Oscar Health, Inc. (OSCR) Earnings Call Transcript & Summary

Good morning, everyone. I'm Cornelia Miller, Head of IR and Corp Dev at Oscar. Welcome to our very first Investor Day as a public company. We're broadcasting to you live this morning from our New York headquarters. We will be making forward-looking statements in today's presentation. All statements other than statements of historical fact are forward-looking based on our assumptions today. Our actual results may differ materially from these forward-looking statements, and we make no obligation to update these statements. For more information about factors that may cause our actual results to differ from those forward-looking statements, please refer to our filings with the SEC. We have also provided information regarding certain key metrics and non-GAAP financial measures. Additional information can be found in our filings with the SEC, which are also posted on the Investor Relations section of our website at ir.hioscar.com. We have a great agenda for you today that will focus on our strategic priorities, our path to profitability and our long-term outlook. With that, let me turn it over to Mario Schlosser, our Co-Founder and CEO.

Thanks, Cornelia. It is great to be here. Thank you for joining us today. I'm Mario Schlosser, the Co-Founder and CEO of Oscar. We are very grateful for you taking the time today to learn more about Oscar and our mission to make a healthier life affordable and accessible for all. The great list of people here represent the key leaders across the company. We've got Scott here, walk you through the financials in a few minutes here; Alessa, walk you through insurance; and I will walk you through our +Oscar products. We have with us as well, Jesse Horowitz, our Chief Product Officer, who's been with the company for nearly 8 years and has been instrumental in building our full-stack platform and consumer experience. We will have Chelsea Cooper, our Chief Growth Officer of +Oscar, who leads all of our business developments, implementation efforts in that area. And we have Dr. Dennis Weaver with us, our Chief Clinical Officer, who's our key industry insider and relationship manager. With that, let us get into it. And I will start by providing an overview of the business and our strategic priorities. And as you know, my co-founder, Josh and I, started Oscar in 2012. It's been actually about 10 years now that we had a coffee and talked about someone ought to start a better health insurance company. We all know that the U.S. health care system is too costly and too complex, and our simple insights in the founding of Oscar was that you can't address these 2 issues, costs and complexity, with a different kind of insurance company because insurers control the flow of dollars to the health care system and because they control the design of the health care system in many ways. Most insurers, though, if we think about them a little bit differently, lack 2 critical elements: member engagements and technology. And so we created the first health insurance company. It builds on its own full-stack platform with a real focus on serving members through a highly personalized member experience. And that's what I would have said on this slide here. So let's keep going. Additionally, the U.S. health care system has had too many middleman, rely too much on faxes and too much on fee-for-service reimbursements. And that's how you get this disconnect between the cost and value that we all experience as consumers of the health care system. The system needs to move towards 3 trends: more consumer-driven, more digital and virtual and more value-based. We spent a lot of time in the front lines of the health care system. And that's what we're actually observing there. The market is becoming more consumer-driven, undoubtedly. The individualized markets now in the U.S. health care system have grown to about 100 million members over the past decades. That's Medicare Advantage, the ACA marketplace and then Medicaid -- managed Medicaid. And there's now an entire category of direct-to-consumer health care companies that didn't exist even a few years ago. The markets become more digital. Undoubtedly, the past 2 years saw a huge explosion of that. Telehealth has gone from niche to mainstream, for example. And the market is moving towards risk sharing. If you look at kind of all reimbursements in U.S. health care, about 41% or so in some kind of value-based arrangement now. They are great trends and they are, on the one hand, enabled by new technology, but they're also forced onto the system by the cost and competitive pressures that any entity in health care is experiencing nowadays. It's our expectation and our mission that these trends continue. And the health care market will be defined, we think, by those who best engage members, who can retain them over the long term and who have the technology to incentivize better outcomes and then earn the resulting risk premium. I would like to start by telling you more about how we've done that to date and why we believe we're positioned for continued success well into the future. And we do this really at Oscar in 2 different ways. Both of these ways can have a boost and then benefit from these 3 trends you saw in the earlier slides. On the one hand, by taking risk on our own on managing members; and on the other hand, by helping others manage risk with their membership basis. For us, these are very synergistic product lines because they rely on the back end, on the same underlying technology platform. In the same DNA, you're focusing on member engagement and member experience. Now in our insurance product line, we serve more than 1 million risk-based members throughout the country across 3 lines of business: Individual, Small Group and Medicare Advantage. In our platform product line, which we call +Oscar, we sell our technology and our services externally to other payers and providers. We help clients manage now roughly 100,000 lives on the +Oscar side already. In both of these, we see significant growth and margin expansion opportunities well into the future. And I think you'll see this as we go through this today in greater detail as well. I want to give you a couple of metrics as to where we are, what we've accomplished to date. And I want to give you the context here initially. We operate primarily in the ACA markets. And that's a market that's still quite new and where prices have already been so competitive in the last couple of years. That price increases have been below the rate of inflation for the past 4 years. And here, I mean, consumer price inflation, not even health care inflation, which we all know is about twice CPI. And I think that context adds additional meaning to our performance on all the major metrics. We've been driving industry-leading growth to more than 1 million members across the platform in 2022. That's been about a 70% annual growth rates in our direct policy premiums on average since 2017. We've been doing that while also significantly improving our margins, including 8 points of medical loss ratio improvements between 2017 and 2021. And underlying a robust growth and margin expansion is high member engagement. Our members come to us and utilize Oscar, whether they're in need of care or not yet. 87% of our members have interacted with us digitally, and 42% are monthly active users, meaning they show up in the website or the mobile app or in the concierge teams at least once a month. And we believe both of these figures are well above industry averages. This kind of an engagement isn't just lowering costs for ourselves but also for members very importantly. For example, members that go to a physician that we show to them generate about 11% cost savings on average. We have a lot of work ahead of us, undoubtedly, and we will tell you more about the financial path ahead of us over the next few hours here. But if I just take stock, we are proud of having navigated in new markets, many past regulatory changes and challenges, almost unprecedented growth, all while solidifying our costs in our care models. And that sets us up very well for the next many years of achieving our financial goals and fulfilling our mission. Speaking of goals and mission, this is what we're focused on here. Our first priority is to position the company for near-term profitability. And I want to put this in context again of what we're out here to do. We're in this because we want to make health care more affordable. And so getting the profitability is a business imperative, but also a member imperative. It's imperative for us to be efficient and profitable and get members into more affordable health care. Next, we want to continue to grow and increase the penetration across the U.S. insurance markets while improving our margins. And finally, we want to accelerate growth in our +Oscar platform business so we can grow alongside others by enabling them, and then kind of with folks we work with, shift the system towards a more digital, consumer-driven and value-based future. You will soon hear from our insurance product line and from our platform product line as to how we are doing that. I want to take a bit more time and ground you in what is unique about Oscar. I'll give you some examples there. And the key to understanding us and how we think about what we develop and how we go to market is that in the old health care markets, where the end user, like myself and others here in the room, aren't really the consumer or the customer, where the system is predominantly fee-for-service and where information flows sparsely, you can squeak by without a product that engages members and providers, and thus, without a good technology platform enabling that. And that's why we see 2 major differentiators for us: on the one hand, member engagements; on the other hand, technology. And on both of these aspects, we believe that we are significantly beating the competition. At the core of our business, whether we do it for ourselves or for +Oscar clients, we need to generate good member outcomes, make them as happy and do so efficiently. And on all 3 of these, we've come a long way. We have now about a 42 Net Promoter Score versus 3 Net Promoter Score average for the industry. We have a greater than 95% auto-adjudication rates in claims, and we'll talk more about this later on. And we've achieved about a 30 percentage points admin reduction in the past 4 years. And if you read the slide here, you see a couple of examples as to how we've been doing that in the categories of member experience and technology. And I will give you a bit more of a deep dive now in these 2 levers, starting with member experience. And you have seen me talk about this before. That's our member experience flywheel, which drives our product feature developments. When members join Oscar, we start by actively and proactively building trust and engagements starting on day 1, actually probably even day minus 30, 60 or so. When you sign up right in that moment, we start to get you into the channels of a means to interact with Oscar. And we do this by reaching out with personal messages. We have built lots of functionality into our app and websites, like finding and booking appointments, virtual care and drug delivery. And by the way, it would not be an Oscar presentation if there wasn't a demo, so stay tuned for that later on as well. 42% of members who are monthly active users at year-end 2021, and that is a nice data point for how we are able to build trust and engagement really right from the get-go. Now that's a key stepping stone towards the next step in this flywheel here because this engagement and trust lets us collect more data and trigger more interventions based on members' health history, based on their search history and mobile app, based on their customer service interaction history and so on. For example, a couple of data points here. In our Virtual Primary Care plan designs, we've seen a 40% reduction in no-show visits, all through well-timed messages, tied to members behavior. I'll give you one secret, by the way. When we -- when you book an appointment with a virtual primary care physician, we will send you automatically an e-mail with an image of their primary care physician the day before, asking you what would you like to do in your encounter. And that simple personalized outreach already makes sure that you actually show up on the next day for the appointments. Now third step, we can then route, and in some cases, even deliver care. For example, here, 76% of members with a new doctor visits use our Care Router to find a provider. Our Care Router is the set of technologies and data ontologies and so on that rank providers, that book providers and so on. Finally, fourth step, we can wrap all of this into personalized incentives and differential payment schemes, for example, with about 85% medication adherence to members who are prescribed a $0 drug by their virtual PCP. I think this is a key thing for us and a key capability that we have that others don't have, which is that we've built all of our back-office systems directly ourselves as well. And so not only can we engage members and providers, we can also wrap this all into the payment schemes and the dollars flowing throughout the system. Now our business is, at the core of everything, about people, and what we do has real-life consequences. As you can hear, I get excited when I talk about charts and incentives and so on. But what we are all really here for and for what the -- and the reason why the employees of Oscar are at Oscar is usually best demonstrated through real member stories. We've really helped somebody navigate this complex U.S. health care system. Here is one such story from one of our members, [ Mariana. ] And I would love to roll that tape. And we have [ Leslie, ] one of our care manager -- management leaders, telling the story on Mariana's behalf. [Presentation]

Thanks so much. And I want to say thank you to the Oscar team helping [ Mariana. ] And I want to thank [ Mariana ] for being a member of Oscar. It's been a pleasure serving you, and we hope the baby is well. Now we knew that if we were truly going to transform what it means to be a health insurer, we had to rearchitect the technology stack and the legacy systems insurers were typically built on. And we think of us like as these 6 main modules on the screen here. These are tech modules that function independently but are, in between, very tightly integrated. And I think this makes us, to our knowledge, quite unique in our industry. There doesn't appear to be another health company, whether tech or not, whether start-up or incumbents, that manages risk at our scale on its own modern infrastructure. It gives us flexibility and visibility that legacy tech or outsourcing tech would not make possible. And by the way, if you spotted this, this is sort of like one of these very, very simple examples when we build technology. The app in the previous video was all entirely in Spanish. And that is one of these incredibly simple applications of technology that people often forget about. We have a very easy way of localizing, translating and deploying the different member segments by just modifying, reconfiguring the technology we have. Now this tech is entirely cloud-based. And it's among the fastest of paying claims, and it generates high member engagements. And to illustrate this with a couple of examples, in just the last year, we almost doubled to 1 million members. And when we look now in the first 2 months, we have better service levels than almost ever in our history despite that massive growth. We stood up 10-or-so new state launches on our own stack over the past year, including deep integrations with other insurance companies, other health systems. We moved tens of thousands of fully insured members from dozens of other vendor systems onto our unified stack in just 9 months in one of our +Oscar implementations. And more in the weeds for the nerds among us, we deploy code 50 times a day. And more importantly, for the CFOs among us, 70% of the engineering capacity we have is still going into new billets and not going into maintaining existing staff, and that gives us significant capacity for continued innovation and going into the markets. These are all things where we believe that the competition will struggle to copy what we've built. And we think it's another important moat around our innovations and around the company. So almost welcoming Alessa on the stage here, but I do want to close with 4 things that we would love for you to take away from today. The first is that we're building a long-term sustainable business, and we are targeting near-term profitability. And we're very committed here to our goal of insurance company profitability in 2023. And then Scott will talk about how we get to total company profitability in our path there as well. Next, our full-stack technology platform is what drives our highly consumerized, highly digitized and value-based model. That is something we like to call uncopyable and believe it's uncopyable across the industry. And we're positioned to continue to capitalize on key industry trends by leveraging that. Our member experience continues to propel our top line growth and the high retention. And that's actually something Alessa will talk more about in just a second here. And finally, selling our technology through our +Oscar business line will allow us to power more of the overall health care system by enabling our clients to more effectively take on risk, and we see significant opportunities there to grow this business going forward as well. I'd like to hand over to Alessa Quane to review our insurance strategy. And Alessa joined Oscar just about a year ago from AIG, where she spent nearly 25 years with key roles as Chief Risk Officer and Chief Corporate Actuary. She has spent her career in insurance and has extensive experience leading large global teams and managing the risk of an extremely complex organization, regulatory field and driving transformational change. Alessa, come up here, please.

Thank you, Mario. Well, I'm very pleased to have the opportunity to tell you all that are watching here today about the success of our insurance business and how our technology has helped us to get where we are today and what we're focused on in order to move the book to profitability. Oscar is a unique organization that has a strong mission to help address a long-standing issue in our country. Its innovative approach to focus on the member experience and to seek and provide better health care outcomes through tech-enabled insurance is what drove me to join. Insurance is my expertise, and I'm pleased to bring that to the table here at Oscar. So we've meaningfully increased the scale in our insurance business, and we now serve over 1 million members, as you heard from Mario. This means we now cover approximately 1 out of every 13 individual ACA lives or roughly 7.5% of the overall market. In the regions where we offer coverage, our market share is roughly 16% this year. We have a wide national footprint, offering plans in 22 states and 607 counties. And we currently write 3 product lines: Individual, Small Group and Medicare Advantage. So turning to our strategic priorities. First, we're targeting profitability for Oscar insurance in 2023 and margin expansion beyond that. This is key to ensuring that we have a long-term sustainable business model. Next, by emphasizing profitability, I am not saying that we are not going to grow, but rather, we will balance profitability and growth and continue to leverage our differentiated member experience to drive above-market growth and retention. And finally, we expect to improve our margins not only through scale and pricing, but by continuing to harness the power of our technology. So let's talk a little bit about our strategic decision to continue to focus on the ACA market. As Mario pointed out, Oscar was founded to provide consumers with access to the affordable, high-quality health care they deserve. There's no better place to begin that journey than in the sectors of the health insurance market that are consumerized. And the ACA is the most consumerized of all these, with individuals selecting their own plans based on affordability and functionality for them. This is a market that's grown over the past 2 years and, we expect, will be a model for how other health insurance markets look over time. In fact, the individual market history looks very similar to the Medicare Advantage, where market membership hovered around 5 million or 6 million lives between 1999 and 2005 and then began to accelerate thereafter to the 29 million life market it is today. Oscar has been incredibly successful in the market, and we believe that the historical growth we've delivered is unmatched in the industry. Over the past 5 years, we've achieved greater than a 60% cumulative average growth rate in membership versus overall ACA average market growth of just 3%. Approximately 10% of our growth in the past several years was from expansion in new states and service areas, demonstrating our ability to grow significantly in markets where we're already established. So even with scale at more than 1 million members, we still have meaningful runway ahead of us across the ACA market. Our current market footprint through both our Individual and Small Group businesses covers just 9 million lives in a total addressable market of roughly 29 million. In the Individual market, the majority of the potential TAM is in our existing states, representing an opportunity of an additional 5 million lives. If we were to obtain the same market share we have today in these new areas, that would translate to an additional 800,000 lives through intrastate expansion. In the Small Group space, you can see in the graph that new states represent a significant path for growth at approximately 12 million lives. Given the size of the opportunity, we are going to continue to focus in this space. Now we recognize that this is a competitive market. And as such, competitive pricing is an important factor. However, I want to reiterate that our strategic priority of profitability ensures we are thoughtful in our pricing strategies market by market and that we make balanced trade-offs between growth and profitability. Having the additional advantage of a differentiated member experience has aided our growth where we have not been the lowest-cost plan. I think it's important to note that only 13% of our current members are in areas where we have the lowest-cost plan. You can see on the graph that this has been declining over time as our growth has accelerated, proving that we are being disciplined and leveraging more than just price in order to win. Our ability to achieve the growth and retention that we've seen is a result of multiple tactics coming together and leveraging our most differentiated parts of Oscar: our full-stack technology platform, which we believe is the most modern insurance infrastructure out there; and our industry-leading member engagement. These elements form the foundation of everything we do, including customer acquisition. Specifically, we acquire and retain customers through more than just price through a combination of best-in-class member experience, as indicated by the usage of our technology, where we see a 6% uplift in retention amongst members who are digitally engaged. Our products address members' needs by providing certainty on their out-of-pocket costs. We have close partnerships with provider and distribution partners that are supported by our technology. And the ease of working with Oscar drove a broker Net Promoter Score of 66 in Small Group in 2021. And we have innovative benefit designs made easier to implement by our tech stack, which I'd like to talk a little bit more about. So while our technology helps power all facets of our strategy, one clear way you can see it is through our creative plan designs that our tech allows us to introduce with ease. Aligned with our mission, our plans focus on ensuring our members have predictable costs and high-quality benefits. Our members tend to have lower incomes, and therefore, need not only inexpensive monthly premiums but also certainty on their out-of-pocket expenses. With that in mind, we introduced $0 deductible plans and a $3 drug tier in 2020 and quickly saw 30% of our initiations choosing the $0 deductible plans. In 2021, we provided additional certainty by modifying plan designs to replace coinsurance with a fixed dollar co-pay, especially on frequently used items such as clinically necessary primary care visits. And we also introduced Virtual Primary Care with a $0 co-pay, giving our members more flexibility and minimizing the time they had to take off from work for doctor visits. This year, we introduced a disease-focused plan that gives members with diabetes certainty on their overall costs through a design that caps their monthly out-of-pocket maximum for insulin. Our recent experience in Florida, I think, proves the power of this multifaceted strategy. Florida represents almost 20% of the overall individual ACA market and is one of the most competitive markets. We entered Orlando in 2019, and we enrolled 30,000 members in our first year. Since then, we've grown to more than 600,000 members driven by all the factors I just touched on, including growing our footprint within the state itself. Specifically, we have sculpted our portfolio to include those $0 deductible plans, $0 Virtual Primary Care plans and driven strong member engagement using our tools. As an example, in 2021, 70% of members created their web profile, allowing us to communicate easily with them and helping us achieve an NPS score greater than 60. We have enhanced our network each year, adding key hospital and primary care providers and have been supported by our strong distribution relationships. This sort of thing does not happen all in 1 year, as you can see. It takes time to build trust in the market with all of our stakeholders, our members, our providers, our distributors and our regulators and to ensure that our product design and positioning meets the needs of the local community. We've had similar success with our strategy in the Small Group market with our C+O product. This is a product that brings together Cigna's nationwide and local provider networks and Oscar's member-focused experience to deliver Small Group health insurance that understands the unique needs of small businesses. We first launched in the fourth quarter of 2020 and grew to more than 16,000 members in 2021, and we've nearly doubled to more than 30,000 members effective January 1 this year. Our technology stack allowed us to expand very quickly to 8 markets within 15 months, integrating our ACA approach with Cigna's established networks. And we were able to launch multiple products on the 2 different networks to meet the needs of the market. Our distribution partners have noted the ease of using our broker portal, earning us an NPS of 88 and having 87% of groups enrolled on that technology. And we are seeing strong retention in the early days for this portfolio. So we've proven that we can attract and retain members, supported by our technology, and we are confident that, that same technology is going to continue to support our path to profitability. As we execute to meet our break-even target in 2023, there are 3 key levers that we are using: first, reducing medical spend by driving down the total cost of care, enabled by our data and analytics; administrative cost savings, driven by scale and variable efficiency supported by our tech; and market optimization as we reposition our portfolio. As I noted before, our pricing strategy is a key underlying component, and we'll continue to balance profitability and growth as we execute on this targeted combined ratio improvement. I'd now like to talk about each of these in just a little bit more detail. Through analytics, we have identified and are executing on several key areas for medical cost savings, including network and utilization management across our book of business. We are continuing to refine our networks to reduce out-of-network exposure, leverage our scale for improved contract economics and partner closely with providers to lower the total cost of care through value-based deals. We continue to find opportunities to improve our medical costs by partnering with providers on clinical policies that encourage high-value care and better health care outcomes driven by insights generated by our data and analytical tools. At the same time, we've bolstered our platform's ability to drive better affordability by identifying and preventing unnecessary care and refining our drug formulary to help members find the lowest-cost, high-quality drugs. So let's take a look at how this has manifested over the last few years. As you can see in the graph, our total cost-of-care efforts, including engaging members in their own health care, has driven our medical cost trends lower than medical CPI over the last 5 years. The dots you see here represent Oscar-allowed claims spend normalized for risk scores. You can see the downward trend in the spend. While the medical CPI trend, noted by the gray line, has gone up the last 5 years. Specifically, our normalized trend was negative 1% over this time period, lower than the medical CPI of 4% on average. Oftentimes, payers and risk-bearing providers show geographic-specific MLR results by cohorts over time. You can see here that we are delivering steady and consistent claims cost reduction on our overall portfolio. With this level of outperformance, Oscar will not be -- this level of outperformance, I would say, won't be sustainable in perpetuity. But it has driven our -- it's a huge driver of our ability to avoid raising rates above market levels over the past few years. As we push forward profitability, we will shift these savings from growth to investment in our own bottom line. I would also point out that rate increases in the Individual market have been flat to down the last few years, while medical costs have been increasing. And this is unlikely to be sustainable across the marketplace in the future. So improving on our administrative cost is also key to achieving our combined ratio target. There are 3 ways that we are focused right now in this area. First, we're driving down greater variable cost efficiency using our tech in order to reduce manual processes and to leverage our scale to obtain better unit costs. Second, we expect to achieve operating leverage through continued top line growth and limited fixed cost growth. And finally, we see overall opportunity to lower our overall distribution costs. The rollout of the American Rescue Plan in 2021 represented a growth opportunity for Oscar. And as such, we made a number of strategic distribution decisions that supported our 2022 membership increase. As I'll speak about shortly, we're taking a market-based approach with our growth strategies, and we will be focused on driving more efficiency with distribution partners. Additionally, we're continuing to pursue opportunities to shift our distribution mix as we see the market becoming increasingly consumerized. One concrete example of our technology having a clear impact on our administrative savings is the in-housing of our modern claims infrastructure, which has saved approximately 80 basis points on our combined ratio versus using an external vendor. Our system generates a greater than 95% auto-adjudication rate for claims under $30,000, higher than industry standards. And this also reduces greater manual processing, creating further financial savings for us. The final lever that we're pulling to achieve a break-even combined ratio is modifying our portfolio mix by market and product. We're reviewing our portfolio and focusing where we have a right to win. This helps our teams focus their energy productively and requires discipline to make decisions where we don't see a path to profitability. The plan changes range from streamlining plan offerings to reduce complexity and eliminate those that are less profitable to completely overhauling networks that have poor economics or subpar partner dynamics. We are also hyperfocused on reducing losses in underperforming markets. So as we think about our overall portfolio and our path to profitability, we are using a framework that categorizes our markets and products within those markets into 3 archetypes: grow, maintain and remediate. Growth markets are those that have not yet reached scale but tend to be relatively new markets for Oscar. They have an MLR that's reasonable given the maturity of the book. And these are markets in which we're investing to grow and will strategically take calculated risk in order to reach a minimum membership with a reasonable margin over a few years. We would anticipate that new market expansions will be in this category in the early stages. The maintain markets are those where we have achieved scale that makes our overall economics work. Our main focus here is on improving margins while continuing to increase market share at a measured pace. This category represents the majority of our current premium volume. Markets that we have identified for remediation require structural adjustments to achieve profitability, and this is emphasized over growth as we work to improve the margins in these markets. If the structural issues can't be solved, providing us with the right to win, strategic actions up to and including exit will be pursued. So now that you have an understanding of our market focus and the levers that we're using to execute against our strategic priorities, I'd like to turn to our longer-term targets. Using these disciplined approaches that I spoke about to market -- to our market segmentation, administrative cost reductions and MLR-reduction initiatives, we look to continue to expand our margins beyond our 2023 profitability target. We're targeting mid-teens to high 20s annual top line revenue growth over the long term through a combination of new market expansion and growth within our current footprint. And our long-term combined ratio target is 95% or better for the insurance business. So I know that I've covered a lot of material here, but there are a few things that I would like you to take away from what I've outlined. Most importantly, we have identified levers and we are executing to achieve our target of profitability for Oscar insurance in 2023. Our pricing strategy in the near term will be focused first on enhancing margin, and secondly, on growth. Our differentiated member experience is driving our industry-leading growth and retention, and our technology enables our business and assists, along with scale, to drive margin improvements. And with that, I'd like to thank you all for your time, and we're going to move to Q&A.

Our first question comes from Kevin Fischbeck of Bank of America. 10% of your premiums are in the remediate bucket. What would your combined ratio or MLR look like if you excluded that from your business today?

Scott, I think...

Yes. Sure. Look, I think that -- first off, Kevin, thanks for joining us today. I think that, as you think about our -- the guidance that we gave, we've tried to take into account all of these different moving pieces, and I'll speak a little bit more about this later in the day. But in general, we think that, that remediate bucket that Alessa talked about is going to be one of the things that we pull on in order to get our MLR down into the range that we believe that we need to be at, in the low 80s. So I think that it is part of the overall strategy, but I wouldn't specifically call it out as being an individual driver of the combined ratio.

Great. Our next question comes from Jonathan Yong of Credit Suisse. Florida is expected to be 60% of the company's total membership in 2022. Given the competitiveness of the market and high cost to compete there, how is the company thinking about this market moving forward and improving profitability in this market?

Great. Thanks. Thank you very much for the question. So yes, as you pointed out, it is a very large part of our portfolio. The first thing that I'd start with is saying that Florida is not just one market. The state has a variety of different markets with different provider systems and different demographics. And we still actually have quite a bit of runway to expand within the overall Florida market itself. It is one of our best-performing markets to date as well. And we do see that we have very high customer retention and we have very high customer engagement, which I talked about. And I think using our technology to continue to engage those members will allow us to continue to retain those members over time.

Our next question comes from Josh Raskin of Nephron. How is Oscar enabling value-based care? And how does Oscar work with providers?

Let me maybe start and then, Alessa, you can add more from the front line. So it's a great question, Josh. Thanks for asking. So I almost want to set this up at a bit of a higher level and say we tout our member experience, and we think that's a very important part of what we do. We build all of our own back-office infrastructure so that we can extend member experience into the provider office and really count on providers to do all the heavy lifting for the clinical delivery as well. And so in some -- so it's not in any way a novel thing for us to think about how they able the providers. In fact, we've been maybe among the earliest to have 50-50 risk sharing in certain provider deals and certain co-branded health plans you build, for example, one with the Cleveland Clinic a few years ago. The way we do this is in all kinds of blocking and tackling type of ways. We have a provider web application. Providers can pull up clinical data about members in the web application. They can manage claims, payments. They can manage utilization management, prior authorization requests through the web application as well. So those things are already all in existence. When we work more closely with the provider we're putting towards risk, we start integrating a lot back and forth also between the systems we both have. For example, we, in many cases, can get into provider EHRs and pull, let's say, clinical charts for documentation purposes out of those EHRs. We can also push, in many cases, data back into EHRs. And in one case, we are pushing our targeting mechanisms for better documentation of clinical cohorts and diagnoses back into a provider's EHR to then have the provider follow up and make sure documentations are in place. I'm excited that we're rolling out now and working on this year actually in terms of what we internally call networks delivering value, which is a lot around using our internal data views and make them more available to providers directly. I'd say probably about 80%, 85% in our experience of taking a provider's data, running it through algorithms and so on and ontologies and then kind of spitting it back and saying, focus here, focus there. 80%, 85% of that work is generally actually just getting the data, making sure it's normalized, making sure it's visible and so on. We get a lot of that for free because we built all these technologies internally already. And so we now have joint operating committees and provider systems. We can fuel insights back into provider offices through dashboards rolling out there and things like that. Anything more, Alessa, from a network overview?

No. I think you summed it up beautifully.

Maybe risk-taking practices in parts of the country?

Yes. I think -- well, we have recently entered into a number of contracts with some provider partners who are interested in taking risk. And as Mario said, we're definitely focused on making sure that they have the right tools in order to do that effectively. We see that particularly in the Southeast, is a place where that's tending to be a trend where more and more partners are going into that space.

Great. Our next question comes from Steve Baxter of Wells Fargo. Slide 32, which is our combined ratio slide in your section, Alessa, would seem to imply you were looking for relatively flat membership growth in 2023, at least for Individual. Is that a reasonable conclusion? Does that mean pricing could potentially trend a little higher than it has historically as you look to make progress on margins?

Why don't I take that one? Look, I think that as Alessa had laid out, we've really got a few key focuses. One is we are definitely, in pricing, going to be optimizing around margin and making sure that we're optimizing around getting the insurance company to profitability in '23. We're also, at that same time, targeting growth, as I'll talk about a little bit later in my story today. We think that we can balance that shift up in our pricing, which is going to help us to deliver stronger margin performance in 2023. And at the same time, we think we can have growth that is in the mid-teens to the mid-20s. That's going to be a little bit lower than what we've seen historically. But we think that we still have the ability to grow at above-market rates and improve our pricing, which -- and deliver stronger margins.

This is a follow-up on pricing from Ricky Goldwasser of Morgan Stanley. You emphasized pricing discipline. How does your pricing compare to comps in your established markets? And how it compares to -- in your growth markets?

So I would just point out that we spoke that we only have about 13% of our membership in lowest-cost plans. So I don't think that we are sort of pricing in order to use that as our only lever to win in this space. I also think that one of the important things maybe to take away from the trend slide that we talked about, and I think Mario also spoke about this, is the fact that over the past few years, rates in the overall market have not trended up with the level of claims cost inflation that's out there. And we think that this is not sustainable as we move forward. So as we put -- there will be pressure in the overall marketplace on rates, and I think that, that is something that will enable us to continue to take rate and make that fall to our bottom line, along with continuing to execute on the reductions in the total cost of care, the savings that we showed you in that graph for ourselves, and allow us to not have to swing rates really high because we have other ways in which to reduce those overall costs.

If I might add, actually, Alessa, if you don't mind, we obviously don't stand still in any particular market either. We have close partners with the provider side, whether it's on the physician group side and in the way, Alessa mentioned, or on the hospital network side, health system sides. And the -- if you take Georgia as an example for a market where we were treading water for a couple of years really, we then went back in and some -- built a different network with a different -- with more network partners. And that then enabled us to move our unit costs to a point where we can then price much more competitively. And that's obviously something we're continuing to work on as well. I want to always point out that, that's a nice overlap between +Oscar and the insurance company. There are areas in the country where we have interest really and excitement about what we're doing in the +Oscar side and where that then can actually lead to a conversation about joining the network or being in a different capacity in our network on the insurance side. That's often a good sort of like entry-level way of getting into Oscar -- +Oscar.

Great. Our next question is from an investor. How do you want to grow in the Small Group market? And how do you view the profitability potential in that market?

So as we -- as I pointed out, there is quite a bit of runway in the Small Group space. So we're continuing to work with our partner, Cigna, and evaluate the markets that we're looking to enter into. There's significant room for us to continue to grow in the states that we've already entered. But we do think that each year, we will have new state expansion, not probably at the level that we saw with 8 states in 15 months over the last period, but we would certainly look to be doing not only growth in the markets where we are, but also additional state expansion in that space.

Yes. And sorry, I have one more.

Go right ahead.

I just want to make sure we come back to the themes of technology member experience as well. And this -- the way we grow in Small Group really is a great example again for how insurance is a game of interest. And the fact that our brokers are telling us that they love the fact that we can enroll companies in what, like 2 days, something like that, right?

Yes. 24-hour response rate, yes.

Faster, right? And the competition takes longer than that. It's just another one of these many little factors that you can really use to win in that market, and that's part of the reason we're just growing very, very fast there.

Great. Another question from an investor: how would the nonrenewal of the current ACA subsidies impact the overall market and the 2023 profitability goals?

I can take this one first. So again, popping up to a very high level. We've been at this now for almost -- actually almost 10 years exactly. And in those 10 years, I've navigated tons of regulatory changes in regimes. And the one thing that never changed is actually the general level of dollars flowing into the ACA. It's never changed downwards. It has changed upwards, obviously. And that is because it is an entitlement now, but it also works well for the marketplace. It reduces hospitals' bed debts. It funds health care in a much smarter way. It's highly intelligent to do. And you have a really very competitive market. And as a result of it, it's not a market where people overearn, whatever or overblow anything like that. And so -- that is really the starting point where we say, if the subsidies -- or if the way this market works hasn't gotten blown up in the 2016-2017 time periods when insurers were quitting the marketplace when, obviously, Washington, D.C. power balances shifted and very dramatically, it's very unlikely that you'd have a big shift in this way of taking subsidies away from the millions of people who have now gotten insurance and gotten health care coverage, make this more affordable in the way that taking subsidies away would suggest. And so that's our starting point. That's a house view really. There will be some way in which these subsidies will get extended, and that's what we're generally planning for. However, if that were not the case, we find ourselves back simply in the world we were 1.5 years ago or something like that, which when you look at all of our metrics there, they already were trending down for the cost side and up for the growth side. And I think we can, therefore, entirely fall back on the core elements of what makes Oscar a powerful player in this Individual market, which is everything we went through and we experienced, the way we work with providers and the technology we have and so on. And so in other words, we would not be in any way swayed from the goals we have, and we'll stick to all of that.

Our next question comes from Josh Raskin of Nephron. What premiums do you need to manage to hit the admin ratio targets that lead the overall company to breakeven, not just insurance level breakeven?

Scott?

Yes. Josh, I think that I don't want to serve dessert before we have you eat the peas and carrots. So I'm going to talk more about that in the finance section at the end. But in general, I would say that, if you look at our plan that we're laying out today and what Alessa walked through earlier, we're really targeting price to help us with margin and growth at a fairly modest level. So we don't have to have exceptional growth in order to deliver the profitability targets that we're looking at for the insurance company earlier, that we have the opportunity to both price for margin and achieve growth. So we think we can thread that needle.

Our next question comes from Nathan Rich of Goldman Sachs. I think the front part of this, we've already answered a little bit. But a question for Alessa. Can you talk more about your expectation for rate increases for Oscar over the next few years? And for the long-term revenue growth of high teens to mid-20s, how should we think about the breakdown between membership rates and any assumed impact from remediation?

So I clearly don't want to discuss exactly what we're going to do from a pricing perspective, from a competitive performance perspective. So what I would just say to you is that we're being very thoughtful. We are looking at this on a market-by-market basis to understand what we need to do in order to reach the margins that we need. And in each market, it's different in terms of how much we can modify based on unit cost dilution or other dynamics of that market versus needing to take it in price. So I would just say -- we reiterate that we're going to be balanced in the way we think about that pricing and the relative growth that we need. And as I did say, look, in the growth markets that we have, those are ones where we are still trying to get them to scale. And so there, we will be balanced and take some calculated risk in terms of our pricing in those markets. Those that are in and which is our largest bucket, which we're calling our maintain bucket, that is where we really have to make sure that we're going to hit the margins that we need. But like I said, it's market by market. And individual states are also not a single market. There are markets within those states that we'll be focused on. And then in our remediate bucket, that's where we're really hyperfocused on the margin itself and really getting it to where it needs to be. So there's a mixture of things that will happen in that regard.

Great. Our next question comes from an investor. With such a revolution in the health care system, isn't 95% combined ratio a small ambition? With 80% MLR ratio, can you achieve more scale and dilute SG&A to a better combined ratio? Or can you reduce MLR even more in order to achieve a smaller combined?

Yes. Why don't I lean into that one? So look, I think that we provided some guidance about what we're expecting in the near term. That's obviously a path to our long-term margins. And we think that we have the ability to have a high-growth and strong margin-performing business. And so if we can get the margins to 5% plus in the insurance business, I think that, that, coupled with above-market growth, is a really powerful combination that can create a lot of value for our shareholders. And we'll be able to continue to take on more and more scale, which is another catalyst for better performance. So we do think that we've got a number of levers that are going to help us to be able to deliver that strong performance.

And if I might add something to that as well, just again taking it back to the technology member piece, right? We're right now running 134 campaigns through a campaign builder, you're going to see the tool later on. It's how we run workflow automation. It's how we get to members in a particular segment. It's how we remind them of, for example, upcoming appointments for virtual PCP and things like that. I think just this week, I looked at it this morning, about 65,000 members were put into a new campaign over the past 7 days, okay? So we constantly try out new things there. None of the impacts that we could have in any one of those campaigns, which we very rapidly can put through the markets, take down their own work or double down on if they work. None of the impacts we price in. We really sort of like say, "Hey, that's going to be an impact on the margin going forward there." But of course, if one of these works, we start scaling it up right away. And so I think there's a lot of still opportunity for us to actually get better margins over time. But again, what Scott said is really important. We're not trying to hang our hat on that or make sure we bet the company on it, in a sense. But these are all the reasons why we've invested in the past 10 years into our own infrastructure, so we can keep running -- keep this flywheel spinning.

Great. Our next question comes from Kevin Fischbeck of Bank of America. You mentioned that there could be synergy between +Oscar and the health plan and network construction, but I would think that it might be the opposite: that plans, health systems might be more skeptical of working with Oscar when Oscar is also a competitor. Can you talk a little bit more about this?

Yes. So on the one hand, that is in an interesting way -- already kind of the case in health care, right? You have Optum out there, and obviously, a big -- generally a big competitor of everybody's, at least the mother ship there. You have similar situations with other insurance companies on the PBM side, on the service side as well. And so it's not entirely a new issue that we have to navigate. I think it is the case, and I think we should get Dennis on here later on as well, Dr. Weaver, our Chief Clinical Officer, who's our main relationship manager really with the health care system. I think it is generally the case that it is actually much more attractive for health systems to bet on working with Oscar than often betting on working with big competitors of theirs who are already in a more antagonistic relationship there. It's actually one of the reasons why I really think +Oscar will have a great pathway -- continue to have a great pathway going forward. And we also are actually very strategically going in and saying, where are the markets that we would rather want to have our own book of business, and Alessa really in charge, and where are the markets we'd rather work with somebody else. And as we go through and rationalize our market presence in that third bucket Alessa talked about in her presentation, that is actually one of the ways we should think about this as well. There may very well be markets we prefer to be in a +Oscar relationship and let somebody else take the glory, so to speak, and build the membership base as opposed to us doing it, if we can be helpful in the technology and service capacity. And so long story short, it is a part of our calculus, so to speak. It's part of our very, very open conversations as we're in the markets, but we are very organized around it. And I'm very confident that it works much more as a tailwind than as a headwind.

Great. Our next question comes from Jonathan Yong of Credit Suisse. Which states do the company see the greatest potential for growth and profitable economics on a go-forward basis when thinking about 2023?

Alessa, do you want to take that?

Yes. Sure. I'll take that. So I mean clearly, given that we're highly focused on the ACA space, those markets which have the largest ACA population are big growth markets for us. Clearly, we're already large in Florida, but there is still more runway in that state itself. There are plenty of places where we are currently and others where we have market share that we would like to increase. I think California and Texas are also very large ACA states, where we don't necessarily have the full footprint as well. And I think there are also places that -- where we saw really good growth in OE '22, some of our smaller states. And we see a lot of runway there because when we first enter a state, we really go kind of to the main metro areas where the majority of the ACA lives are, but there is a lot of additional potential members for us to service in more rural parts of those states as well. So while that may not exactly happen in 2023, that's certainly part of the road map as we think about growth in some of those -- some of the states that we're already in, in the grow bucket itself.

I can make one more comment as well, always the high-level guy over here speaking. What we haven't mentioned as much and talked as much about is the overall shift of the entire U.S. health insurance market towards individualization. That's really what made us go into the health insurance market to begin with, that we think that these markets will all individualize, right? At about 100 million individualized membership right now in the market, that still leaves, what, 240 million people that individualization can still occur to. And so whether it's through individual coverage, HRA accounts, whether it's through companies and private exchanges and things like that, it's a big opportunity. I think the overall market is still growing. Medicaid redetermination, which I'm sure we're going to talk about more later, are all additional levers for growth that we have across the footprint we are in.

Okay. Great. Well, we are running about 15 minutes early, so we will take our 15-minute break and see you back here at 10:15 for the product demo. Thank you all.

Excellent.

Thank you.

Thank you. [Break]

Welcome back, folks. Thanks for rejoining us. We're on to the second part of the day here. And I promised this earlier, and I'm going to make good on it. What better way to demonstrate Oscar than with an actual demo. And we really can have a presentation about a demo here. We're going to go through this now, and what will be great for everyone to look out for is really 3 elements. One is just the power of the technology and how it's connected across everything we're building. The second thing is how we can connect this to providers who we're working with as well and enable them in working with us. And the third, of course, is many of these components, really all of these components that you're going to see play a role in +Oscar. We'll talk about this a little bit later, but we now -- for example, for a client white label, the mobile app. And so everything you see in here can also be done in a completely branded way for somebody else. And with that said, let's go into the demo. [Presentation]

All right. I hope you enjoyed that. If you want to sign up for Oscar [indiscernible] [ comes where to go. ] If you want to buy +Oscar, we have more for you here later on as well. I want to actually sort of like add 2 errata to this one here. Since we filmed this, we have 134 campaigns right now sitting in the system running through it, not just 80 as you heard there at the end. So that's one powerful change. Again, we're changing pretty much every week. And the second piece is, remember that drug search in the Oscar EHR, that also has gotten improved to the point where the physician can now go in and simply search for insulin, and it automatically ranks the drugs that will show up in the search box by how expensive the drug is for the member and how useful the drug is for the member. And so that's another very nice integration -- real-time integration with the insurance data and some member-facing -- provider-facing data because in this case, of course, that's part of our provider enablement. So user experience, simple and intuitive, but it's based on a powerful full-stack tech platform that we think, as we said, difficult to replicate. And this is actually the same tech stack and member experience that we offer to our +Oscar clients as well. And 2 key features you saw in here, the care teams, the care router, that's the physician search tool, the campaign builder -- that's the tool at the end here. They've all led to the +Oscar client relationships we now have with some of the biggest names in health care and partnerships we have there. So I'm going to turn to our +Oscar product now and take you through a couple of things, our growth strategy and our long-term expectations for the product. We will have later on here, as I mentioned, Jesse, our Chief Product Officer; we'll have Dennis, our Chief Clinical Officer and our chief outreach person to the health care system; and Chelsea Cooper, Chief Growth Officer for +Oscar. But for now, let me walk you through what we're doing here. And there's really kind of 2 observations that +Oscar strategy is grounded on. One is that health care is in a state of transformation. Critics might say it's always in a state of transformation. It does feel quite fast right now and I've been in this now for quite some time. And we think we can help transform it faster with others, not just ourselves. And so again, as a risk-bearing entity with a modern tech stack and with high member engagements, that is what makes us this unique animal in the health care system. And so we've got the ambition to power as much of the system as possible with a differentiating technology and doing that through +Oscar is just a great way of growing that faster. And it enables other payers to focus more on value, and it enables providers to take on more risk through our technology solutions. We've been in the market actively pitching really about a year now, and we have approximately 100,000 client lives served, to ground you on where we currently are. We expect that these clients will generate $65 million to $70 million in capital efficient fee-based revenue this year. And we actually know that our current deals are contribution margin positive already for this year. For 2023, we are targeting double-digit growth on the top line, even if we didn't have any new deals come through, because the existing deals and clients and so on are growing, we can grow alongside them. In the big picture, our tremendous 2022 growth for both the insurance product side of Oscar and the +O side of Oscar, I just think has afforded us the time to take the opportunity to get +O right. And so we've been selective in taking on new work versus internally using our teams to build out our offering in important ways. But that all makes our ambitions for +O higher than really ever before, and we'll focus on these 3 strategic priorities. The first is to service our existing clients well and grow with them, as well as add new clients into the product line. The second is we plan on adding more modularized offerings. So we have both end-to-end connected solutions as well as individual offerings with more flexibility for our go-to-market. That's an exciting new go-to-market, we're going to talk about a bit more later on. And finally, we're planning to move more towards Software-as-a-Service solutions, SaaS solutions, in order to increase our total addressable market and expand margins as we go into the markets. I want to pop a level back up here and report back from the front lines again, if you will. We spend a lot of time in the fields. We have a very consultative sales process. We do a lot of the demo -- demoing, as you just saw. I do this, team members do this directly really across insurance companies, provider groups in the health systems. And we get a lot of impact and insight from insurance leaders, health system leaders, physician group leader here in terms of what's really on their minds and what's troubling, if you will, them. There are three main issues that we hear about from them all the time. #1 is providers and payers. It's really across the board now, struggle with engaging consumers and broadening their reach. They've got an onslaught of direct-to-consumer companies now in the marketplace. They've got primary care doctors around them. They've got a different sort of like member expectation now coming from other industries -- members can do everything online, not in health care. And so that is really going to be more acute, the struggle for providers and payers in a market that's going towards virtual and towards digital. And I think that train has left the station. It's unstoppable. The second issue we have across health care, we still have a lot of clunky and disconnected admin systems. And so there's a lot of evidence, I think, that we see when we talk to folks, that those are holding payers back and they're holding providers back. And some very tangible ways can be -- and the fact that you can't do all the plan design you want to do, you can't react more in the moment to changes. The amount of time we heard last year -- in the last 2 years when regulators changed reimbursement thing for COVID or something like that. When we talk to regulators, how difficult that often is for others in the marketplace, and I can't count. And more importantly, perhaps even for them, it's making their products more expensive because the more clunky and the more vendored out into 50 different vendors your stack is, the more the PMPM stacking of fees becomes an issue for the pricing of your products and going to market. That's going to get more and more difficult in a market that's getting more consumer-driven, where value counts more. Finally, everyone in health care should be taking on more risk. And if you ask me, and I've been living through this now for 10 years, from most players in the health care system, the notion of IBNR claims, reserving, appropriate documentation, these are still very foreign notions. And there's no great technology or service systems that both gets you into that from a capabilities point of view and explain to you how this all works. And so that risk that people fall behind in a market shifting more towards value-based care. And so these are the 3 issue areas +O addresses in how we go out and pitch. I want to stay on this a little bit longer here on engaging consumers. Our engagement and growth tools have delivered impressive results already for clients. For one of our +O clients, we've seen 90% retention rates year-over-year in the plan we built for that client. On enabling an efficient admin system, we have a cloud native payment system, as you know, with a very configurable workflow automation. In one client case, they are projecting 20% administrative reduction in cost avoidance. And then that can get [Audio Gap] Naturally ingest everything from claims to clinical data, to member behavior and can put this into our data lake. And we make the tools that come out of it, that's on top of this lake available to clients. For example, for 1 customer, we set up 120 data feeds between the 2 organizations, data flowing back and forth. So in a nutshell, +O, enabling the shift towards a cost competitive, value-based solution with a great member experience. You've seen this slide before, that's our tech stack and I had it in my opening comments here. And I want to bring it up again because we've been living ourselves in an ACA world that's already consumer driven. That's already cost competitive, and it's already fully at risk. And so -- we have been building the stack to address these issues and to help clients, therefore, with engagement and growth. If you look at the top 2 boxes there. We can do 2 things. We deploy our member experience, mobile, web, everything else, and our behind the scenes CRM, customer relationship management system. That actually spans across member services, providers and brokers as well. And I'll show you more about this in a second. So that's the boxes there at the left. In the middle parts, we help clients with becoming more cost competitive. And so we can deploy our admin infrastructure, and our payer -- core payer admin, basically, that includes 2 pieces. Our campaign builder, the very configurable engagement engine you've seen earlier. And the example you saw was for a member-facing campaign. But believe it or not, a lot of our benefit design, a lot of our claims automation runs through the same solution. And then to help clients with managing risk, we deploy our clinical tools, which includes the EHR and our clinical data platform. And so across all of these boxes here. We can really, as we like to say internally, pay it once, use twice. And I want to make this more concrete for you now and show you for each of these buckets, we've got great examples of how we've used these solutions to drive impact. So each of these 3 product areas, you will see an example here. And then I'm going to top it off with a client case study and a video as well from the clients. So engagement and growth. That's where we engage members, we engage the brokers and we engage the providers digitally in service of growth for partners. Again, if health care is moving towards a more consumerized system, you want to know, you want to understand how to be on TikTok, for example. Actually, I'm not sure we're on TikTok, anyhow. There's a good thing for us to follow up. But really how to engage members and how to engage brokers and get into the marketplace and build your brands. And we can help you do this on behalf of your own brands. And so now a couple of examples here on the left, 2.5 months into a new client [ mutation ] with a largely Medicare Advantage book of business. We already now measure industry-leading engagement, digital engagements with 55% of these new MA members engaging with us already for a platform client we have. I mentioned this before as a second image there on the slide. But we've now entirely wiped -- started an entirely white label member experience for a client as part of a new arrangement on the +Oscar side that lets the clients speak with a cohesive service and brand voice. And so that's rolling out as well. On the right side, you see how we power the brokers with a very effective broker tooling. And a nice statistic there is that 79% of brokers who are appointed, and therefore have an intent to sell, have engaged digitally with our portal. Before we move off the slide here, actually, if you look a little closely there, is it really -- try to read that little text under the number on the top left there, it shows you how much other brokers other than you, your friends that you're competitive with, already sold through +Oscar into a client. So we have all these little ways of making sure we can draw people, brokers, providers, members back into the ecosystem and engage them continuously there. So that's the engagement growth buckets. The payer admin and automation bucket, next component here. That's component here is really -- the goal here really is create admin efficiencies and really do that through automation. For example, we're able to auto-adjudicate greater than 95% of claims are under $30,000 because we built our claims platform from the ground up, and we don't have the incumbrance by legacy systems in all of this. We can reduce provider abrasion because we have a 98.5% payment accuracy in the claims system. And if we see things that are off, we can go in, fix them very, very quickly with good visibility. And finally, we're able to replace multiple point solutions, oftentimes with a single cohesive platform. One customer has been able to replace 20-plus systems that their customer service team was relying on with a single cohesive customer service tool -- that's Oscar, what you saw earlier in the demo, the customer service tool we have. Now on the right, you see our automation engine in action. You see little campaign there. That powers efficiencies in our business, which we can extend for our customers as well. And it -- really in the weeds example here is that we can deploy our capability so quickly by reconfiguring what we do here, that's 100% of document generation for EOCs. That is, the evidence of coverage documents is automated through our engine and easily customizable. So EOCs are the kind of documents that you have to customize by absolutely every permutation in the book: member, state, language, clients, benefit designs and so on. We can essentially do that with a single source of truth and run this all the way through, push a button and boom, there's millions. I think we've created millions of these EOCs over the years coming out of the other sides, otherwise on the [ source of error. ] Finally, clinical tools analytics. As a payer, we have a unique vantage point in the health care system. And I would guess here, but I think that generally it predisposes us to build a much larger sort of data integration than any other player in the health care system is even able to because of the visibility and the kind of regulatory access the payer has. And so when we deploy with a client, we can bring all of those integrations to bear. I mentioned before the example where we have built 120 data feeds to enable just 1 client. And because we're Oscar, as you can see there on the left of the slide -- I think this direction I got a point here. Those feeds can include really anything, from performance data on physicians in the network, real-time claims, customer service interaction data for each member, really for each member -- who have we talked to about what, in kind of clearly formalized way. Third party data from local, regional health information exchanges, vaccine registries, all that kind of stuff. All goes into the same data lake. You see a couple of screenshots from actual dashboards. These are real dashboards from us currently. I hope you can learn something from them. And so the ontologies we built -- for the non-tech folks on the call, these are essentially structures that help you better understand and organize your data and compare data points that come from very different data sources. These ontologies we have there, we can roll out across clients [ and weedly ] as well. And so queries along the lines of who has an anxiety disorder and has recently gotten a COVID vaccination, is now in the hospital and has an issue with a drug fill, these are very easy queries for us to run. And these insights creates real value. Two examples of this are, if you look at documentation, right? Very important for HEDIS, for quality care gap closing, things like that. About 54% of confirmed disease states that we confirmed in our data were predicted not by a provider diagnosis -- by at least 1 other data signal like what did member search for, what drug is member on, things like that. Another case, another example here is that we've had in one of those campaigns we ran with a clients, 40% increase in diabetic eye screenings because we automated care gap identification and closure. And that is a great example of provider enablement. We didn't do that ourselves. It ran into the network and the network basically run against it -- network, in this case, of a client. So here were the 3 examples for the 3 areas we can deliver in +Oscar, and this comes together quite nicely by looking at our partnership with Health First Health Plans. That's a provider-sponsored health plan in Brevard County, Florida. They start out with quite high administrative cost because of legacy systems and really normal across the industry, which made it difficult also if we were to launch newer plan designs, but they are an incredibly forward-thinking organization. [ Likely will take ] new leaps in incredible ways. And super fun to work with for us as well, and they moved on to our full stack technology, and were able to consolidate onto a single [ data ] platform. And they are projecting 20% admin reduction and cost avoidance as a result of this switch and transformation. And they're now actually able to expand and grow on the platform and then also offer more competitive supplemental benefits and plans. And plan on doing so for the next year. And if I can tell you this, it's more effective if Health First Health Plan tells you this directly. And so here is the CEO Health First Health Plans. [indiscernible]

Hi, I'm Matthew Gerrell , CEO of Health First Health Plans coming to you from Brevard County, Florida. For more than 26 years, Health First Health Plans has served our counties, and we are excited with the new change that we have done by implementing the administrative services agreement with +Oscar. This agreement allows us to be able to utilize the technology platform stack that Oscar has created to be able to service our members and create a better experience. From the time of the contract signing to less than 1 year, on January 1, 2022, we were able to fully integrate and begin processing our members on the Oscar platform. As with any one of these type of transitions, there are some bumps in the road. But the people at +Oscar have been there for us and acted in professional and courteous manners and have been dedicated to solving these issues so that we can be successful. We are actually planning, because of this integration, to be able to expand our services beyond the 7 counties we're currently in and have filed all the appropriate paperwork to do that on 1/1 of '23. So I want to personally thank all of those at +Oscar for their hard work and their dedication as we've gone through this integration and are continuing to serve our members.

Yes. Thanks, Matt, and the entire Health First Health Plans team for their partnership throughout. It's just been a lot of fun and really super effective to work together. And I really want to say that my most fun I have when I'm out in the field and talking to health plan leaders, brokers, insurance companies. There's so much dedication of providers and members in local health plans, provider practices, health systems. It is just unbeatable, really. And that's for me, the exciting part about enabling that with better technology. Because that often is still lagging a bit, but they make up for it in energy and desire to serve their customers. So really fantastic to work together and best of luck to the both of us going forward. So we've been in the market and we've been hearing excitement and desire for our +Oscar product. We have a robust pipeline. We've been bringing +O to market. We -- in a business process as a service or BPaaS way of going about things. And so through business process as a service, we power all of the health plan technology and operational needs and we run that on the same prospect platform that we have for Oscar insurance. We continue to believe that we'll land additional large BPaaS arrangements. Those are big deals, and that means they have longer sales cycles, often in the realm of 18 to 24 months. And they also often involve more impact to the client organization, reworking teams, rebadging teams and so on. We're very committed to this product line but these larger deals, we think, will take time to continue to deliver and do it at a steady clip. So in addition, our engagement with the market has made it really quite clear to us that there are 2 additional significant opportunities for us. And you see them on the slide here, to deliver our offering on the one hand in Software as a Service, not just BPaaS. So this basically means we give you the tools, but the client organization fully works on the tools. And the second axis here is to deliver more modularized offerings. Because this means that more SaaS, Software as a Service, instead of BPaaS and business process as a service. Again, that's clients work with their own organizations on our solutions and because more modularization lets us deploy more quickly, and it opens up more of the marketplace out there for us. That's what we are now in the process of building out, a more modularized and externalized offering. And we think that's going to unlock additional client types that don't require a full stack replacements right now. We've had this in our roadmap and, therefore, luckily anticipate this will not require any new tech resources, but rather the allocation of existing teams on SaaS and modularization. And from an economic model perspective, deploying SaaS means some lower PMPMs compared to the bigger BPaaS deals because you don't collect the operations and service fees, but you also won't do the operations and services. So these deals are largely software solutions, and we expect them to have 40-plus percent margins as a result of that. More modularization means deals are faster to deploy. And that's a good segue to talk about our total addressable market as we see it today. And you've seen this much before, but I want to go through it again. We sell our core solutions to 2 groups: On the one hand, health plans and third-party administrators; on the other hand, providers who want to take on risk, who want to do it better. On the left side, we're showing a total addressable market on the payer lives we believe are addressable. That isn't the full universe of all payers in the U.S. or the world, but it's those we think we can enable with our technology. As we modularize, that's the kind of TAM that we think will increase. Just easy to slice into existing payer and help them in a very, very pointed and targeted way. On the provider side, this includes systems, health systems, existing risk-bearing providers and fee-for-service providers that will be moving to risk and even new entrants. There is a tremendous amount of activity in this space, which is exciting. But I think there's also a huge need amongst providers who essentially need to act like risk-bearing insurance companies for the first time. And here, we show the full opportunity across governmental programs: Medicare Advantage, Medicare Fee-For-Service and Managed Medicaid. And we believe the providers in these programs will need both full stack and modular solutions to enable them to take on risk, data aggregation, reconciliation, analytics, engagement and more, go back to the same six boxes you saw we talked about before. One more angle, but really isn't on this slide, but I would -- do want to mention maybe for those of you who are watching as well. I love the angle of newer digital health players. They all need to and want to, it is really the takeaway I have from conversations even just this week, go towards being risk-bearing players. And it's a very, very powerful shift. And I think that will require learning for a lot of them, right? IBNR, documentation, all that kind of stuff. We are in a very unique position to help here. Even with something I would just call regtech -- like printing EOCs is a regtech example in a way. And so in a health care market that's more consumer driven, more value-based, more digital, these TAMs and the demand for +O will continue to grow. And that's another kind of angle we could start -- we already have inbound demand for. And that's exciting for me that [ +O of us here ] to keep them going on the path of. So we're excited where we're taking +Oscar. On top line growth -- actually, the overall outlook here, top line growth we're targeting 30-plus percent year-over-year -- and over time with a move towards Software as a Service. As I mentioned, we're starting, I think, from a strong base. Already this year, $65 million to $70 million in fee-based revenue. And we expect to have double digit growth even without adding any more deals going into 2023 year. We think SaaS deals are realistic. And in our pipeline for 2024. And on margins, we're targeting 30-plus percent margins based on the blend of software service and BPaaS. And then as I mentioned, we're already contribution margin positive for existing contracts. So again, starting from a strong base there as well. And while we're selling and operating BPaaS today, a great deal of opportunity in SaaS modular offerings in the future, very excited about that. Now I want to bring up folks from the +O front lines here in a second. Actually, no. We're doing that afterwards. So we'll do first, Scott's -- okay. Thanks. But a few takeaways before we go to Scott here from today's +O discussion. What we're doing in +O is leveraging our full stack platform and we're powering more of the health care system. That's the top line and the bottom line. That's really it. We're in a system, in a health care system, there's a squeeze being put on, on the incumbents, whether they're payers, providers, anybody else out there. It can help to move to consumer-driven digital value-based care, and we can help with that. We've got this very highly integrated offering. It's already delivering value to our clients. You can give them a call and talk to them about it. It will keep printing proof points. That's the exciting thing for me to be live with more clients this year, every month we're going to have more proof points, we're going to be able to show more how this all works. And we're targeting more modularized solutions, we're building out SaaS in modules over the next month. And I mentioned, this does not require any incremental investments beyond the runway -- run rate. And finally, we believe there is a meaningful long-term upside to our model from +Oscar, given the large TAM we're tapping into and the differentiation of the offering here. And with that, I want to bring up our esteemed CFO, Scott Blackley, who's been at Capital One before. You know him. He's obviously with us every time we talk about Oscar. So Scott, here you go.

Thank you. I appreciate the opportunity to be here and good morning everyone. It is a pleasure to be with everyone today. As Mario said, I'm Scott Blackley, I'm the CFO here for Oscar. I'm going to be walking through today with you Oscar's financial strategy and providing some details about our long-term outlook. Before I discuss our future, I want to take a moment to recognize the extraordinary progress the company has made over the last several years. We've grown our direct and assumed policy premiums at a 70% CAGR since 2019. As you've heard today, this historic growth has been driven by high levels of member engagement, innovative products powered by our tech stack, our deep provider and distribution partnership relationships and our affordable pricing. This robust growth has been coupled with margin improvement as evidenced by our adjusted EBITDA as a percentage of premiums before ceded reinsurance, which we've been able to reduce by 5 points between 2019 and '21, and we expect to reduce an incremental 8 points using the midpoint of our 2022 guidance. We've seen margin improvements due to both efficiencies from our technology as well as scale benefits as we've grown the book. Our +Oscar products provide a synergistic and capital-efficient opportunity for us to monetize our tech and infrastructure. This business is projected to contribute $65 million to $70 million in fee-based revenue this year at positive contribution margins. As I look to the future, we're focused on the following financial priorities. First off, we are laser focused on delivering insurance company profitability in 2023, and total company profitability on an adjusted EBITDA basis in 2025. Next, we're focused on improving our margins while achieving sustainable top line growth across our 2 products. And finally, we plan to leverage our scale and our tech to drive down costs. Let me turn to our 2022 guidance. We're reaffirming our guidance, which lays the groundwork for our long-term strategy. With a few months of '22 behind us, nothing has changed in our outlook for the year. Our '22 guidance is based on the current market landscape and we'll incorporate the impacts of Medicaid redetermination if and when there is more clarity about the timing and pacing of that potential regulatory development. Starting with revenues, our $6.1 billion to $6.4 billion of direct policy premium guidance reflects more than 80% year-over-year growth at the midpoint, driven by more than 1 million members across our insurance company book. As Alessa mentioned, we retained more than 80% of our members from year-end '21, and we saw our largest growth in states we know well, like Texas and Florida. Our 2022 MLR guidance of 84% to 86% translates to 400 basis points of year-over-year improvement at the midpoint, which is largely driven by our expectations for an endemic level of COVID, coupled with an expectation of lower SEP growth and the continued benefits of tech and scale across our medical costs. Our insurance company administrative ratio is projected to decrease 180 basis points from 2021 levels based on the midpoint of our guidance, which is mostly due to fixed operating leverage from our greater scale as well as some variable cost efficiencies. These benefits are expected to be partially offset by membership ramp related costs and distribution costs associated with our growth. We expect our adjusted administrative ratio will be between 24% and 26%. This metric captures the administrative expenses in our insurance subsidiaries and our holding company, which include +Oscar-related expenses. We believe this metric enhances the visibility into our path to adjusted EBITDA breakeven. And finally, our adjusted EBITDA loss is projected to be between $380 million and $480 million this year, which is largely consistent with last year, but implies significant margin improvement as a percentage of revenue. I want to take a moment, for those of you that are newer to the Oscar story, to walk through our financial model that's comprised of our 2 key products. Our largest product is health insurance, which constitutes the majority [ of that ] of our financial results today. Our insurance members generate direct and assumed policy premiums, which we believe is a key metric as it presents the total volume of business that we're responsible for serving. These premiums are then reduced by our estimate of risk adjustment payable, which we ultimately will return to CMS. The resulting net premiums, which are referred to as premiums before ceded reinsurance, this is a critical metric because the denominate -- it is the denominator for most of the key ratios that we use, and it also drives the calculation of risk-based capital required for our insurance subsidiaries. That calculation is then apportioned between Oscar and our quota share reinsurance partners. Our Oscar InsureCo combined ratio measures the operating performance across the insurance entities and is the sum of our medical loss ratio and our insurance company administrative ratio. A combined ratio of 100% or less would signal that the insurance company is at breakeven or better, which is what we're targeting for 2023. Our second product is +Oscar, whose revenues and expenses are reflected in our holding company. We're expecting the +Oscar business to generate between $65 million and $70 million of fee-based revenue this year, at positive contribution margins. The difference between our adjusted administrative expense ratio, which captures all of the revenues and expenses of all of our businesses and the insurance company administrative ratio is largely the holding company and +Oscar expenses. And we recognize some of our metrics may be new to you. So we've added a slide in the appendix that walks through how these KPIs translate into our GAAP P&L. All right. Let me shift to our targets and opportunities for our business, beginning with direct and assumed premiums. Over the last several years, we've seen amazing growth as we worked towards obtaining scaling. With over $6 billion in direct and assumed premiums, our focus is now shifting towards profitable and sustainable growth. With that in mind, as we go into pricing for 2023, we'll be emphasizing margin. We believe that our strong member engagement and retention will allow us to both price for improved margin and target high teens to mid-20s topline growth. As Alessa mentioned, we are focused on growing in markets where we have a strong right to win. And as a result, we expect our growth will be weighted more towards existing regions and service area expansions. I'd also note that our growth targets in 2023 assume only a modest benefit from ACA market expansion from Medicaid redeterminations. That could end up being some upside to the targets that I'm presenting today. On the expense side of the business, because we're a health insurance company, our largest spend is medical costs. And we're projecting MLRs to be in the mid-20s in 2022. We're targeting driving the medical loss rate into the low 80s for 2023 and beyond. There are 3 areas that we will be looking for that will allow us to drive MLR improvement. The first is pricing and market optimization. The second is contract improvements, whether they be vendor provider. And the last is that to leverage our tech to further improve health outcomes through evidence-based care. We have specific plans and initiatives across each of the areas of focus, and we're confident that we'll be able to deliver. Let me turn now to our administrative costs. We are focused on improving our adjusted administrative expense ratio. This ratio we're targeting to be at approximately 20% during '23 to '25. I would expect that in 2023, we're likely to be a bit above that target. And in 2025, we're likely to be a little bit below that target. One of the challenges of being a high-growth company and a young company is that some of our process and execution steps have yet to be fully optimized. As we have extended our tech further into everything we do, we've seen continued improvements in our administrative cost ratios, but there's more opportunity there, and we intend to capture it. Our targets for the adjusted administrative expense ratio reflects action plans that our teams are currently working against. Let me provide some specific examples. We see opportunities to increase automation and extend self-service tools for our members, which further enhances the quality of our member experience while at the same time, improving the efficiency of our concierge teams. We also see opportunities to further enhance our case management workflows, which will improve the efficiency of our internal clinical teams. And lastly, even with our high level of claims auto-adjudication, we see further opportunities for efficiency improvements in claims processing. We're dedicating tech and product resources against these initiatives during 2022 in order to drive these improvements. And I'll also point out that these type of enhancements will extend to our +Oscar offerings and that those benefits that we're realizing ultimately can be realized by our clients, too. Another initiative for us will be to leverage our scale. There are a number of vendor renegotiations that we already have completed or they're in flight, and we expect that those should drive approximately 50 basis points of improvement in the ratio next year. And then we're also planning for further fixed cost leverage in 2023 and beyond. That's probably the simplest go-get for us. And we think that even with lower growth, we're still going to have an opportunity to generate further fixed cost leverage. And then another strategy that we're deploying is to lower our distribution costs. Distribution is a key strength to Oscar and we intend to continue leveraging our strong broker relationships going forward. We are planning to optimize our spend in certain high-value markets and reducing our acquisition dollars in lower value areas. All right. Let me shift to +Oscar. As Mario laid out, this is a business that we believe has tremendous opportunity. We're targeting 30% revenue growth and margin expansion as we move more to modularization and to SaaS. We expect this business to have low churn and predictable and growing ARR with existing clients. I'll note that this is a young business where we continue to evolve our market offerings, so growth rates from new clients are likely to be lumpy and may vary from year-to-year while this business matures. And as a further point of clarity, in 2023, we're projecting double-digit revenue growth based on our existing clients. We expect future growth will be driven by, first of all, higher -- helping our existing clients to grow and retain their managed lives. Two, to increased deal volume per year as we expand our offerings to modular services and SaaS. And then we expect that margins will expand as our current deal matures and we end up moving further into SaaS. Let me move on to how all these pieces come together. Based on our strategy and our outlook for the total company, we are targeting adjusted EBITDA approaching breakeven in 2024 and being profitable in 2025. Simply put, breakeven will be realized when the combination of our medical loss ratio and our adjusted administrative expense ratio is at or below 100%. So to get there, our MLR needs to be in the low 80s or below, and our adjusted administrative expense ratio needs to be below 20%. And we anticipate that the same factors that will lead us to Oscar Insurance company profitability will be the ones that lead us to adjusted EBITDA breakeven including, one, our sustained -- sustainable top line growth from both insurance and +Oscar, MLR improvements, admin improvements from our tech and our scale. Through 2025, we are targeting that +Oscar revenues will increase meaningfully and contribute to total company profitability. And as I outlined on my first slide, our modeled historical ability to grow and improve our margins gives us increased confidence that our path to profitability is achievable. I also want to provide some longer-term margin targets that show where we want to drive this business in our steady state. For the insurance product, we want to drive the business to a 5% or greater margin, which is a combined ratio of 95% or lower. We expect growth in our +Oscar business from today's level. We believe there's demand to provide our tech in a SaaS format as well as in a BPaaS format. And as we grow the BPaaS and SaaS business, we expect that margins on average will settle out in the 30% range. Of course, if this business shifts more towards SaaS, margins are likely to be higher than our targeted 30% range. And on a consolidated basis, our long-term target is mid- to high single-digit margins across the company in a steady state. Okay. So turning to our cash. Let me walk you through our cash and capital dynamics. We had about $2.5 billion in cash and investments at the end of 2021, which included approximately $740 million of parent cash and investments and approximately $1.8 billion of subsidiary cash and investments. Our parent cash and investments are primarily used to fund our capital needs and our net holding company expenses. Our subsidiary cash and investments are largely the operating results of our consolidated insurance entities and their positive working capital dynamics. Let me turn to capital for a minute. We have roughly $475 million of capital in surplus in our regulated entities at the end of 2021. Our open enrollment growth drove an increase in our capital requirements, which we've largely funded in the first quarter. We will also then be required to make further capital investments in the insurance subs throughout the year as net losses reduce capital and surplus. As a rough rule of thumb, our insurance subsidiary capital requirements average out to be around 17% of our premiums earned, which is net of reinsurance. Now on a state-by-state basis, that metric varies, but it typically falls between 12% and 20%. And as a newer entrant in some markets, there are certain markets where we have to comply with higher standards in the early years following our market entry. For example, in Florida, that state has higher capital requirements for newer entrants. As our insurance subsidiaries mature and become profitable, we would anticipate that our average capital requirements for the book will trend down towards around 12% at a steady state. Turning to our reinsurance dynamics. As outlined in our 10-K, our reinsurance relationships provided us with roughly $150 million of capital relief last year, which will increase in 2022 due to our premium growth and increased level of reinsurance. We expect that our quota share will cover approximately 42% of premiums this year, which is an increase of 33% in 2021. Let me move on to parent company dynamics. I wanted to make sure that we give you a good sense of our long-term trajectory here. As I mentioned, our 2 key uses of parent company cash are currently capital infusions into the regulated entities in order to meet our risk-based capital requirements. And secondly, the funding of our holding company expenses, net of any +Oscar fees that we received from our clients. And then third, we have interest payments that we're making associated with our convertible debt transaction. Our capital infusions into our subsidiaries are driven both by growth capital, as I just discussed, as well as the projected net losses, which reduced net capital and surplus. As our insurance company profitability improves, we expect our infusions will decrease as positive retained earnings effectively began to contribute capital. At our long-term margin target of 5% plus, our insurance subsidiary should be able to self-fund significant levels of growth and dividend capital back to the parent. Switching to holdco expenses. We expect +Oscar fee-based revenue will cover a larger portion of holdco expenses going forward, reducing the net cash burn over time. So pulling up, based on our current '22 outlook and our InsureCo profitability targets for 2023, we believe we are well capitalized for the next couple of years. So before we move to Q&A, I'll reiterate a few key takeaways about the company and our financial picture. We're targeting InsureCo profitability in 2023 and full company adjusted EBITDA profitability in 2025. We believe that our industry top line growth, which is above average, is powered by our tech, and our platform is sustainable, albeit at a more modest pace than what we saw in 2021 and 2022. Our margins have improved in conjunction with our high growth, and we expect that we will continue to be able to do so driven by our tech and scale. And then finally, our growing +Oscar business with its higher margins and capital-efficient model offer additional financial upside for the years to come. So with that, thank you for your attention, and we're going to shift to Q&A.

All right. We're back for the Q&A session. We've got -- actually, I should say this very quickly who's up here. So next to me, Dr. Dennis Weaver, Chief Medical Officer, has been with the company for 5-plus years now, so one of the old-timers really. And Dennis and I have been really on the road quite a bit, talking to provider practices, physician groups, insurance leaders and so on, came from the advisory board before. You can look it up on LinkedIn. Scott Blackley, you've just seen. Chelsea Cooper, who's been with the company also for 5-plus years, also very, very early on, is the Chief Growth Officer of +Oscar, has been really on +Oscar for the -- since we called it +Oscar. Jesse Horowitz, and that's a real old-timer, 8-plus years in the company now, Chief Product Officer and has been overseeing much of our infrastructure build, technology build and so on. And Alessa, who you've seen before as well. Okay. With that, let's get into it.

Great. Our first question comes from Steve Baxter from Wells Fargo. Question on +Oscar. It would seem that doing another Health First-size deal would provide 3 years' worth of growth by itself. Can you talk a little bit about what are the rate-limiting factors around growth here? What could allow you to grow faster than the 30% you're targeting?

Sure. Sorry, Mario. So the 30% target, I think we view as kind of an average as I talked about in my talking points, that business with -- is a young and emerging business. And so the predictability of those streams I think is going to vary on a year-over-year basis. We're targeting 30% on average. We think that, that can be delivered built on the combination of growth from our existing set of clients, which we talked about we're expecting to be in the double digits in 2023. But we also think we've got an opportunity to add more new clients, and on full BPaaS, those are going to be lumpy deals. And so I would expect that in any given year, we could be well over 30% growth if we landed one of those deals. But they also are challenging to deliver because they're very large and complicated deals. And so we may have periods where we don't have any new deals that are of that size. I think longer term, as we get further into modularization and SaaS, we'll see the velocity of that business start to really take off, which we should be where we think we'll be able to have more consistent growth rates and targeting 30%.

Our next question comes from Ricky Goldwasser of Morgan Stanley. Mario mentioned early interest in +Oscar in some distinct regions. What are the characteristics of the markets where you would see more interest in +Oscar?

Yes. Great question. Chelsea, I think you can take this one.

Sure, happy to. So we're out in the market every day talking to a variety of customers from risk-bearing provider groups to regional payers, and we're getting a lot of interest in our platform. In markets where you have risk-bearing providers who are dominating, they're really looking to modernize their legacy infrastructure. And so that's where that modular approach Mario talked about comes in. And in areas where there's heavier competition, they need to lower their admin costs and differentiate. And so they come to us because they think our platform can deliver that for them. Some customers are looking for that full-stack interconnected end-to-end platform, and they look at our platform that sits on that common data lake Marco talked about, and that's unique in the industry. And so that's a great solution for them. There are others who are looking for components of our stack, more modular tech and things like our campaign management tool, where we have nontechnical users who really are able to create these automated personal lines campaigns to create behavior changes for members. And so that solution is exciting for them. We have folks who are interested in BPaaS. We have solutions for them. And then we also hear companies that are looking for our tools and tech, but their teams use it. And so that's where that SaaS approach comes in, and we're excited to bring that to market.

Our next question comes from Steve Baxter. Obviously, there's focus -- from Wells Fargo. Obviously, there's is focus on your significant growth in 2022. Any update on what you're seeing around claims trends for these new members versus previous members?

Scott?

Yes. So I think, thus far, as we've looked at the claims runout for 2021, we're seeing the trends working out as we had expected. We're seeing COVID costs that are coming in more or less along with what we were anticipating. We're seeing non-COVID utilization that is below baseline. We've seen those trends continue on into Q1 the first part of this year. And overall, I would just say that the fact that we've reaffirmed our guidance suggests that all of the information that we're seeing so far this year supports our guidance that we did at the beginning of the year. Mario, do you want to comment at all about some of the COVID metrics that we've been seeing?

I sure can. Yes. Is the microphone on, by the way? Can you hear me? Okay. Good. I just want to make sure. So we like to talk about this, right, and we look at various real time indicators that we can track more closely. And they right now really are all at all-time lows. I mean, that's the short story. They might be bottoming out. I mean, that is a possibility. I think if you really squint at in the Northeast now, for example, you might see a slight uptick in the percent of telemedicine conversations, for example, that are going -- that are about COVID, which would be consistent with some spillover of the European wave of Omicron BA.2 into the U.S., which is something that could very well be the case, although not making in any way an -- a scientific argument about this, okay? But so right this moment, we at all-time lowest area customer service conversations all-time lowest where same is actually the case also for something we didn't mention in the past, which is the retail testing activity, right? We're now reimbursing claims so people going to pharmacies and buying tests directly there. That is also another indicator we look at certain -- couple times a day, and that has also had a bit of a tick-up at the beginning when they started mid-January, but now it's been trending down, hasn't come back up again either. So, so far, I think we're in a piece of -- in a period of relative calm. Now if we were to go back into another Omicron COVID wave, whatever variable it would be, we would look back at the December/January time frame and sort of like generally think that, that is what's going to happen going forward. And I mentioned this before, I'll say it again, even now with more claims run out, we look at that wave. It was about 4x number of infections per capita, right, so much higher infection rates. But you only had about the same number per capita of COVID treatments, right, people actually going to the doctor getting treatments or the hospital. It's about the same as before. So there was already a gap there. And you only had about 1/4 -- 1/3 to 1/4 of hospitalizations for COVID in that wave as compared to prior waves. So that's the 2 step-downs you had from infections to treatment numbers to people actually in the hospital for it. And that then lets essentially our internal finances to be on targets, both for last year with more runouts. And then so far, as Scott said, reaffirming the guidance for this year. So if these other ways we're going to experience, it is probably more this endemic version of COVID that we -- do we think we reflected in the pricing we have. But of course, COVID is full of surprises, and I hope that's then more on the positive side than the negative sides going forward for all of us.

Our next question comes from Josh Raskin of Nephron. With $6 billion of premiums in a target 95% insurance level combined ratio that you cover the current holdco expense to get to total company breakeven. Are you assuming that holdco expenses are going to grow in line with premiums through 2025, and should +Oscar profits further help with that equation?

Scott?

Yes. So we provided the guidance to help investors and analysts in really building out the models about what to anticipate going forward. I would just say this, as we get the combined ratio to be below 100% and towards 95%, that is going to cover a significant amount of the cost of the holding company. And our objective is to keep the holding -- or keep the fixed cost of the company growing slower than the revenues. And so 2 things on that. One, we think that the insurance company can deliver profitability that will help us offset the holding company costs and the spend there. But importantly, we think that +Oscar can also then become a significant contributor. And when I talked about the total long-term target for those businesses in terms of margin profile, that's really a blend of having a high-performing insurance business at 5% margins and then having +Oscar at 30% margins. if we can really get traction in that +Oscar business, I think that's one of the catalysts that can allow us to increase our margins out of the single digits and climbing towards double digits.

Our next question comes from Jonathan Yong, Credit Suisse. On the distribution leverage the company cited, can the company keep these costs in check in their largest markets, given competition and an expectation of increasing premiums while maintaining or growing the current membership?

Alessa, I think you can talk about those dynamics a bit.

Yes, sure. So as I said before, our intention is to pay at-market commissions to brokers. But we're also looking to ensure that we have a balance between our distribution via the broker channels as well as distribution more direct to consumer that we see in many of our markets. So the mix between our markets matters. So that's one important thing, I think, to keep in mind. But we do believe that with -- that the -- while the distribution is extremely supportive and helpful for us selling our product, we don't think it is the only thing that drives why people come to us. And once we have gotten customers in through the use of our technology and our engagement and the many campaigns that you've heard about that we run, those are things that are really engaging our members and having them stay with us. So we feel confident that we should be able to continue to grow our portfolio and maintain those relationships with these important partners.

Great. Our next question is an investor question. I saw very little mention of Medicare Advantage throughout the section. Do you plan to grow that risk-based MA business going forward? Or how should we think about that book?

I can start. So Alessa, maybe you can add a bit more to this as well. So Medicare Advantage by its structural properties is a great market that is very compatible with how we go to markets, right? It's individualized already. It's got actually a high-acuity load, meaning engagement of members matters more, can flow through directly more to clinical outcomes and so on with providers already taking risk quite a bit. So that all fits very, very nicely. We've said this before, and I want to make this very clear here as well, +Oscar in many ways is dominant by Medicare Advantage. And I think that's a fantastic place for us to grow into and with the Medicare Advantage markets. And if I had to look at the overall Medicare Advantage markets, this is now me giving my industry opinion, then I think it might be a bit past peak profitability for the insurance companies. It is all the talk about risk adjustments scoring, and all the talk about, are we really getting the benefits out of MA versus medical fee for service that you're hearing from the academic side from the government side as well I think are reasonably real, and there's some truth to all these things. And so I think that means that these days of essentially increasing plant richness since overpaying everybody might be more behind us than in front of us with a big exception, and that is the risk-bearing providers. I think there's a massive opportunity for health systems in local markets, provider groups with great brands to bind members much more longer to them and to start earning those risk premia that you can get from having a longitudinal relationship there managing them well, give them a great service and things like that. So I mean that's really the place to go. And that, in our view, in my view, is really still very underpenetrated. And we're proud enablers of growth of Medicare Advantage for folks like Memorial and Holy Cross Health Systems and got a great innovative guy there, Matt Muhart, who's been the kind of cheerleader really for and pushing the system more in this direction. I think those things will be lucrative. I think they would be beneficial for the members or the providers in very powerful ways. And that is what [indiscernible] in +Oscar. So when we don't talk about an A a lot, you can see it as sort of what we're focused on in the insurance company sides, but not at all in the +Oscar side, where MA really is in a pretty important part of the story and where we enable others to do it well, and that's a great pathway for us.

Our next question comes from Nathan Rich of Goldman Sachs. The company highlighted a large opportunity with health systems providers for +Oscar. Can you talk about the pipeline there and initial conversations you're having with this potential customer set?

Chelsea.

Happy to. Yes, great question. So we're out in the market talking with customers every day and feel really good about the pipeline. We've got a variety of customers, as I mentioned, from providers through regional health plans and provider-sponsored health plans. That said, as you heard from Scott and Mario, these full-stack BPaaS deals are lumpy, and they're longer sales cycles. And so this is one of the reasons that we are really excited to extend our capabilities into more modular and SaaS because we think it opens up the TAM, it shrinks those sales cycles and we're going to expect to see velocity in our +Oscar business.

Great. With -- our next question comes from Kevin Fischbeck, a bit of a follow-up to the MA one, but -- from Bank of America. Within the health plan, would you expect the product mix to be similar in 5 years to where it is today? Or would you expect Medicare Small Group to be a meaningfully larger percent of the insurance business?

Alessa, do you want to jump on that?

Sure. So I think we are early days in our small group offering, and so I would expect that to grow to be a larger portion of our portfolio without a doubt. We're definitely looking to expand that product. As Mario indicated, from an MA perspective, we're not necessarily looking to expand our footprint that we currently have in that space, although we do have very strong partnerships that we would look to continue to grow those portions of the portfolio itself. So I think as I spoke about earlier on, we are very -- from an insurance perspective, focused in the ACA space via our individual and our small group portfolios. And so I would not in the very near term expects us to be expanding to other product lines to further add to our portfolio.

Going back to Nathan Rich from Goldman Sachs. Two questions for Scott. One, the details on the '22 cash flow outlook was helpful. How should we think about the path to free cash flow positive for the business? And two, on the 2022 outlook, can you comment on how COVID costs and non-COVID utilization has trended relative to your expectations in 1Q. I think we answered the second one.

Yes, I was going to say. So on the COVID side, again, just reiterating, thus far, we've seen nothing that causes us to think that the projections that we made from the year for the full year need to be updated. I would say again that we're anticipating that non-COVID utilization ends up trending towards baseline and is at baseline for the full year. Right now, we're seeing that be a little bit below. And so we would anticipate that, that trend will kind of correct itself throughout the year. If I shift to cash, I think that the key things I would just point out about cash, one, we tried to make sure that we provided all of the details necessary for you to have a pretty good picture for what are the uses of cash going to be as we go forward. Two, we think that we've got cash that will be sufficient to fund the company through '22 into '23 and potentially beyond. We think that at the time that -- after 2023, at that point in time, we'll have a profitable insurance business and a growing +Oscar business. We think those are going to be attractive targets for capital. So it's -- the future is a long ways out, I'd like to think. And so a lot of things can change in that time, but we feel like we've got a good base to start off with, and we've got a good plan that we can execute against.

Great. Another question from Jonathan Yong of Credit Suisse. On +Oscar, can the company talk about the pipeline for '23 and how much is BPaaS versus SaaS, and Mario mentioned the company was also being selective in new work for +Oscar. Is the selectiveness still ongoing? And if so, why, given the profit contribution?

Yes. When I say selective, what I mean is that there have been deals where we could have done SaaS but preferred at this point to do BPaaS because we're still investing in the ways to make all of us who was directly available to third parties and let them also be fully configured by third parties. That's really one thing. And the second thing is we just like the way we think about pricing, not buying business and sticking to the margin requirements we have and things like that in rolling out and then saying, "Hey, we can wait from a [indiscernible] guys approach if somehow, somebody cannot afford, for example, a particular purchaser wants to get a bit more of a module from us as opposed to the entire replacement there. And it supported us with the ability of making sure we can keep those engineering teams internally on shifting more towards Software-as-a-Service and on shifting more towards making these modules available I talked about. And this is really, again, just a great feedback from on the Street and in the market. It's not a build it and they will come. It really is -- we're out there talking to folks, and that's the great feedback we're getting. Dennis, now, I want to bring you in here as well and maybe talk a bit more about what the competitiveness issues that you see in the marketplace are when we talk to providers and physician leaders?

Sure. I think as you've laid out, as we've laid out, BPaaS is interesting to folks what they're most interested in is the SaaS solutions and the modularization of those solutions. And it's exciting for our pipeline and for our customers. One of the things that they focus on is the fact that they can then use the SaaS solutions and the modular solutions for all lines of business, not just Medicare and Medicaid. Mario, you laid that out in the TAM. On the provider side, it's both government business as well as large group commercial business. And so I think that's exciting. I've been an obstetrician/gynecologist for 35 years. I've focused on value-based care and on population health management for the last 15 to 20. The conversations in the marketplace are just extremely exciting about SaaS and modularization about how our engagement engines, our growth engines, our data engines, our clinical tools are going to provide differential solutions essentially for our customers, not just the health plan customers, but the value-based risk-bearing providers that we're talking to as well.

Great. Our next question comes from an investor. One of your competitors recently commented on issues with their claims system. Can you talk a little bit about your claims system and what makes it fully unique? And how can you be sure it's able to handle the membership growth you saw this year?

Yes, you've had actually Jesse on this for many, many years. So Jesse, do you want to comment on this?

Yes, I'd be happy to. So as we mentioned earlier, we believe our insurance technology platform is the most modern in the industry. We've been running our clients' technology and operations in-house for nearly 5 years, and we've a proven track record over that time period of managing to our growth. Our cloud-based infrastructure is designed to grow with us. And our investments in configuration, in testing and monitoring really make us confident that we can onboard new markets and members in the future. As we heard earlier as well, our +Oscar market looks at our core admin platform as an interesting component to purchase. And part of that's driven by the automation it enables. We talked about our adjudication and also how it unlocks unique plan designs and a wide range of value-based components on our platform.

Another investor question on +Oscar. How do you expect +Oscar implementations to take -- how long do you expect +Oscar implementations to take moving forward? How much of the +Oscar implementation time is building customized views/features for your clients?

Chelsea, I think you can take this.

Happy to. Great question. So I would say it depends. It depends on what we're talking about implementing. For those full-stack BPaaS solutions, they can take up to a year. They're really complex. They span dozens of work streams and involve a lot of folks across the company but leverage all of the highlights from our product that we've built, the configurability and flexibility of our tools. And then the more modular solutions, we expect those implementation times to come in to a couple of months, if that. And we're really excited because, as we talked about, we think that's going to accelerate the velocity of our platform business. I don't know, Jesse, if you'd add anything else.

You covered it.

Our next question comes from Kevin Fischbeck of Bank of America. I wanted to clarify how you're talking about +Oscar margins. You talk about the 30% margin. Is that after covering the +Oscar and remaining corporate overhead costs? Or are there still unallocated corporate overhead spending?

Yes. So with +Oscar, when I talk about the fact that the current contracts or contribution margin, that is all of the cost of operating against and delivering on that contract. What's excluded there is our sales and business development teams. So today, the total +Oscar business is slightly unprofitable. As we look forward and think about the long-term target of having a 30% margin, that includes all of the cost of running that business, including our business development sales teams and all the other costs that are associated with that business.

Another investor question. Can you comment on risk adjustment so far this year? What is the typical demographics and, last for customers, is there any change in demographics in the last couple of years?

So risk adjustments, I think Scott probably, right?

So with risk adjustment, I would just start off to say that risk adjustment is one of the more complicated things that you have to do in the ACA market. You both have to be projecting what your results are going to look like and also a little bit of what you think is going to be happening in the market. It's an area that we've been participating in the market now for a number of years. We feel like we've built the right data infrastructure and the right models to be able to manage that projection quite well. We've actually had good results in -- recently around risk adjustment -- having to make risk adjustment tweaks in our reserves. So I'd just start off by saying, I think Oscar is really well positioned to take on that complex requirement to calculate risk adjustment. It's also really volatile. It's a very hard thing to estimate well. So even though I think we're really good at it, I also don't want to say that we're never going to have any volatility there because I think it's just generally [ evolved a ] calculation. In terms of the population and getting what we're seeing in terms of the morbidity of the population -- comorbidity of the population, at this point in time, it's still early in 2022. We're still working through the new member population. I think that, based on the early information we're seeing, we're excited about the fact that this looks like the membership that we were expecting. As I talked about earlier, we've not seen anything in terms of some of the runout from 2021 that makes us think that there's different outcomes that might be hitting risk adjustment in that area as well. So overall, I would say no new news to report on risk adjustment at this time.

Yes. I might just add, the run-on from 2021 being as expected, means you have a big part of the SEP population from last year in that runout, in our essentially kind of forecast there, and the fact that, that isn't really throwing us any curveballs is probably a good sign really for us to say, "Hey, we know how to manage the population. It's the stage you've been in for a while. And whatever happens today with Medicare termination and things like that going forward, we will be able to handle this no doubt.

Yes. I think the only thing that I would add as well is from a demographic perspective, our book is kind of what we expected to end up with in 2022. We definitely move toward higher silver than we have historically had. So I think approximately 65% of our book is in the silver medal tier now. And the age distribution is on average about 1 year older so aligned with what we had expected to see through the OE.

Can you talk about how R&D spend works at Oscar? When we look at the financial statements, how much of R&D resources get reused for +Oscar?

Great questions. Scott, do you want to talk about the [indiscernible]

Yes, yes. So all of our tech and product spend is centrally managed. And then we apportion that, some of the cost of that go to the insurance company. Some of the cost of that sit in the holding company. But in general, one of the powers of the model is that pretty much all of the spend that we have on tech can facilitate both of our businesses. And so this build once, use twice thing -- or sell twice actually, is a powerful part of the model. And today, I would say that Mario talked about the fact that 70% of our total tech spend is directed towards innovation. That's one of the great things about being at a young company that doesn't have this legacy spaghetti infrastructure with lots of technical debt and lots of maintenance. We're able to deploy the vast majority of our tech resources towards innovation. And everything we're doing, frankly, benefits both of our businesses. And we think that's one of the real reasons why we're well-positioned for this transition as we get further into modularization and further into SaaS. We think that we're well positioned to do that without having to add incremental headcount. It's -- those costs would be embedded in our run rate, and we can do that in a very efficient way.

From an investor for Mario, acknowledging that member engagement and tech are your key differentiators from other industry players, what makes these things so hard to replicate?

So on the member engagement side, let's start there. I think it is the fact that if you don't have that in your DNA as a company, and this sounds a little sort of like fluffy, but I do think it's the case -- it is not an easy one to wrap into what you're doing. If your businesses with the same provider contracts every year, which is larger managed care, I think, has been about in many ways, and you then think about, okay, how can I build a different kind of network when I go to a different geography or work for a particular segment membership. It just becomes a very different way of going to the market. So there's a DNA question almost in there. It's a business model question. I think for the majority of the health-care system, the system is not quite individualized as yet. Therefore, you didn't have to build that muscle. You didn't have to invest in those technology tours. That will hold folks back, I think, for a while. And then there's an experience question. We just -- it's no question that the incumbency in the U.S. [indiscernible] has more money than we have and more people than we have. The one thing we can do is run faster at this. And so given that we build our tours to run these 134 campaigns we have right now running and shut them down and restart them much more quickly, gives us more of a chance of building up more of an experience level as to what works and what doesn't and share with clients, by the way. That's the other piece there as well. So that's member engagement. On technology, it really is the fact that we've been at this now for 10 years. That does make a difference, and we've been at this actually running an insurance business for 10 years as well. So Jesse, maybe you mentioned just the early days of building the claim system, who will we do in this way. We really ask you sitting there with the operators and the people who put the claims in there and stuff like that, right?

Yes. Well, back in early days, what we did is we really integrated our technologists with our operations teams, and they sat together. They worked together on building things out in a way that we knew we could build and grow over time. So I think that gave us a leg up early on.

Yes, and that's a harder thing to do. I think if you have a big legacy book of business that is harder to change and things like that and gives us a leg up there on the technology sides. The other piece I would say is we did have the unfair advantage, I would call that way of building this from the ground up. And that does mean we can rely on more components that we just recently built. We can rely on more outside components of companies that are more digital forwards. It's been fantastic to see that there are digital health players out there who are completely comfortable working in APIs and things like that and data transformations that we can connect with them directly. We can build some of those workflows that enable another digital health player to do something with Oscar [indiscernible] directly into our workflows, that's very powerful. And so we just have been able to build a more interconnected stock there in a way that's -- you could have viewed this in the last 5 or 10 years. You couldn't have viewed it in the last 40 years.

Okay. Great. That concludes our question-and-answer session today. We'll turn it over to Mario for closing remarks.

Excellent. Thank you, first of all, to the team here. I mean, it's just been -- it's been real, and it's amazing to work together every single day. Fantastic that we see all of you here, and thanks for doing this together with us. Thanks to the company. That's the other really constituency I want to thank very much here. It's not easy to work in a tech-first insurance -- consumer-driven insurance company. There's no question about that. We trail-blaze almost every day on something new, whether it's regulatory, market expansion, client expansion, new ideas we have, fantastic to stay for all of us together on this -- in all of this year. The mission is propelling us forward in the way it did on Day 1 and Day 0 really. And thank you to folks on the line today, investors, analysts. We're not an easy story to explain either. I hope we did a good job today in explaining it to you and highlight a bit more why we think we've got a bright future and just a lot of really both fun and great economic results and great outcomes for the members ahead of us. So a few key positions I want to reiterate from today. First, we're committed to our goal of insurance company profitability in 2023, and we're targeting adjusted EBITDA breakeven in 2024, profitability in 2025. So that is really something we're committed to. Next, full-stack technology platform. It's driving our sustainable top line growth, and we want to have it keep driving that. A lot more runway ahead of us there. We like -- this is a term I'm not really sure it's in the dictionary -- uncopiable. It's what we like to call it. Across the industry, we're wary of our position to continue to capitalize on it. There's an exponential, I think, type of impact you can have from features that you interconnect rather than sort of like merely adds, right? Stuff is going to multiply not just adds in the right rebuild technology. And third, the technology we build, they are combined with the scale we have that's driving margin efficiencies. It's showing up in the medical loss way, so it's showing up in the admin ratio. We have more points to get there. We expect this to continue. And finally, we don't want to just use for ourselves. We've got significant opportunities in the +Oscar business. Got to go have another client conversation today. So we're building out our SaaS and modular components offerings in the near future. We'll have more for that for the markets in the next few months as well. And overall, we thank you for joining our call today. And we very much look forward to future discussions and to answering your questions in whatever setting you like, including hopefully in person again soon as well. Thanks so much. Have a great rest of the day and then a great weekend.