Oscar Health, Inc.

Good afternoon. My name is Christian, and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to Oscar Health's 2022 first quarter conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Thank you. I'll now like to turn it over to Cornelia Miller, Vice President of Corporate Development and Investor Relations, to begin the conference.

Thank you, Christian, and good afternoon, everyone. Thank you for joining us for our first quarter 2022 earnings call, where we'll share the results about the trajectory of the company and the results of the first quarter. Mario Schlosser, Officer's Co-Founder and Chief Executive Officer, and Scott Blackley, Officer's Chief Financial Officer, We'll 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 the 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 annual report on Form 10-K for the annual period ended December 31, 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 first quarter 2022 press release, which is available on the company's investor relations website at ir.hyoster.com. With that, I'd like to turn the call over to our CEO, Mario Schlosser.

Good afternoon, everybody, and thank you for joining us. Thanks, Cornelia. Great intro, as usual. We will provide you today with a look into our financial results for the first quarter of 2022. Before we get into that, I want to remind you of why we think Oscar is well positioned in the evolving U.S. healthcare system, and I want to build on the themes you heard from us about last month and on yesterday. The past few years have seen the U.S. healthcare system shift more and more towards more consumerization, towards increased risk-sharing, and technology adoption, we believe we have built a business that is well positioned to capitalize on this shift. And we are confident in our ability to deliver on a vision of making healthcare more accessible and more affordable for all. Oscar now serves roughly 1.1 million members across this platform, including approximately one in every 13 ACA lives, or roughly 7.5% of the overall markets. In the regions where we offer coverage, our market share is roughly 16% this year, first quarter membership and premiums are up approximately 100% year over year. That's driven primarily by growth and by retention in the individual and small group markets. That's the kind of growth that we view as a clear indicator that consumers see the value in the differential product offering we have. And importantly, at the same time, we are expecting meaningful year over year improvements in the medical loss ratio into the range of 84 to 86% for the year. We saw 80 plus percent of our individual members stay with Oscar and 85% of our C plus O members who are up for renewal after their full year contract period stay with us. Digitally engaged members are six percentage points more likely to renew and our net promoter score continues to climb, ending the first quarter at an all time high of 43. As we see inflation and the cost of goods rising, our ability to direct our members to low-cost, high-quality care options is even more critical, particularly given that our book has been shifting towards a higher proportion of Silver members, a cohort with higher mobility, where engagement is even more important and impactful. We see in the first quarter that our Silver members are 15 percentage points more likely to use our care router to find care compared to other Oscar members. For our small group products, we continue to see strong growth as well. We ended the quarter with more than 36,000 C++ members across eight states. Membership nearly doubled between the fourth quarter of 2021 and the first quarter of 2022, with monthly membership increases across all of our markets. This growth is driven largely by our strong product market fits, including the expansion of our dual network strategy and the ability for our chassis to meet the needs of small employers. As I mentioned earlier, we are seeing high retention rates with our C++ members and attribute this, in part, to our high levels of digital engagements. Looking ahead at overall market dynamics, we think the individual market is becoming a more dominant force in U.S. healthcare. Pending some regulatory changes, including Medicaid redeterminations and the elimination of the family glitch, have the potential of pushing the ACA market up to 20 million members next year, Medicare Advantage, for comparison, has approximately 29.6 million members now, and that would mean that it took the MA market nearly 20 years to get north of 20 million, compared to just 10 years for the ACA market to reach a similar stage of maturity. As a company, we know how to thrive in such a consumer-driven, cost-competitive market where affordability and experience matter, and we think that's a quiet revolution in U.S. healthcare that will continue to change the game. For the rest of this year, we continue to focus on execution, turning to our strategic priorities for our insurance business. First, we are targeting profitability for Oscar Insurance in 2023. Second, we expect to improve our margins by harnessing the power of our technology to drive down the total cost of care in a membership. And finally, we aim to drive long-term above-market growth and retention. Let me give you a few examples for each of these. Starting with, as you know, we are emphasizing profitability over growth this year. One lever is pricing, and our planned year 23 pricing strategy contemplates market dynamics, exogenous trends, and our drive for market expansion. In addition, the team is focused on driving towards greater variable cost efficiency, using our technology to reduce manual processes, as well as leveraging our scale to obtain better unit costs. For example, today we automate about 5% of our responses to inbound messages from our members. And we think we have meaningful opportunities to increase this automation of inbound messaging to at least 20% without an impact member experience. Additionally, we're looking at ways to expand our self-service tools for members, as we know that about 70% of those who call a care guide also have a digital account. And heading into 2023, we expect to achieve additional operating leverage through continued top-line growth and limited fixed cost growth. In terms of driving down total cost of care, we are executing on several key areas for medical cost savings. For utilization management, we are extending our automated utilization management decisioning and program communications for providers, thereby reducing the need for manual intervention and allowing our clinicians to focus on more complex care management issues. We also continue to focus on payment integrity, on our ex-formulary management, in population health campaigns and in closing care gaps. For example, members using our virtual primary care platform were 40% more likely to get their diabetic eye screenings compared to a control group. Members who see one of the Oscar care virtual primary care providers are seeing primary medication adherence at roughly 85%, also by our $0 generic drug offering on these virtual plans. And finally, looking at growth and retention, we are focused on balancing this with profitability. For example, we are expanding our virtual primary care plan offering to new states and markets, given the influence on total cost of care. Our ability to achieve above market growth and retention, even when we were not the lowest price plan in the last open enrollment period, is the result of multiple tactics coming together in the leveraging of the most differentiated parts of the Oscar product offering. Now we've had tremendous growth and we've had some good MLR performance trend into this year, and those give us confidence and afford us the opportunity to focus on markets where we can win. As such, we are focused on modifying our portfolio mix by markets and by products. This quarter, we made the decision to withdraw from the Arkansas and Colorado marketplaces for the planned year 2023. These are relatively small markets for us, and we intend to make these exits as seamless as possible while continuing to provide service to the existing membership in these states throughout the year. Turning now to PlusOscar. Despite being in the market less than a year, we have approximately 100,000 client lives served. We expect these clients will generate 65 to 70 million in capital efficient fee-based revenue within this year. We have three strategic priorities for PlusOscar. The first is to serve our existing clients well, leveraging the ongoing learnings we are gaining from the first full book migration we implemented with Health First health plans. These full book migrations are complex and challenging, and we continue to optimize our implementation strategy in partnership with Health First. We look forward to supporting Health First health plans and the expansion efforts for 2023. Second, we are adding modularized offerings. And the news here is that we are already in the market selling our first externalized software as a service solution, our campaign builder tool. As we have talked about, one of our secrets to success as a highly engaging insurer is our ability to spin up new campaigns and new workflows very quickly. For our own membership base, we run hundreds of campaigns concurrently with right now, when I look at the dashboards, a 48% member engagement rates. And with the launch of a campaign builder tool to the external world, we are now offering our toolkits and contents to other regional health plans and risk-bearing providers. This solution enables scalable, personalized interventions, and it automates workflows to drive growth and manage risk. The tool is a self-service solution designed for non-technical teams to be a one-stop shop for engagements, driving clinical outcomes, and improving efficiency. Clients can build programs or campaigns that can be A-B tested. They can deliver interventions with multiple touch points over time to drive behavior change. And these campaigns deliver moreover meaningful business results. We by now have amassed a large knowledge base of powerful and road-tested campaigns because we are this Differential mix of both a risk-bearing insurer and a technology company. For example, one campaign to increase annual wellness visits appointment bookings resulted in a roughly 15% increase in visits scheduled and a 20% reduction in no-shows. And finally, in Plus Oscar, we're continuing to take steps towards offering our full platform as a software as a service solution, besides it as a business process as a service solution, in order to increase our time and to expand the margins. Our prospective clients are saying that they like our tooling, and a SaaS solution will allow for an easier integration onto our platform. Moreover, SaaS deals are largely software solutions, so we'd expect them to have 40% plus margins. We've had some exciting tech launches this quarter as well. And I always want to also mention those to share just a few examples. Outbound interactions from concierge care guides are now driven by an aggregate score of all underlying tasks for a particular member. And that lets us make sure that we drive outreach to the highest priority individuals and tasks. And because we're built on a tightly lined tech stack, a change like this in one place flows to everywhere, helping us prioritize campaigns better. Deep in our core admin systems, we launched a product update that merges imported provider rosters continuously rather than the batch process. As a result of this update, data staleness for provider data went down from hours to minutes, and it led to an elimination of the need for manual engineering interventions for updates of provider rosters and provider data. That, in turn, another change, made it easier for us to improve how we rank facilities in our KRouter by efficiency, not just positions, but facilities. These are just a few examples for ongoing improvements in our infrastructure, and we have a lot more coming this quarter as well. We remain steadfast in our commitments to our strategic priorities of positioning the insurance company for near-term profitability, of continuing to increase the penetration across the US insurance markets, and of accelerating growth for Plus Oscar. We view the first quarter results as a positive step on the path towards these objectives. And with that, I'd like to bring in Scott.