Good afternoon. My name is Christian and I will be your conference operator for today’s call. At this time, I would like to welcome everyone to Oscar Health 2022 First Quarter Conference Call. At this time all participants are on listen-only mode. After the speakers ‘ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. 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 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 trajectories of the company and results in the first quarter. 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.hioscar.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.hioscar.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. This 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 fourth quarter 2021 press release, which is available on the company’s Investor Relations website at ir.hioscar.com. With that, I would 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 at our investor day. The past few years have seen the U.S. healthcare system shifts 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 different 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 of our individual members stay with the Oscar and 85% of our C+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…

Thank you, Mario and good evening, everyone. Tonight, I’m going to walk through our first quarter 2022 results. But before I jumped into the numbers, I’ll call out a few key takeaways. We continue to see meaningful top line momentum and increase scale. Our first quarter results were largely in line with our expectations. And we’re focused on execution in 2022 as a stepping stone to insurance company profitability in 2023. And finally, with over a million members, our scale enables us to optimize our 2023 pricing for margin first and growth second. Turning to the results, we ended the first quarter with approximately 1.1 million members an increase of 98% year-over-year driven by growth predominantly in our individual and C+O books and business. In the quarter membership growth modestly exceed our expectations driven by a higher effectuation rate and a retention rate of 80%. First quarter direct and assume policy premiums increased 104% year-over-year to 1.7 billion driven by higher membership and business mix shifts towards higher premium Silver plans. Specifically silver members now represent 65% of our overall mix up from 50% last year. Premiums earned increased 159% year-over-year to 955 million. Note that we entered into an additional reinsurance agreements as of the beginning of 2022. This is increasing our total quota share coverage rate from 34% in 2021 to 46% in the first quarter of 2022. For our existing reinsurance contracts that we had as of last year in our accounting we reduce premiums and medical claims for the reinsurers proportional interest. For our new quota share reinsurance treaties, the terms required different accounting where the net economic impact of the arrangement is included in our other insurance cost line item. Our 10-Q will have more details about the accounting for these arrangements. Our first quarter…

Thank you, Scott. Always great. These are complex times and it is a complex market out there certainly yet for us on the back of our record breaking growth, we’re trying to keep things very simple serve members well, serve clients well and continue to move towards ensures profitability in 2023. We are doing that against the backdrop of a healthcare system that is moving further into the direction of with long describes more individualized, more digital more about value. And we overly believe that the move away from point solutions and healthcare is solidifying our strategy and positioning. We chose all those years ago to become an insurance company and to build our own technology stack. And that sets us apart in the markets. We’re quite far along in the journey now and we’re leveraging our tech to serve members and clients. And to do so profitably is a milestone, we cannot wait to it. I want to thank all of the Oscar team members, we’re a company that is powered by people and their tireless work service members is what makes Oscar a special place for me and for them. Now with that, we’ll turn over to the operator for the Q&A portion of the call.

[Operator Instructions] Your first question is from Ricky Goldwasser from Morgan Stanley. Your line is open.

Yes. Hi, Mario and Scott. Good evening. And thank you for all the details. A couple of questions here on MLR. You broke it by silver and prior period of development. Can you give us some more context on what is the MLR that you’re seeing for the new members that you on boarded given that there’s so many of them this year versus MLR of existing members?

Yes. So with regards to the MLR, the first comment I would make is with our SEP membership that came over two observations. One we saw very high levels of retention of that group of SEP members that we added last year coming over and joining us in 2022. Then on this side of MLR again, those members performed as we expected, which was really very closely aligned to the same as what we would have been seen with the rest of the membership that came on. And again, this is kind of what we were expecting and gives us confidence about the rest of the year trajectory with those members.

And then as we think about sort of those new members that you on boarded this year. Do you kind of like have a sense of the MLR that’s associated with the MLR just given the mix now seems to be skewed more towards the new members?

Yes again, I think that what I would say is that the SEP members that we added are I would anticipate that their MLR is going to be literally the same as the members that came in that we had previously had in our -- that’s going to be the same.

Okay, great, thank you. And then Mario, just have to ask about Plus Oscar. Recently, you’ve, you’ve taken a more active role in sort of leading the Plus Oscar efforts, and maybe you can discuss kind of like, what are kind of like you most focused on and what are you seeing in terms of the pipeline?

Yes. It’s fantastic for me to be out in the road, dinners conversations, hearing what potential clients want and so on. What we’re seeing is, there’s clearly recognition that continues to be the case coming out of the pandemic shift towards value and thinking about how do you rebuild, or with an aging systems, how to get close to the member, who’s going to occupy this hot center of member engagements, that is really on everybody’s minds. Lots of interests in our core admin systems, lots of interest in our member experience, lots of interest in our campaign builder and if all of those, the thing we’re now most proud of is that we were able to already essentially start selling our first SaaS module. And we talked about this a little bit at the Investor Day that that was the plan that we will be moving towards that. And again, the plan is continue to sell the paths, make the full platform available over time as a SaaS solution, but then also start modularizing smaller modules. We can land an expanse and have a shorter sales cycle in there or first offerings now the campaign builder and we’re out there selling that route to a larger portfolio of clients than before including practices and other folks like that. So the trend is very much alive, I think what’s happening is we’re real, we’re hitting a real nerve, they are in terms of the pipeline, on the [Indiscernible] side, as I said, in the in the investor day, who’s just longer sales cycles, and we’re in the market there for 2024 for various opportunities still, but in the meantime, pushing on the modularization and fulfilling clients needs there. So stay tuned for that. But everything I think, in how we’ve been describing what’s going on out there is very much alive and feels very much like what people are looking for.

Great. Thank you.

Your next question is from Stephen Baxter from Wells Fargo. Your line is open.

Hi, thanks. I just wanted to ask, first, I guess on the ACA expanded subsidies. Obviously it’s in fits and starts trying to get these subsidies extended. I was hoping you could give us an update on your exposure to membership with these expanded subsidies. And then I guess just further as we think about this in the balance of the year how should we think about the relative risk profile or probability of this membership versus your overall book? I mean, seems to stand to reason that they’d be good risk. But I would like to get your perspective on that.

Yes. So let me take the first part of this. Maybe it’s called the consent but more about the membership risks here as well. Let me draw a bit of a bigger picture there. We’re now at record ACA enrollments. I think 14.5 million historically high. It’s when wants to increase from 2021. I think a lot of signs out there that the ACA market is working, you saw the real low cost trends last couple of years, increased. The reduced now uninsured rates and that law came through a couple of days ago. Those are all the societal things and good for the healthcare system overall. So that means I think it will take a lot of irrationality in the political process, particularly given the states that the subsidies have been really important for Florida, Texas, for example, would take a lot of political irrationality to undo those subsidies. And my starting point would be the think that they’ll be found a way, a way will be found to extend them that whether it’s in the lame duck session where before the end of the year, I think we shall see but that is my best guess. Currently, it’s just kind of what always happened in the last couple of years in the ACA. It’s an entitlement that works for other people. That is now seen as good clearly works for the healthcare system overall, providers, some members and so on. And so that’s my starting points. Now, if they were to go away, probably about a range of a 10% to 20% decrease in membership, purely from the subsidies. However, that isn’t the net. And I’d remind you there that’s to look at the net change membership you’d have to include Medicaid redetermination to fix the family glitch,…

No, I think you covered it.

Okay. And then just one secondary question here it looks like the SG&A progression might be a little bit different than this year than we’ve seen in the past. I think you’re starting out closer to the midpoint. And then in previous years, and you’ve seen much more of a ramp kind of throughout the year. Just remind us how you guys are thinking about this genius seasonality for the balance of the year, and what some of the moving parts are for that. Thank you.

Yes. Thanks for the question, Steve. So with respect to the insurer co-admin ratio a couple things that I would call out there. On the one hand, in the quarter, we had more membership that came into our book via brokers, and that drove higher distribution expenses. And then on the other hand, we saw really variable cost efficiencies and operating leverage from scale. And net those two things, kind of offset each other. And that was really the driver of why we saw flat year-over-year results in terms of first quarter and then kind of to your specific question on seasonality. What I would say there is that I’m expecting based on kind of just the business that we’ve got now that including the broker expenses that I just talked about, we’re going to see probably modestly less amounts of seasonality and specifically there, I would say that I would expect that we’re going to see pretty flat levels of the admin expense ratio for most of the year with a slight notch up in Q4. So I do think that that we should see lower seasonality in that book.

Your next question is from Jonathan Yong from Credit Suisse. Your line is open. Jonathan Yong your line is open.

Hi, can you hear me?

We can.

Okay. There we go. Sorry about that. I guess just as you think about the enhanced subsidies, that sounds like you guys are heading into the pricing assuming that the enhanced subsidies will be there. But I guess if it wasn’t extended, how much of a lift would it be to reorient the overall G&A load to maintain the goal of ensure co-profitability in 2023?

Yes I mean, let me start and I will start by saying that, again, if we net out over changes, it’s not clear to me that the market would get smaller even without the subsidies. Medicaid redetermination, family glitch and all these things, these things are pushing the other direction. So we’re not too worried they are. The second thing is we remain totally committed, as we said to insurance company profitability next year. So what do we need to do there? Now, in terms of the kind of levers we have…

Yes. Look, I think that what I would say is, depending on how all of these regulatory shifts might play out, you’re going to have a couple of different factors to the extent that we see subsidized members, if those subsidies are going away, and we’re not able to pick up those members. Certainly, we’ve already capitalized our insurance entities. So that would be favorable with respect to kind of from a capital and cash flow perspective. On the other side of that, it also would then reduce for purposes of scale. We would be going backwards a little bit on our fixed scale that we picked up. So that would be certainly a bad guy. I think on the side of variable costs, we would be able to pull out significant amount of variable costs roughly half of our costs in the insurance company administrative ratio are within our control and variable so we wouldn’t be able to make adjustments to those for the size of the book. And then I would just comment on the other side of the ledger. We were able to see an increase in membership into going into ‘23, whether it was redetermination, or the family glitch or any of these things. There I think the fact that going into ‘23 where we’re able to price for the risks that comes along with that membership group. I think that has the potential been a real tailwind for us. Certainly, if we saw Medicaid redetermination, come in, in ‘22 and depending on the pacing it’s so difficult to exactly predict when the healthcare emergency might end, but depending on the pacing of that, we could see that be a headwind to ‘22 would that would certainly be a tailwind at ‘23 as we would expect those members to have high retention into the following year.

Final thing I may add is from a regulatory point of view, this is obviously on regulators mind as well. And so there’s some, there’s a lot of work with the regulars in the pricing process to figure out what exactly we have in terms of timelines that we could use there.

Okay, great. And then I guess this is just kind of sticking with the enhanced subsidies if it was not extended, and I guess for this year specifically, is there an expectation or thought of members possibly over utilizing their benefits heading into the end of the year given the knowledge that they may not have insurance in 2023? I guess, is there any thought to that? Thanks.

I would argue a little bit with historical experience here. And this would sort of be similar to what happened 2016 and 2017 and the kind of shift whatsoever loading and so on in it is actually, I mean, the takeaway for the year was that members do not necessarily read the CMS guideline publications every single month the way that you do surely, which is fantastic. So, we did not see a big impact setback in those days. So my starting point here would be it’s not a huge concern. But I think now we’re behind a whole bunch of hypothetical studies that are multiplied together. So not really something we’re concerned about right now.

Next question is from Gary Taylor from Cowen. Your line is open.

Hi, good afternoon. I had two quick numbers questions for Scott. And then a question for Mario about marketplace on numbers. Could you quantify the adverse PYD in the quarter? I mean, we’ll see it in the queue in a few days here. But just since you had mentioned, I was curious, I think there was a positive $5 million in the 1Q of ‘21.

Yes. In terms of the total year over year in dollars on primary development, it was unfavorable year-over-year by 17 million, 12 million of that related to un-favorability in the current year quarter. So that’s the quantification of that and remind what was the second part, your question?

That was it. My second numbers question was the other expense in the quarter I think 3.055. That’s getting added back to EBITDA? What’s that represent?

That one, I’m going to send Cornelia back to you later after the call to give you the answer, because I honestly don’t know off the top of my head what that is.

Okay. And then Mario, just while we’re sort of talking about potential changes to the ACA marketplace, how are you thinking about the finalized rules where you have to offer a standardized ACA plan at every metal level in every rating area where you offer a non standardized plan? I think you guys have had a lot of success with some of the innovation in your plan offerings. So does this constitute an incremental administrative burden to be able to offer those are not material and do you think it changes the competitive dynamic in the market at all?

Yes, the good thing is that the ability of having other plans in the marketplace doesn’t go away. So we still have a lot of flexibility and a lot of ability, you’re putting interesting designs out there. And I think that is really important there. Some states where there is more constrained already and I personally don’t think that that is always a great thing. It’s better to have more smart regulation, obviously, in there, but more ability for the finding better benefit designs and let the creativity flow there in a really in a good way. So glad that that doesn’t get taken away. It is an interesting change. I think it is, I would generally say I don’t have a huge opinion as to whether it’s going to be great for the market or not, or whatever. I think generally, I would say any change as it relates to plan design is generally a good thing for us because we can often act more quickly. And with our own systems, we don’t have to go to a vendor and whatever item and configure these things more easily and more directly, and price out exactly what that will mean. So that part I like. I think it’ll be interesting to see what it means that there will probably be more gold platinum plants back in the marketplace. And those are things we’re going to have to see what that means. And you can bet that we’re working through it. Now, the latest CMS rule was not that much of a surprise relative to what they had talked about before. So we had time already to pay for it. And therefore, I think it’s we’re in the middle of pricing season, and it’s all systems go on working through the pricing committees there every week.

But from this distance, it’s not like a clear additional material administrative costs just to offer and maintain many more plans in each trading area. Is that fair?

No, and that’s definitely fair. I mean, we have more administrative burden from being in states we are subscale, which is one of the reasons why we said we’re leaving two states to talk about the better marks. But when it comes to running benefits and approx side by side, and that’s one of the reasons we’re based on systems there. We have a lot of flexibility.

Your next question is from Joshua Raskin from Nephron Research. Your line is open.

Hi, thanks. So just the first one, just a quick clarification on the change in seated premiums, I understand the shift to deposit accounting for the new book. So did I hear right, Scott, that it’s 46% of premiums this year being seated, and I assume the accounting has no impact on EBITDA and I assume certainly nothing on cash flow, right.

Yes. So you’re right, it is overall, what we’re going to call the reinsurance coverage rate, which is kind of the effective amount of reinsurance is 46% for the first quarter. And then when you look at kind of how that translates through into the accounting, you’ll see seated premiums of around 28%. And the difference there basically, is the new treaties that we’ll be running through on one line item, as you said, using deposit accounting, and you’re right, there is really no impact on the treatment in adjusted EBITDA, so it’s just that the presentation thing, it’s not doesn’t affect the bottom line.

Yes. And then just on the medical management side, I’m curious if you’re starting to get any leverage or new conversations that are coming up with providers? I don’t know if this weaves into Plus Oscar opportunities as well. But as you grow membership with the providers thinking about Oscar in totality, differently and then maybe how are you working specifically? We’ve heard a lot about member engagement, but how are you working specifically with providers to better manage costs?

Yes. So on the provider side, and the shift towards risk there. We are at a record level certainly this year in terms of dollars flowing to value based care arrangements, that is both with physician groups and with health systems. And we have several health system contracts right now with long standing partners. We’re shifting one word towards risk, and those are negotiation. So I wouldn’t want to go through the rest and everything. But that’s happening as well. And I think that’s a nice votes in terms of confidence that we can run the MLR at a reasonable level at a good level and also in the fact that we have operations now we do we can make sure that the data flows in a good way and things like that. How we are managing risk with providers? It’s a lot of bread and butter right now, I would say. One of the things we really brushed up on in the last six months, nine months or so to just have a lot more readily mentored management and orchestration provider of value based key ideal to not have any kind of customized data flow, golden day, whatever, but as an internal system that we can spin up very easily new data, data sharing with providers and so on. That’s the boring basics oftentimes but those are all things that work within what we do. We do a variety of running campaigns to close the line partners. I mentioned the campaign about PCP attribution earlier today in the remarks that was the campaign we actually ran with one of them. In that case, a health system that has risk with us and we help them get PCP attribution and that campaign builder is really one of the places where we can get a lot of truths out right now from driving there. And then lots of small things that I think we want to maybe talk a bit more about in the next quarter or so as well, in terms of how the product changes when you’re in a [Indiscernible]. For example, it’s a super small but if you renew your prescription in the app that’ll go to your attribute provider in an easy way now where if you go into the care router, and you search for new PCB, your provider will magically float to the top there, and things like that. So very, very simple stuff, it’s a good testing ground for plus or provider clients, if you take all this together. It’s a push and one more layer, we call this internally networks delivering value and a lot falls under that kind of general rubric from PC attributionfor that better data sharing, better pushing of data into the point of care as well in all those kinds of things.

And Mario, when you talk about value based care, are you talking about two sided upside downside risk? Are you talking about incenting providers upside only type of stuff value, but to do to help you with your cost management?

Yes, if you take everything with a win on this level of upside, whatever I mean, then our percentages of value based care is pretty large. But yes, when I see value based care, really, I mean, the upside downside, it’s like the contract I’m in today that we’re negotiating this year, with health systems to really do risk. That’s upside downside.

All right. And ladies and gentlemen, this will be the last question for today’s call. And it will come from Nathan Rich from Goldman Sachs. Your line is open.

Great, thanks for the question. Mario, you highlighted the decision to exit two markets. I think you said Arkansas and Colorado. Can you maybe talk about just what went into the decision to exit those markets? And are those two markets material from an EBITDA standpoint? I understand you hadn’t gotten scale there, so not material from a premium standpoint. And then you talked about looking at other remediate markets at the analyst day. Could you maybe just talk about where the company is in the process of evaluating those markets and potential to see a decision to exit additional markets in the future?

Let me just jump in on the, from the financial side of existing those market Nathan. They have, they’re really small. So from a P&L perspective, they don’t have a significant or even close to material effect. There is a benefit though, from just reducing the amount of overhang in that we have to do, whether that’s the compliance work we have to do, or the statutory reporting that we have to do. So there is a small benefit. It really just reduces distraction, and allows us to focus on where we have the right to when and where we really want to put our energies towards.

Yes. And in terms of decision to exit they are so you’re exactly right. These were immediate buckets that we talked about the investor day. There were a number of commercial factors, really starting with the fact that we just did not get the scale they are and we didn’t really see a great right to win for us that would, relatively speaking, the bigger than in the many other markets we are in we have plenty of markets where we don’t have scale yet. But we see a great path because we can work with a different provider partner or we can launch different products and things like that. We didn’t think that these markets were at the top of that list. They will also recent regulatory changes in both markets that made it a bit more of a of a sort of like a decision that made sense to do right now rather than leaning into those regulatory changes and doing the work of working goes through our systems, leading therefore, to the decision right now to withdraw, although on the regulatory changes, they are like, don’t need to say anything bad about that. But it just makes sense for us to save us at work if we don’t think we have a right to win those markets.

Okay, that makes sense. And just a quick follow up. Scott, you mentioned the membership profile this year being in line with your expectations. I know that risk adjustments created some uncertainty on MLR just in the exchange market, I just can maybe just talk about how you feel like you’ve been kind of executing on this. And when you’ve won, we should expect kind of kind of better visibility on what the impact should be for the four year.

Yes. So obviously, the first quarter is really the starting point for getting information. And we’re just starting to see claims data coming through. As you go into the second quarter, that’s when you start to see your first kind of report outs in terms of performance. So really, I would expect we’re going to get our first really good view in terms of the characteristics and what we should be anticipating any true ups that we need to make around our estimates for risk adjustment we’ll see that in the second half right at the end of the second quarter of June, ‘22.

Okay, great, thank you.

Ladies and gentlemen, this concludes Oscar Health’s first quarter conference call. Thank you for participating. You may now disconnect.