Good afternoon. My name is Christian and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health 2022 Second Quarter Conference Call. All lines have been placed on you to prevent any background noise. 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 second quarter 2022 earnings call, where we’ll walk through our results and our trajectory for the rest of the year. 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-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. 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 second quarter 2022 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 Co-Founder and CEO, Mario Schlosser.

Thank you, Cornelia. Hello, everyone, and thank you for joining us. Today, Oscar is serving more members and more clients across the healthcare system 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 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 confidents in our ability to deliver on our guidance for the full year. Today, we report that direct and assume 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 our 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 one out of every 13 individual ACA lives, or roughly 7.5% of the overall ACA markets. In these specific regions, where we sell our plans, 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 Net Promoter Score this past…

Thank you, Mario, and good afternoon, everyone. Our second quarter results show solid execution across our businesses. We have delivered against our 2022 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 small group books of business. Net churn 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 adds. 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 the 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've 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. Turning to utilization. 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…

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 I'm achieving our full year guidance. We are on track with our plan to achieve profitability in our insurance business in 2023, driven by our disciplined 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. So I would like to thank all the Oscar employees. It's their dedication and tenacity that makes this possible. With that, we'll turn it over to the operator for the Q&A portion of the call.

Thank you. [Operator Instructions] And your first question comes from the line of Michael Hall with Morgan Stanley. Your line is open.

Hey. Thank you, guys. First question, just any update on how 2021 on a risk adjustment payable settled out? And also, given your prior analysis of your weighted risk-adjustment report, could you update your 2022 risk adjustment assumptions? I know that your risk adjustment transfer of payables went up about $400 million this quarter. Curious, how much did it impact your MLR performance? Thanks.

Yes. Let me just give you an overview of what happened 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, those two things came into the quarter, which were the primary drivers of a lot of our adjustments. And 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 $6 million to $8 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 that 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 then a-third of it is related to 2020. And big picture, 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 too many significant adjustments on 2022, slightly positive there. With risk adjustment, you really have to focus on executing your processes in a pretty consistent confident way. You're having to make adjustments and estimates for what the market's doing. So the volatility that we see in this area, we actually think confirms that we have a pretty good process.

Got it. Thanks, Scott. That's really helpful. And then just one more. As we 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, and pass deals for the next 18 months, but you're also rolling out new SaaS modularization effort. Curious, how does that impact your original one to two deal a year target? Like has that changed at all?

So, yes, we talked about this at the Investor Day 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 market. It's great for us to be out there and actually offering campaign builder now. That's getting the perception from what we can see in the market now. And so there, we expect a higher number of -- obviously, we can do over time as a shorter sales cycle generally, and exactly, as you said, because of the large growth we had and because we want to support existing clients in 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 targets. And 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 engagement. And so very much continue to be out there in the marketplace and negotiating. And so 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 Stephen Baxter with Wells Fargo Securities. Your line is open.

Yes. Hi, thanks. I just wanted to follow-up on a couple of the [indiscernible] questions there. I guess first, I did think I heard you say kind of launch challenges. But let me just hear you expand a little bit on what exactly that means either clarifying what you said on the reviewers expanding on the issue? And then, just as you talk about the 18-month horizon, I guess, why is 18-months, horizon-wise about six months wise more 12 months, what the thought process there just given the pipeline, getting another elongated new deals taking a long time to consummate in the first place, I would feel like that potentially could push full service revenue out into late 2025, maybe even 2026 probably you see more of that. So, I just want to understand these issues much better and then maybe I have a follow-up.

Let me start with the comment made on the launch challenges. So as we told you last quarter, the full book migrations are complex and challenging. 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 implementation. What we wanted to do there is to recommit additional resources necessarily support the new clients, and we're making progress there. It's a really good priority for us, as we talked about we will make sure it's done right. And as a result of that, we're being thoughtful but not overextending ourselves by taking on new full service clients for the near term. Now, in terms of the 18 months, this -- we are out there in the marketplace, continue to talk about some future food service yields. And that -- at this point, we can start to get into 2025, even in conversations already to give ourselves more time to get the implementation rights, and that means that we will continue to be in the marketplace. And in many cases, we have a chance of actually launching campaign with implementations that might then lead to follow on implementations, but 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 business that we really want to make sure that, that becomes the primary driver of the internal efforts, the internal work.

Okay.

Your next question comes from the line of Jonathan Yong 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 will result of the dynamics of you achieving profitability in the InsureCo?

Yes. Jonathan, thanks for the question. So 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, overall, it's a very competitive market. And from what we've seen, we're seeing that the more experienced players in the market seem to be on the upper end of price increases. And then on the other hand, there's other players, including some large players who seem to be more aggressive in coming in there. And so, our take is that those with the most experienced appear to be pricing up at this point in the market cycle. And then I just think that overall for us, we think that we have priced with the goal of obtaining margin expansion. We're well positioned to deliver that.

Okay. Great. And then just on the...

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

Great. Thanks. I guess I want to go back to the plus Oscar thing. I guess a couple of questions. 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 as you first unveiled 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? 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 2-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 in the delay?

Yes. Let me start by what hasn't changed. What hasn't changed with regards to [indiscernible] I think number one, our opportunity in our product market fit, particularly in the changing healthcare landscape. I mentioned before, I think conversations shift towards risk we need to focus on one 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 broad market share there. The second thing has not changed is the importance of Oscar long-term strategy. So the critical takeaway here is, I continue to believe certainly that [indiscernible] business and it will be a material component of Oscar overtime. Again, reinforced in the conversations we're in, in conversations we continue to be in as well. I don't think that's -- 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 [indiscernible] members and the profitability targets and serving existing clients. And that's really less. We ultimately -- plus Oscar to me, so if you look at software for a second, is about we've got technology we build. We've got infrastructure rebuild and we want to use that to make healthcare more affordable, member experience. The most exciting proof points we can now achieve is next year delivering on insurance coprofitability that was getting excited. And that is also, we think, is exciting for prospective clients. And that's the proof point we were trying to earn here. And in the meantime, they continue to build our footprint through campaign builder, which is just a shorter sales cycle and let us unlock additional client set as well.

Yes, Kevin. Why don't I speak to your question on, kind of, the impact of these decisions on kind of on cash and liquidity. And I would just say, first of all, that 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 EBITDA might 90 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 the 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 Nephron 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 Oscar's 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 before a family glitch and things like that, but just with the subsidies getting finalized, et cetera.

Yes, Josh. Well, look, I appreciate the question. I'll just start off by saying that it's too early for us to be giving any guidance on 2023. So I'm not going to give you any type of directional feedback on 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 SAT, 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 retermination and Family Gitch. Those are also things that can expand the market. So we think the combination of pricing in a larger market positions us 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 and a later date.

Josh, you ask about the overall market and pricing, and I want to relate 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. So I think the latest, I've seen is across something like 35 states now, including Texas is about 8.3% or so. That is maybe some of the rotation, because some of that is probably prior to subsidy extensions some after different states have different filing requirements there, right? So it's good to see, I think, that we have an understanding of how the market operates nowadays that we were able to roughly predict where that would go. 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 is one thing we have learned in the last eight years, sometimes painfully ourselves is that, we don't want to chase when people try to go in certain markets and try to under-price or something like that. And so we feel confident in how we're pricing and very region as we said. And as the pricing comes out towards September and October, we'll see more cards turn over there

Your next question comes from the line of Lindsay Golub, Goldman Sachs. Your line is open.

Hi. Thanks for the question. Just to go back to the 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 we work towards profitability? Thank you.

Yeah. Plan design, I think, is one of the superpowers of the insurance company. And so it's been an area for us where every year, I wish we could be doing even more creative things. And where, in fact, actually next week, we have a first meeting for innovative plan design for 2024. I believe it or not, that's truly 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 similar markets. We are rolling some of our kind of specialized plan designs in certain states around particular member demographics out in the places. And we are – have all kinds of things around incentives and rewards is one 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 had a 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 state forward or we have cooked up for 2023 when the plan design come out in the next couple of weeks. And your second question was about – do you mind repeating your second question actually, that might have been Scott, question.

I wanted to just ask how – can you hear me all right?

Yes. We can.

Thank you. Just on the positioning for 2023, I wanted to ask how some of your more disciplined pricing and maintain markets. So, since your targeted high-teens to mid-20s revenue growth as you work towards profitability?

Yeah. And I appreciate the question, and I know that, that folks are certainly going to be interested in where do we think the book will be in 2023. And I'm just going to again say that, it is too early for us to give you an outlook on where 2023 lands, but we believe that the pricing that we put in the market is supportive of our path to profitability. And that's the reason that we lead in on prioritizing margin expansion above all lots.

Thank you.

We have a follow-up question from Stephen Baxter with Wells Fargo Securities. Your line is open.

Yes. Hey, just a couple of quick follow-up on. Just on -- when you say you built the Medicaid redetermination outlook, I guess, under your pricing, I guess that could make the market larger, but it seems like by how much and really when they start to get a meaningful impact in terms of the timing? It seems like that 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.

Yes. It's got some puts and takes. So on the one -- the two factors that you got to consider there that we consider this on the one hand, when this membership come, the more it comes in the middle of 2023, the more it will have some SEP risk adjustment impact in the same way prior SEP enrollment has had that impact in a given year, nothing like risk scores, things like that. That's one question. As we said there are right now the public health emergency is scheduled to expire in October. Then there's a limitation, how quickly states will start moving members to Medicaid into the ACA. And so therefore, we -- the earlier in the year that 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, say, hey, this is going to be a better mobility than the ACA population. And 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 SEP, RA and higher mobility in likely our view to have an upward drift and therefore, that's been to 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 -- six months and obviously, these results here. And that we see the MLR on these members who came in SEP last year for this year, essentially the segment MLR members who came in any open enrollment periods, just we underscore 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 market, we have a membership in there and so when we enroll the next year, whenever it will be, we hope to then retain them to make sure that they will continue to be a bit MLR in the membership of business. And so that's really how we think about this.

Okay. Thanks. And then, just one last quick one for me, it looks like the back half implied G&A 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 those two trends in the back half of the year, what should we be thinking about is what the drivers are? Thanks.

Yeah. I appreciate the question. And I guess I would maybe start with the insurance company. And 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 quarter. So 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 it's going to be up more modestly versus what we would have seen in the prior year. And then, when -- and one of the phenomena there is that the ramp that we experienced in the fourth quarter, we would expect that we are in better positioned for ramp this year versus 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 Holdco line item there, I think that is really just about some of the investments that we're making in our infrastructure to support scale and to support kind of what we're doing with our clients. And I think that those are investments that aren't necessarily sticky. And so we'll look to continue to drive efficiency and Holdco overtime.

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 much for the good questions on your coverage and constant work and dedication. And we will see you soon. Thanks again.

This concludes today's Oscar Health's 2022 Second Quarter Conference Call. You may now disconnect.