or at least over the next few years trend on the exchanges will be at 3% to 5% I think if I heard you correctly, you're priced above that for next year. So curious.
Speaker Change: What's driving that and what what's built into that view. Thanks.
Speaker Change: Yes that that absolutely is.
Speaker Change: What we said and I would say that.
Speaker Change: Pricing is a market by market.
Speaker Change: Almoner and so you know in some markets, we took about 6% 6% the average.
Speaker Change: We think that our pricing allows us to drive margin improvement and also to be competitive. So those are the two things that are always looking for but again, that's on average and in some markets, we had significantly higher price increases and other slower averaging out to about 6%.
Speaker Change: There are no further questions and that concludes today's conference call. Thank you all for joining you may now disconnect.