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.