Oscar Health, Inc.

Good afternoon. My name is Maria, and I'll be your conference operator today. At this time, I would like to welcome everyone to Oscar Hulch's third quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to turn it over to Cornelia Miller, Vice President of Corporate Development and Investor Relations, to begin the conference.

Thank you, Maria, and good afternoon, everyone. Thank you for joining us for our third quarter earnings call, where we'll discuss our financial results, the momentum in our business, and our updated guidance. Mario Schlosser, Oscar's co-founder and chief executive officer, and Scott Blackley, Oscar's chief financial officer, will host this afternoon's call, which can also be accessed through our investor relations website at ir.highoscar.com. 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.highoscar.com. 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, including those discussed in our quarterly report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC and our other filings 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 our third quarter 2021 press release. which is available on the company's investor relations website at ir.hyaster.com. With that, I would like to turn the call over to our CEO and co-founder, Mario Schlosser.

Thank you, Cornelia, and good evening, everyone. Thank you for joining us. And this is really always such an honor to do, so thanks for being with us. Today, we will provide you with updates on several topics, our financial results for the third quarter of 2021, our 2021 full-year outlook in the context of our third quarter results, And lastly, our perspective on a market position for 2022. Let me start with the third quarter results. Our revenue membership growth rates continue to be strong. Our direct and assumed policy premiums increased 54% year-over-year, and our premiums before seeded reinsurance increased 62% year-over-year, driven by our membership growth as well as business mix shifts towards higher premium plans. We believe this growth is a result of our strong brands, best-in-class member experience, and solid distribution and provider relationships. Our quarterly results represent the second year in a row of greater than 50% top-line growth. With respect to membership, we ended the third quarter with 594,000 members, an increase of 41% year-over-year, representing our third consecutive quarter of growth as a public company. This growth was largely driven by membership increases in our individual business as a result of the special enrollment periods. Florida, California, and Texas continue to drive the majority of our special enrollment growth. At the book level, FEP membership growth was slightly above the market, and we have seen intra-year retention stronger than in previous years. From a medical loss ratio perspective, this special enrollment growth is a headwind in 2021, largely because we have a more limited opportunity to collect risk adjustment scores on these members. However, we expect this to shift to a tailwind in 2022 because of membership retention and expected improved MLR performance for this cohort in the years ahead. For 2022, we continue to pursue disciplined pricing that balances growth and profitability. Entering this open enrollment now, we are the lowest price plan in fewer markets than we were in 2021. Specifically, we have the lowest cost plan in just 5% of our markets next year. We are also priced for an endemic COVID environment, including costs related to ongoing testing and vaccinations. My kids got the vaccine just this weekend, which I'm very happy about. Broadly speaking, we increased our rates at the book level and we priced to achieve growth and improve margins next year. Now we are 10 days into open enrollments and we're seeing great traction in the markets and our product offering is meeting the market where the demand is. Heading into 2022, we announced arrangements with new health systems in several states, including Florida, Texas, Illinois, and Colorado, These strategic contracts demonstrate the ongoing interest from health systems and providers looking to work with Oscar as we broaden our network in key markets. We expect these to drive additional membership growth and improve overall unit economics in our individual business in the coming years. We also saw solid performance in our Cigna plus Oscar business. We've nearly doubled our membership over the last quarter, driven by continued growth in Connecticut and our expansion into Kansas and Missouri. We're optimistic about our potential in the small group segments. As you know, we are currently in the midst of the annual enrollment period for Medicare Advantage, and we look forward to sharing more about our growth there at our next quarterly earnings call. Our primary focus in expanding Medicare Advantage is onboarding our Health First members, which I will talk about more in just a minute. Now, turning to our medical loss ratio. Scott will be spending more time on this shortly, but I want to note that we had pressure on the MLR this quarter. Our consolidated medical loss ratio for the quarter was 99.7%. This is clearly higher than anticipated, driven in part by net COVID utilization that was higher than expected, by higher than expected special enrollment growth, and by some adverse risk adjustment audit results. Looking through these drivers, we believe they are predominantly issues that we anticipate will not carry into next year based on the landscape we see today. As I said, Scott will unpack this in more detail later in the call. On COVID, we saw costs rise in the third quarter compared to the second quarter, largely driven by the Delta variants. These costs were partially offset by the third non-COVID utilization. We saw these COVID costs peak in August and reduce in both September and further in October. Of note, at the end of October, we saw a 70% reduction for COVID hospitalizations relative to the August peak. Today, we are tracking to a COVID conversation volume in our concierge and care teams that is in line with pre-Delta wave levels. We anticipate the acute impact of COVID to continue to subside, barring additional variant strains, and we will keep a close eye on the landscape for the remainder of the year. Turning now to Plus Oscar, our technology platform business. This is a reminder, in Plus Oscar, we are enabling insurers and providers to become more consumerized, to bear risk, and better provide longitudinal care. We see these three trends continue to ripple through the overall healthcare markets, providing a fertile ground for further growth in Plus Oscar. Our conversations with prospective clients are advancing in the pipeline, and we continue to build out the top of our funnel. In fact, one piece of feedback we are hearing in our conversations in the panel is that providers are looking to build out their share of wallets in their local communities. Therefore, we believe that growing our insurance book of business is also a positive for pitching our Plus Oscar solutions. And we continue to view both parts of our business, insurance and platform, as synergistic. A key focus currently in the Plus Oscar strategy is quality execution for our current Plus Oscar clients. We're actually today about seven weeks out from the cutover for Health First to our platform, where approximately 60,000 of Health First members will fully transfer onto the Plus Oscar platform. To date, we have actually already successfully become the source of truth for all Health First Plan Year 22 enrollments, and we are supporting their growth strategy for their MA and individual business lines. PlusOscar is already managing the Health First enrollment processing, and their members are being onboarded on the PlusOscar Power Digital experience. In 2022, we anticipate an additional approximately $50 million of PlusOscar fee-based revenue from the arrangements based on current membership. Virtual primary care is a part of our PlusOscar platform, continues to perform well in the markets we are offering it in in 2021. This offering, delivered by the Oscar Medical Group, now represents about 20% of our members' primary care delivered in several of our largest markets. Beginning in 2022, we are expanding our virtual primary care offering into more individual markets and, for the first time, into Cigna plus Oscar markets. Looking ahead, we remain focused on continued growth to increase the scale of our businesses, which will be a driver of improved bottom line results over time. And we are targeting profitability in our insurance business in 2023. Our insurance strategy continues to focus on lowering the total cost of care and achieving greater economies of scale in operations. We strive to be a best-in-class insurance business, which requires balancing our member focus and improving our business fundamentals. That includes three components. One, growing revenue at a rate faster than the industry to increase market share and building additional insurance capabilities. Two, growing our costs at a rate lower than our revenue growth as a result of the efficiencies and process improvements gained from the Plus Oscar technology stack. And three, reducing overall medical costs by continuing to extract value from the tools we have built to engage our members and to engage and enable our provider partners, therefore continue to make healthcare more affordable and accessible for our members. With that, let me turn the call over to Scott.