Oscar Health, Inc.

Good afternoon. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Hilt's 2022 second quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Cornelia Miller, Vice President of Corporate Development and Investor Relations, to begin the conference.

Thank you, Christy, and good afternoon, everyone. Thank you for joining us for our second quarter 2022 earnings call, where we'll walk through our results and our trajectory for the rest of the year. Mario Schlosser, Officer's Co-Founder and Chief Executive Officer, and Scott Blackley, Officer'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 March 31, 2022, filed with the SEC, and our other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended June 30, 2022, to be filed with the SEC. The 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 second quarter 2022 press release, which is available on the company's investor relations website at ir.highoscar.com. With that, I would like to turn the call over to our co-founder and CEO, Mario Schlosser.

Thank you, Karilia. Hello, everyone, and thank you for joining us. Today, Oscar is serving more members and more clients across the healthcare ecosystem than ever before, and I'm proud of how our products are making healthcare more affordable and more accessible for so many. In the second quarter, we have continued to build on our momentum this year, and we're excited to provide an update on the progress we have made across a number of our priorities. As you know, we nearly doubled in size this year in terms of membership. And even with this dramatic growth, our results from the first half of the year are on track. And we remain confident in our ability to deliver on our guidance for the full year. Today, we report that direct and assumed policy premiums increased 101% year over year to 1.7 billion for the second quarter of 2022. Our medical loss ratio was 82.2% in the quarter, a decrease of 20 basis points year over year. We are seeing meaningful operating leverage from our scale in our adjusted admin expense ratio, which improved 140 basis points year-over-year, and we are entering the back half of the year well-positioned to deliver on a full-year outlook. Looking first at our individual business, as you know, we have meaningfully increased the scale in our insurance business and now serve over 1 million members. We now cover approximately 1 out of every 13 individual ACA lives, or roughly 7.5% of the overall ACA markets. In these specific regions where we sell our plants, our market share is roughly 16%. And even with our growth this year, we continue to see industry-leading net promoter scores, particularly in states like Florida, where we have a large membership base and a score of 56 on the net promoter score this past quarter. In the first half of the year, in addition to supporting the significant increase in our scale, The team has been focused on initiatives to reach insurance profitability in 2023. We have developed an impressive number of product features and platform enhancements, with the majority focused on lowering the total cost of care for our members and improving operational efficiency. I'd like to give you a few examples for this. Let me start with our expanded use of what we call our care journeys. These are our automated, fully digital outreach campaigns designed to improve clinical outcomes. We use them in our case management, and we use them in our OSCAR virtual care teams. One of those care journeys, which leverages a fully automated EMR integration to prompt providers about required screenings, has resulted in about 10% higher adherence for three primary cancer screening metrics year over year. We also talk about what we are doing to address some common issues that impact managed care organizations in the same vein of the process improvements and tech improvements we've been implementing. For example, we have refactored our system to improve the coordination of transferring members from out-of-network to in-network facilities. This work is designed to provide members with the holistic support they need for longitudinal care, and we have successfully transferred about 60% of all attempted transfers so far this year. Finally, a great example for another one of the many issues generally in healthcare, that's reduced overall medical costs and improved member experience and improved provider satisfaction. We have a process that we call the total cost of care process. So we constantly detect over-utilization or overflowing costs. In that process, we detected recently increased utilization of the treatment of uterine fibroids due to increasing awareness of the issue and the population getting older. And we saw that this treatment often occurs with an outdated treatment protocol. There was recently a FDA approval of a new, less invasive procedure to treat this condition. And so we were able to quickly modify everything from claims logic to provider campaigns to member campaigns and communication, including how this all shows up in our digital products, in order to focus utilization, improve candidate outcomes, and drive down the total cost of care for these members. To be able to do something like that quickly is a great example for the wholesome impacts of a tech-driven insurance company. We are also pushing ahead on administrative efficiency projects. including continued improvements to our claim system to improve payment accuracy and the strategic replacement of some vendors. As we look ahead to 2023, we are prioritizing margin expansion in our individual business. The pricing submitted for 2023 plans, we expect an average rate increase in the high single digits, and we have assumed that the ACA enhanced subsidies are extended. It's been now about 10 years that we are in this market and we think we understand the AC market very well, including the local nature of many of these individual rating areas. And so our pricing is nuanced and focused on margin expansion while maintaining a competitive market position in key markets for 2023. For C plus O, our small group products, we have had a particularly strong first half of the year with respect to growth. Recently, we reached the 50,000-member milestone, which is up 10x year over year. We continue to hear positive feedback from the markets about the unique product we have developed there, and we are excited to announce that we plan to expand into the Philadelphia market starting on 1-1-2023, and we look forward to building on a collectively strong brand presence there. We also look forward to growing our virtual primary care offering for 2023 across the book and into more markets. In fact, expanding further on our technology platform, let's ask her, let me provide an update on how we are prioritizing our resources. First, as I said earlier, we have been focusing substantial resources on enhancing our infrastructure to serve the dramatic increase in membership we achieved during open enrollments, and most importantly, to drive the insurance company towards profitability in 2023. Second, we have devoted potential resources to the Health First implementation, and the resolution of post-launch challenges that we are experiencing due to the complexity of a comprehensive integration at this scale. Now, given these two demands and our resources, we will not pursue full-service Plus Oscar deals for implementation in the next 18 months. We certainly remain committed to the Plus Oscar business. Our ongoing engagements with the market reinforces our decision to deliver our offering increasingly as software as a service and to deliver more modularized offerings. Not only do these offerings typically involve a shorter sales cycle, but we are also hearing that Plus Oscar can deliver meaningful value to providers and other players looking to take on more risk, and that these organizations see value in more modular solutions. So we are actively moving forward with the developments and sale of Campaign Builder, our first Plus Oscar modular product. Here, our conversations with prospective clients are progressing well. As the team prepares the technology for externalization, we are also adding important features built based on market feedback. Specifically, we recently launched a next best action feature, which surfaces only the highest priority messages at any given time to members to improve conversion rates. Since the features launch, almost 51% of Oscar members have engaged in a campaign with engagement rates of 55%, and we expect our campaign builder clients will benefit similarly from the new feature. Now, before I turn the call over to Scott, I'd like to spend a moment talking about the regulatory and legislative landscape that could impact the total addressable market size in individual for 2023. With regard to subsidies, we are pleased to see the Senate pass the Inflation Reduction Act, and as you know, that includes an extension to the enhanced ACA subsidies to 2025. We expect that the package will pass in the House as well, and that the enhanced subsidies will continue for the next few years. With regards to Medicaid redeterminations, regardless of whether the public health emergency is extended in October or beyond October, we predict that the majority of redeterminations will occur in 2023. Importantly, we have included an assumption for Medicaid redeterminations in our 2023 pricing. We believe these items, in combination with the potential for addressing the family glitch, should be a tailwind to expanding ACA markets next year.

With that, I'll turn the call over to Scott.

Thank you, Mario, and good afternoon, everyone. Our second quarter results show solid execution across our businesses. We have delivered against our 22 plan through the first half of the year, and we are reiterating our full-year guidance. We ended the second quarter with approximately 1 million members, an increase of 84% year-over-year, driven by growth predominantly in our individual and C++ small group books of business. Our net year earned through the first six months is trending positively compared to our historical experience. In the quarter, our lapse rates were favorable, and we had modest special enrollment member ads. Second quarter direct and assumed policy premiums increased 101% year-over-year to $1.7 billion, driven by higher membership and business mix shifts towards higher premium silver plans. Turning to medical costs. Our medical loss ratio was 82.2% in a quarter, an improvement of roughly 20 basis points year-over-year. This improvement was driven by pricing actions, lower COVID net costs, and initiatives targeted at reducing the total cost of care. We also had some offsets from a lower amount of favorable prior period development compared to the prior year, which was 42 million favorable this quarter versus 54 million favorable last year. Key drivers of the PPD this quarter include significant favorable current year development related to the first quarter, which was partially offset by net unfavorable development related to 2021 risk adjustment. On a year-to-date basis, we have had negative prior year development of approximately $42 million, which was related to 2021 and 2020, and which we believe are driven by issues that are specific to those periods. we saw direct COVID costs that were down year over year and quarter over quarter. Importantly, based on what we are seeing in our data, we believe the current COVID wave has peaked. Regarding non-COVID utilization, it was slightly below baseline in the quarter, which effectively offset our COVID costs. I also want to note that as we expected, the MLR performance of our 2021 SEP members, who we retained in 2022, has thus far been consistent with other members from open enrollment. Compared to 2021, we anticipate lower new members via the special enrollment period in the second half of this year, which we expect to be a tailwind to our year-over-year MLR performance. Switching to administrative costs, our second quarter 22 insurance company administrative expense ratio was 19.5%, an improvement of 30 basis points year-over-year driven by fixed cost leverage and variable cost efficiencies. We saw even greater operating leverage from our scale in our adjusted administrative expense ratio, which improved 140 basis points year over year. This improvement is notable given the fact that we continue to make investments to meet the increased scale of the business. Importantly, we are focused on tightly managing our controllable costs in the second half of the year to ensure our expense base going into 2023 is aligned with our profit targets. Our overall combined ratio, which is the sum of our medical loss ratio, and the insurance company administrative expense ratio was 101.7% in the quarter, an improvement of 50 basis points year-over-year, driven roughly equally by the MLR and the insurance company administrative expense ratio improvements that I previously mentioned. On a year-to-date basis, our combined ratio is 99.6%, reflecting a consolidated profit across our insurance companies. Our second quarter 22 adjusted EBITDA loss was $76 million, which was $25 million higher year over year, but as a percentage of premiums before seeded reinsurance improved by 130 basis points from last year. Turning to the balance sheet, we ended the quarter with over $3.6 billion in total company cash investments, including $611 million of cash investments at the parent and another $3 billion of cash investments at our insurance subsidiaries. At the end of the quarter, we had $670 million of statutory capital at large at our subsidiaries, including $150 million of excess capital. At this point, we believe we are well capitalized for the next couple of years under our plan. Based on the results to date and our forecast for the second half, we are reaffirming our guidance across all of our metrics for 2022. Our second quarter and year-to-date results are in line with our plans, and we believe lay the groundwork for us to achieve insurance company profitability in 2023. With that, let me turn it back to Mario.

Thanks, Scott, and thanks to all of you for joining our call today. I'd like to close by reiterating a few key points. We are drafting off the strong momentum in our first two quarters and are maintaining our full year guidance. We are on track with our plan to achieve profitability in our insurance business in 2023, driven by our discipline pricing strategy, by our admin efficiency work, and by our medical cost management initiatives this year. And that has been due to a lot of very, very hard and focused work. I would like to thank all the OSCA employees. It's their dedication and tenacity that makes this possible.

Now with that, we'll turn it over to the operator for the Q&A portion of the call.

Thank you.

If you would like to ask a question at this time, please press star, then the number one on your telephone keypad. Again, that's star one. And your first question comes from the line of Michael Ha with Morgan Stanley. Your line is open.

Hey, thank you, guys. First question, just any update on how 2021 final risk adjustment table settled out? And also, given you've probably now received your weekly risk adjustment report,

you update your 22 risk adjustment assumptions i i noticed your risk adjustment transfer payables went up about 400 million each quarter curious how much did it impact your mlr performance thanks yeah let me uh let me just give you an overview of what happened um with ppd and risk adjustment so in the quarter we received both the final cms report for 2021 and we also got the first quarter We got the 2022 report from Wakely. And so, you know, those two things came into the quarter, which were, you know, the primary drivers of a lot of our adjustments. And, you know, in total, we ended up with approximately, as I said, 42 million of favorable prior period development. And there are really two things that drove the quarter. First off, we had positive development on claims estimates that were primarily related to some of our newer markets. And in those markets, we used proxies from other markets to build our estimates. And what we saw there is that actual performance came in much better. And so that was favorable to the tune of about $68 million. And then the second factor hitting the quarter was unfavorable 2021 risk adjustment development, to your question. And we think that that is mainly attributable to market deterioration that happened in the back half of last year, where it looks like that the market got a bit sicker, really, versus our book. And that's probably really likely related to some SEP growth dynamics. And that was about 26 million of adverse development. And we think that that dynamic was really pretty specific to 2021. And then there were some other offsetting smaller items that were puts and takes in there. And then just to kind of pull up on a year-to-date basis, I mentioned that we had about $42 million of unfavorable development, and two-thirds of that is related to 2021 risk adjustment, and a third of it's related to 2020. And, you know, big picture, you know, risk adjustment and estimates is very challenging, but overall, we were pretty consistent with the reporting that we got from Wakely. We didn't have, you know, you know, too many significant adjustments on 22, slightly positive there. You know, with risk adjustment, you really have to focus on executing your processes in a pretty, you know, consistent, competent way. You're having to make adjustments and estimates for what the market's doing. So, you know, the volatility that we see in this area, we actually think, you know, confirms that we have a pretty good process.

Got it. Thanks, Scott. That's really helpful. And then just one more. As you think about the Plus Oscar pipeline, I think in the past you've mentioned about one to two deals a year, but given you're no longer pursuing full service, the past deals for the next 18 months, but you're also rolling out new SaaS modularization efforts. Curious, how does that impact your original one to two deal a year target? Has that changed at all?

So, yeah, we talked about this yesterday in the last quarterly earnings call as well. The modularization question is really one we've been consistently getting for the past 12 months of being out in the markets. It's great for us to be out there and actually offering campaign builder now. That's getting good reception from what we can see in the market now. And so there we expect a higher number of these we can do over time. It's a shorter sales cycle generally. And exactly as you said, because of the large growth we had, because we want to support the existing clients in the execution there, we really said for the next 18 months, let's not shoulder another implementation of a big full service deal. Now, overall, The trends in the marketplace, I think, are very much alive and very much on target. There is a continued shift, as we can see, from hospitals and health systems towards taking more risk, towards kind of reaffirming and shoring up their health plans. We think it is still difficult to get a modern day infrastructure besides ours that helps folks take risk in a good way and connect to the member engagements. And so very much continue to be out there in the marketplace and negotiating. And I think at this point on these full service deals, we're already talking about 2025 and beyond.

Got it. Thank you, guys.

Your next question comes from the line of Steven Baxter with Wells Fargo Securities.

Your line is open.

Yeah. Hi. Thanks. I just wanted to follow up on, you know, a couple of the Plus Oscar questions there. I guess first, you know, I did think I heard you say kind of post, you know, launch challenges. We'd love to just hear you expand a little bit on what exactly that means, either clarifying, you know, what you said about this, or expanding on the issue. And then just as you talk about the 18-month horizon, I guess why is 18 months the horizon? Why is it not six months? Why is it not 12 months? What's the thought process there? It's just good in the pipeline, you know, getting rather elongated and these deals taking a long time. to consummate in the first place, you know, we feel like that potentially could push full service revenue out into, you know, late 2025, maybe even 2026 before we see more of that. So just want to understand these issues much better and then maybe I'll follow. Thank you.

Let me start with a, um, with a comment I made on the, on the launch challenges. So as we told you last quarter, these full book migrations are complex and challenging. Uh, they're also not done after launch. So we're really in the middle of the work of making sure we support the integration there. We're now seven months in and working through refining the implementation. What we wanted to do there is to recommit additional resources necessary to support the new clients, and we're making progress there. It's a really important priority for us, as we talked about, so we want to make sure it's done right. And as a result of that, we're being thoughtful about not overextending ourselves by taking on new full-service clients for the near term. now in terms of the 18 months um you know this we are out there in the marketplace continue to talk about some future full service yields uh and that you know we at this point we can start to get into 2035 even in in conversations already give ourselves more to give ourselves more time to get the implementation right and um that means that we will continue to be in the marketplace uh and in in many cases we have a chance of actually launching campaign build implementations that might then lead to follow on implementations that become bigger and bigger. And that's where the full focus is right now, because we just think that that is a prudent thing to do, given how much we grew. And most importantly, given that we are really doing here is to use the infrastructure we built in the past 10 years to show an impact on healthcare costs, member experience. And we have such an incredible opportunity of getting to insurance company profitability in 2023 on our now big book of business that we really want to make sure that that becomes the primary driver of the internal efforts and the internal work.

Okay.

Your next question comes from the line of Jonathan Young with Credit Suisse. Your line is open.

Hi, thanks for taking the question. Just a question on your high single digit pricing comment. This does seem to be a bit in line with the national averages that have been coming out, but I guess in some of your key markets like Florida, how does this compare? And if you did see a large bolus of membership come in in 2023, would this alter the dynamics of you achieving profitability in the insurer co?

Yeah, Jonathan, thanks for the question. As we said, our 2023 pricing was really laser focused on prioritizing margin expansion. And as you mentioned, the rate increases that we made were on average high single digits, which is kind of in the ballpark of what many were doing. But I would also just comment that it really is a nuanced picture where you have to go region by region to really understand the competitive landscape there. if we just kind of pull back and look at the market, you know, overall, it's a very competitive market. And from what we've seen, we're seeing that, you know, the more experienced players in the market seem to be on the upper end of price increases. And then on the other hand, you know, there's other players, including some large players who seem to be more aggressive in coming in there. And so, you know, our take is that those with the most experience appear to be you know, pricing up at this point in the market cycle. And then, you know, I just think that overall for us, you know, we think that we have, you know, priced with a goal of obtaining margin expansion. We're well positioned to deliver that.

Okay, great. And then just on the plus ask.

Your next question comes from the line of Kevin Fishbeck with Bank of America.

Great, thanks. I guess I want to go back to the plus Oscar thing. I guess a couple of questions. You know, when you guys first outlined this change in strategy, it seemed like it was an addition rather than a replacement over the next 18 months. So I guess I understand how you want to focus on the health and profitability, but when you first unveiled it, it didn't sound like it was going to stop you from making that progress or from doing the full-scale launches. So it does sound like something is different. I just want to make sure that I understand that. But then also, how should we think about, since financing is a question, I appreciate the two-year liquidity comment, but how should we think about this change at all? Like how much earnings might you not have versus kind of initial models because you're not selling things for the next 18 months versus the cost of doing this switch, just trying to better understand the implications of what's going on and the delay.

Yeah, let me start by what hasn't changed. What hasn't changed with regards to Plus Oscar is I think number one, our opportunity in our product market fits, particularly in this changing healthcare landscape. I mentioned before, I think in our conversations, the shift towards risk, the need to focus more on your experience, even the entry of bigger tech players in this. These are all trends that we called a while ago and that exactly remain alive. That's an opportunity and we have product market fit there. The second thing that has not changed is the importance of long-term strategy. So the critical takeaway here is uh i continue to believe certainly that plus oscar is a viable business and it will be material component of oscar over time uh again reinforced in conversations we're in um and uh in conversations we continue to be in as well uh i don't think that's um as i mentioned a lot more competition on modern day infrastructure out there and so we can give ourselves the time and pause on these full service implementations for these 18 months to make sure we focus on scaling the business for the one million members and the profitability targets and serving existing clients. That's really it. The ultimately, plus Oscar, to me, sort of if you go get philosophical for a second, is about we've got technology we built, we've got infrastructure we built, and we want to use that to make healthcare more affordable. Remember experience. The most exciting proof points we can now achieve is next year delivering on insurance co-profitability. That's what's getting us excited. And that is also, we think, is exciting for prospective clients. And that's the coupon we're really trying to earn here. And in the meantime, then continue to build our footprint through campaign builder, which is just a shorter single cycle. And so let's unlock additional client sets as well.

Yeah, Kevin, why don't I speak to your question on kind of the impact of these decisions on, you know, kind of on cash and liquidity. And I would just say, first of all, that, you know, we continue to be targeting total company profitability in 2025. The most important component of delivering on that is getting the insurance company profitable in 2023 and then more profitable thereafter. So if you think about our resource allocation, we're actually putting our resources towards our most important objective. And then I would say, secondly, as we look to grow Campaign Builder and other modularization services to follow, we think there's an opportunity to deliver profitability, the question is that that might be a little bit slower than what we had originally expected, but we still believe there's significant opportunity. And so that will be one of the levers that will help us to get to profitability. And then I would just also say that depending on the trajectory of how profitable the insurance company is able to move over time, we'll need to be very focused and careful about managing our holding company spend levels. So those are really the components that I think are going to be able to help us drive getting to insurance or total company profitability in 2025.

Your next question comes from the line of Josh Raskin with Nifrin Research.

Your line is open.

Hi, thanks. I just wanted to go back to the pricing and expectations for next year. So you talked about the high single digit pricing next year, which you think is Overall, probably sounds consistent with the market, but I think Scott, to your point, varies dramatically by market. So I guess trying to figure out more specifically, based on the pricing actions that you've taken, what does that really mean for Oscars competitive positioning? And do you think you grow or contract relative to the overall market? And I'd be interested to hear views on your thoughts on the overall market, which I think you guys have been talking about. expectations for growth, you know, before family glitch fix and things like that, but just with the subsidies getting finalized, et cetera.

Yeah, Josh, well, look, I appreciate the question. I'll just start off by saying that it's too early for us to be given any guidance on 2023. So I'm not going to give you any type of directional feedback on, you know, what we're anticipating for that period at this point in time. And when I just step back from the market and look at what's going on, on the one hand, you've got SEP or the extension of some of the programs that we saw really supporting growth in the marketplace to date. And so we think that's going to be a continued tailwind, Medicare redetermination, family glitch. Those are also things that can expand the market. So we think the combination of you know, pricing in a larger market positions as well in terms of where we may see ourselves going in 2023. But we'll come back to you and give you some more updates on our guidance for 2023 at a later date.

As you asked about the overall market and pricing, and I want to reiterate what Scott said there, I think we've been also saying for a while that we think the increases will be for the overall market in the high single digits. I think the latest I've seen is across something like 35 states now, including Texas, is about 8.3% or so. That is mainly some interpretation because some of that is probably prior to subsidy extension, some is after different states have different tiling requirements there, right? um so uh it's good to see i think that we have not we have an understanding of how the markets operates nowadays that we were able to roughly predict where that would go um what scott said earlier what i want to reaffirm is that we see some of the experienced players in this market price up more and we see some of the ones who came back in price more aggressively and if there's one thing we have learned in the last eight years sometimes painfully ourselves is that we don't want to chase um when people try to go in certain markets and try to underprice or something like that and so uh we feel comfortable comfortable with how we're pricing and it's very regional as we said and uh as the pricing comes out throughout september and october uh we'll see more cards turn over there your next question comes from the line of lindsay gola goman sachs your line is open

Hi, thanks for the question. Just to go back to the HICS market again, I'd love to hear more about how you're approaching plan design, and then just to hear if there are any areas where you're making investments, how you think that might compare to competitors, and then just thinking also about the positioning, how the more disciplined pricing and maintain markets might fit into the targeted high teens to mid-20s revenue growth as you work towards profitability. Thank you.

Yeah, plan design, I think, is one of the superpowers of the insurance company, and so it It's been an area for us where every year I wish we could be doing even more creative things. Where in fact, actually next week, we have a first meeting for innovative plan design for 2024, believe it or not. That's really how early we start the process there. We have a number of new things we're doing this year. I don't want to go too much into detail there just yet because that hasn't all come out yet. But for example, as I talked about in the prepared remarks, We're taking our virtual primary care plan designs into some more markets. We are rolling some of our kind of specialized plan designs in certain states around particular member demographics out in a few more places. And we have all kinds of things around incentives and rewards and so on that we constantly think about and support. And so those are areas where I think we have done some very interesting work. I think that work has... has had real impact as well, both in terms of growth and actually also loss ratio improvements. And you can expect us to do a lot more there certainly in the future and stay tuned for what we have cooked up for 2023 when the plan designs come out in the next couple of weeks.

And then your second question was about, do you mind repeating your second question actually?

It might have been Scott's question.

I wanted to just ask how,

can you hear me all right yes we can thank you um just on the positioning for 2023 i wanted to ask how some of your more disciplined pricing and maintain markets fits into your targeted high teens to mid-20s revenue growth as you work towards profitability yep um and i appreciate the question and i know that uh

that folks are are certainly going to be interested in you know where do we think the the book will be in 2023 and and i'm just going to again say that it's it is too early for us to give you an outlook on on where 2023 lands um but we believe that you know the pricing that we put in the market is supportive of our path to profitability and that uh you know that's the reason that we leaned in on you know prioritizing march and expansion above all else thank you

You have a follow-up question from Steven Baxter with Wells Fargo Securities.

Your line is open.

Yeah, hey, just a couple of quick follow-up ones. Just when you say you built the Medicaid redetermination outlook, I guess, into your pricing, I guess that could make the market larger, but it seems like by how much and really when there starts to be a meaningful impact in terms of the timing, it seems like they're pretty open items. what are you assuming is the impact to the risk pool? And I guess, how do you just get comfortable with the range of outcomes that you build inside the pricing there? Thanks.

Yeah, it's got some puts and takes. So on the one, the two factors that you've got to consider there and that we consider this, on the one hand, when does membership come? The more it comes in the middle of 2023, the more it'll have some SEP risk adjustment impact in the same way prior SEP enrollment has had that impact in a given year of not being able to collect risk scores, things like that. That's one question. As we said, they are right now, the public health emergency is scheduled to expire in October. Then there's some limitation how quickly states will start moving members of Medicaid into the ACA. And so therefore, the earlier in the year this happens, I think generally the better it is for this SEP RA phenomenon. The other factor is what is the mobility of that book? And there's actually different opinions. I mean, I've seen at least one study out in the market that says, hey, this is going to be a better mobility than the AC population. We have generally built this in as an upward trend in the MLR and pricing. That's the short story. We expect this combination of SEPRA and higher mobility, in likely our view, to have an upward drift, and therefore that's built into our pricing. It's also different in different markets, but that's kind of generally what we have done there. Now, I will say this, the fact that we are now six, seven months in, six months in, obviously, these results here, and that we see the MLR on these members who came in SEP last year for this year, essentially the same MLRS members who came in any open enrollment periods, just underscores this point we made in prior calls, which is, that those members generally win trends towards similar utilization patterns and can be managed to similar utilization and therefore similar cost outcomes. And so this is a long-term good thing that members are coming to this market. It will support generally, I think, the overall stability of the markets. The members have been there. And when we enroll them next year, no matter when, whenever it will be, we hope to then retain them to make sure that they will continue to be with a good MLR in the membership book of business. And so that's really how we think about this.

Okay, thanks. And just one last quick one for me.

It looks like the back half implied GNA ratio total company adjusted admin ratio ramps up a decent amount. I think actually it's a decent amount more than the actual insurance company admin ratio. When we think about the difference between, you know, those two trends in the back half of the year, what you would be thinking about is what the drivers are. Thanks.

Yeah, appreciate the question. And I guess I would maybe start with the insurance company. And, you know, in the insurance company there, I would anticipate that we'll see – a less seasonal kind of ramp in the insurance company admin expense, where historically we would have seen an increase in the third and fourth quarters. I think that's what we saw last year. This year, I would expect that we'll see the fourth quarter up, but we expect that it's going to be up more modestly versus what we would have seen in the prior year. And then when, you know, and one of the phenomena there is that, you know, the ramp that we experienced in the fourth quarter, we would expect that we're in a better position for, you know, ramp this year versus, you know, where we were last year based on our work that we're doing on scale. And then when I think about the what's going on in the The Holdco line item there, I think that is, you know, really just about some of the investments that we're making in our infrastructure to support scale and to support, you know, kind of, you know, what we're doing with our clients. And I think that those are, you know, investments that aren't necessarily sticky. And so we'll look to continue to, you know, drive efficiency in Holdco over time.

There are no further questions at this time. I would like to turn the call back over to our presenters.

Yeah, thanks so much for the call. Thanks so much for the good questions and your coverage and your constant work and dedication. And we will see you soon. Thanks again.

This concludes today's Oscar Hiltz 2022 Second Quarter Conference call. You may now disconnect.