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

Good morning, everyone. Thank you for joining us today for Oscar Health's 2024 Investor Day. [Operator Instructions] We will now welcome Chris Potochar, Treasurer and Head of Investor Relations to the stage.

Good morning. I'm Chris Potochar, Vice President of Treasury and Investor Relations here at Oscar Health. Welcome to Oscar Health's 2024 Investor Day. And thank you all for joining us. We -- this event is being Webcast. So thank you, everybody, that's turning in online. Thank you all for being here. That's come to the New York Stock Exchange this morning, realizing it's also a summer Friday in New York, so I appreciate you being here today. The materials we'll be presenting today are available at our website at ir.hioscar.com. And for those in attendance here, we'll actually have some printed out versions at the end if you'd like to grab one, when you leave at the end of today's meeting. Before we begin, I would like to remind you that any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC and other filings with the SEC. Such forward-looking statements are based on current expectations. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. In today's meeting, we will also refer to certain non-GAAP measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures can be found in the accompanying presentation, which is available on the company's Investor Relations website at ir.hioscar.com. Okay. So with that, I just want to talk a little bit about the agenda for today. So first off, we'll have Mark Bertolini, Oscar's Chief Executive Officer, come up and he's going to talk about our vision and strategy following Mark; Scott Blackley, Oscar's Chief Financial Officer, will come up and talk about our financial outlook, including some of our longer-term financial targets. We'll then have a break once we come back from the break. Alessa Quane, our Chief Insurance Officer, will come up and talk about insurance and some of our growth plans; And then the last presentation will be Mario Schlosser, Oscar's Co-Founder and Chief Technology Officer, and he's going to come up and talk about what we think really differentiates us and that is our technology. So overall, a good agenda for the day in terms of presentations. After Mario, we'll have a break, come back and we'll have some time for questions and answers, right? So with that, I would like to introduce Oscar's Chief Executive Officer, Mark Bertolini.

Thank you, Chris. Good morning, thank you for coming. So nice to see all of your smiling faces again. I must tell you this is one of my least favorite things to do as a CEO, but given all the friendly faces in the room, I look forward to having this conversation with you in sharing our story. It's a good story. We've come a long way in the last year. And what I want to do is talk a little bit about our mission, which is to make a healthier life accessible and affordable for all. But more importantly, we're talking about the process by which we have moved forward as an organization. I did not expect that we'd be on strategy this early. So we're ahead of the time line I had anticipated, number 1. Number 2, the company has never had a 3-year strategic plan, you will now see that 3-year strategic plan. So we'll be presenting that to you, including a view of how we think about the world. Now strategy for us is not a book that gets printed with a point-in-time view of the world, and we hope we get there 3 years from now. Our 3-year strategic plan is a dynamic process. This time, we had to build a 3-year plan. Next year, we'll just add a third year to it. And what happens is as we review the plan every year and add a third year to it, the third year ultimately becomes the first year and that first year becomes the operating plan. So there's no disconnect between the strategic plan and the operating plan. They are not 2 different documents. They're not 2 versions of the world. They're constantly acted against. The second part that we do as an organization is that we've implemented a week-long management process where we spend time going through the business front to back as a team together. And in that process, the metrics that come out of the strategic plan and the operating plan are reviewed every month. So in May, we reviewed up to April performance for the business, the operating plan, are we on or are we not? What more can we do? What should we not do? And then secondly, we reviewed all the things that need to happen in the first 4 months of the year to make the 3-year strategic plan a reality. So the strategic plan is never far away. It's part of our conversation. It's part of our management process. And we're constantly adjusting and looking at the market because you will see in a few moments, we'll talk about our assumptions. And as soon as you put them on paper, they're wrong because the world keeps changing. So the best strategies are actively managed. It's not about what is happening in 3 years, it's about what do we do next to make the 3 years a reality. And the analogy I'll use is sailing. For those of you who have ever sailed, I sail in open water and up in the Gulf of Maine, but I used to sail in the Great Lakes and the port here in the Mackinac Race, J-40s. And when you sail, you have a point where you need to get to. You can't see it. And when you head out, it's not a straight line. Very rarely, -- is there ever a race where you go wing a wing, sales out on both sides and you just go straight for the finish line. You have to tack because the water changes, the temperature changes, the wind changes, your competitors change and you have to move every day, every moment to make sure you're in the right position to win. That's what strategy is for us. That's why it's part of the management process. I want to talk a bit about the team. So we have a great team. We have a very senior and deep team, and we are focused on ACA. We don't have other parts of the company to worry about. We're not the third level team looking at one part of the business that's relatively small. We focus on this business every day and pay attention to what happens. What should we do next? So the quality of this team against the competitors that we compete for in this space is much higher. We have some new additions to the team. You obviously know Mario, Scott, Alessa runs our Insurance business. Ranmali is our Chief Legal Officer; Rebecca Krouse, Chief People Officer; Dr. Sean Martin is our Chief Medical Officer; and then you have Steve Kelmar, who was my Chief of Staff at Aetna, and ran Strategy, Government Relations, Communications and kept me out of trouble most of the time. But Steve has been the architect of our management process here at Oscar, and he's been implementing it together with Emil, who's in the back of the room. And the two of them helped drive the management -- drive the strategy process. This strategy was built by this team. It wasn't put together in a room and handed to them. It was built by the team from the bottom up with commitments from everybody. And to ensure that those commitments matter, -- our 3-year compensation plan, which is the third part of our economic flywheel, strategy, operational planning, management process and talent. In talent, this team gets rewarded on a 3-year EBIT, not EBITDA, a 3-year EBIT that comes out of this plan. That's how they win. And there's huge leverage if they beat it. So we have 3 key priorities: position the company for near-term profitability. We are not losing sight of the fact that we need to get to 5% margins. It's the first thing I think about every day. It's the first thing we think about as a team. We're committed to getting there. Continue to grow our ACA and footprint and improve our margin for the 5% or more, and you'll see how we think about this in this plan and then the power more of the health care system with our technology. So we achieved full year insurance company profitability in 2023. We are positioned very well, as you know, with our start in the first quarter to hit our full company profitability this year, and we delivered 42% membership growth year-over-year in the first quarter of 2024, and we continue to grow, and Scott will share some of those statistics with you. And we now have 5 -- more than 500,000 external clients on the Oscar platform +Oscar platform, which is run by Kerry Sain. And then we have a deep operational experience and what we've been able to do as a company is reduce our costs as a result of the leadership we have in our operations area with Steve Wollin, who was on the last chart as well. So here's what's happening in the health care system. We all know these statistics. But the more important part is how do we think about taking advantage of changes in the marketplace. So what you will see in our assumptions about the business is that we believe the ACA is here to stay. It's not going anywhere. The plan you will see will show our performance without enhanced subsidies. So this plan does not bank on the enhanced subsidies being approved and move forward. We're assuming they're not in this plan. And then finally, what we're talking about is changing our focus from the ACA to the individual market and why? Well, the individual market has proven to be over time as the risk adjusters have stabilized, has proven to be the best risk pool for health care. Interesting because I'm one of those people that pulled out in '17 when we were going to lose $1 billion in '18, and everybody said, Why are you doing that? Because this doesn't work. Well, there were screwing around with the risk adjusters and the way the program works, now they're stable. On average 3% return year-over-year on increases. Compare that to groups under 20 double-digit. Compare that to all employers, 4%. So this pool is a very stable pool. And if you think about it from the law of numbers, how many 21 million member employers do we have in the United States? None. So this is the best risk pool. So what can we do to leverage that risk pulling its stability to offer other products like ICHRA? ICHRA's time has come because small employers, and here we sit in the New York Stock Exchange, compounding works against you when you have insurance premiums increasing by more double digits every year as a small employer. So the opportunity is to take our TAM today in the ACA of 21 million lives plus to add 75 million more lives and to be have an industry-leading NPS. So these are the numbers on this slide. This is our platform. And it's all surrounded and run by the Oscar platform. And I'll talk about ICHRA a little bit later, and it's all powered by our technology. In the last open enrollment, we had 400,000 member, 500,000 member growth. With 200 less people in our operations, fewer phone calls and the highest service standards we've ever had, with the retention rate that was the best we ever had. All driven by our technology platform and the language models to be able to make the back end of our business more efficient. The displaced vendors that we have to buy services from. To allow us to do better on risk adjusters and on pricing. So we deliver unparalleled individual experience. And so as we think about ICHRA and we think about the affordable care of the IFP market going forward, our view is that we will put our product up against any competitor in the market, and we believe we can take share and win. And we believe we can hold our customers. We have the best broker relationships as well because we are digitally forward and we are able to have them sign people up without ever having to call us or send us any paper. They can do it all online. Our members can get information online. And that's why our calls were down, and we had fewer people on the phones and Steve Wolin shop. Our NPS is 66. Our member retention in Open Enrollment was 82%. We have great consumer engagement with our Campaign Builder tool, which is what we're selling through +Oscar today. We have over 500,000 lives there. And then we have 37% membership CAGR from '21 to '23. 7 points of MLR improvement and 11 points of improvement on our administrative expenses, all because of our technology developments and our enhanced efficiency on the back end. We haven't done as much on the front end because, quite frankly, the data isn't as clean and it has some bias in it. But on the back end, we have plenty of data. We have one platform, one version of the truth, one set of data that allows us to apply large language models against the business every day. And Mario has a continuous hackathon going on all the time about what are the new ideas? How can we spec them? Are they worth doing? And can we implement them effectively. And it's got a team I'm focused on that, Duncan, this guy is working on that every day. So our long-term strategy is guided by 4 objectives: maintaining market-leading sustainable and scalable operations. We're going to grow at 20% -- and achieve 5% operating margin by 2027 without enhanced subsidies, at least by 2027. We're going to build on our superior member experience with an industry that averages 0 and Net Promoter Score, we have a distinct advantage. And so everything that we do when we invest in our platform, and in our business, and in our products. And in our distribution relationships is what can we do to enhance that member experience, and keep our lead against our competitors. We're going to harness our technology to power others. That's the +Oscar platform, and then we're going to innovate market offerings to expand the individual market. With the addition of small group and middle market employers, we believe that we can take the individual market to 95 million -- 96 million lives. And that's a pretty big market. There's 75 million lives in small group and middle market, 21 million lives in the ACA today. We believe a 96 million life market is the kind of place we want to be. Because of this increasingly stable risk pool on exchange or using exchanges as a way to give people product is better, but there are some certain things that we need to think about when we talk about the -- when we talk about getting into ICHRA, and I'll cover that in a few moments. We also have a discussion here on enhanced subsidies. So here is the dilemma of Enhanced subsidies, and we factored this into our numbers. I'll pick a number here, 53,000, which is a family of 4, 350% of the federal property level. They go from $0 to $300 a month. They won't be able to for insurance. So these numbers are pretty profound, the impact on these markets. And what I would suggest, given our demographic, 63% of our membership are from Red States, 76% of our membership growth in 2024 was from Red States. The constituency has changed in this marketplace, and we have more states like Texas, like Georgia, who are very interested in how they can power their exchanges more effectively to get more people covered. And there's this dynamic between the state paying for Medicaid or having it handled through the federal government with the ACT. So this is the political dilemma for Washington to act, and it doesn't have to be 0 or everything, there could be some version of that over time. But 2025 is the end date. I haven't seen anything out of Washington that would say that we're going to solve this early. So we'll have to probably dual price when we put in our market rates for '26 with subsidies, without enhanced subsidies because this is going to probably go to the last minute to be resolved, if it's resolved at all. Let's talk a little bit about our strategic objective one. Our long-term objectives, again, are 20% annual revenue growth, at least 5% operating margin, at least. We'll expand our footprint in additional markets, 150-plus MSAs by 2027. So we have more room in IFA -- IFP. We'll have building a leading ICHRA carrier business, we have met with every ICHRA player.They're largely banking players. They take money from the employer, break it up into sums for employees and then monitor the use of those funds to make sure they're buying health care. We believe in adding our capabilities to them that we can make them richer and so we are partnering with 3 of the 11 on specific pilot projects testing market segment approaches. In large employers and small employers and somewhere in between. But we will partner with all of them because it is our belief that no matter who the ICHRA player is and wherever the employer comes from, we'll stand our product against any other individual product in the marketplace and win and take share. We also develop innovative and culturally specific and relevant plan designs. We launched HolaOscar for the Spanish-speaking population. It's not one language version. It's all the various dialects of Spanish, depending on the market we're in. We have launched Breathe Easy for people who have asthma or COPD. And our most profitable plan in the past few years has been our diabetic plan for diabetic patients that come into our program and we get them into the right routes of care. This is all part of the experiment to prove for employers if they give up their benefit plan and [ they do ] defined contribution for their employer, we can create a stable market for them so that those defined contributions don't have to escalate as they would see in the fully insured small group market. Here's our NPS. As I mentioned before 90% of our provider visits are rated positively by our members, 75%-plus NPS in the Oscar Virtual Medical group, where we also do home health assessments, virtual home health assessments and, as I mentioned before, 82% member retention. It's about the tools. It's about being personalized. It's about being accessible and not putting people through the drill than most other health plans put them through, including the one I used to work for. Harness our technology to power others. We are early in building and delivering on our health tech promises. 80% of plans are outsourcing some portion of their core operations. It's a $25 billion market, where we were in the past with Health First was short of certain capabilities that we are now building or partnering for. So when you implement and externalize platform, you need to have some level of SaaS enablement to allow the configuration on the other side by people who don't do it the way we do it, number one. Number two. You have to have systems integrators because as we have worked with people on campaign builder, their data sets are all over the place. And we actually spend a lot of time cleaning that data up before we can effectively use it. So we need systems integrators that can connect our capabilities into all the capabilities that exist in these other partners. They don't have the same things we do. So they're going to need to build their own. And then finally, we have an intellectual property we need to impart on people on how to better run that business. And so as we speak today, we're working on those partnerships. We don't have a lot to say about full externalization of our platform today, given how early we are in the planning process and ahead of where I thought we were going to be, I think we're fairly far down the road, but we will have more to report on +Oscar and how it operates as we move through time here, but we're not fully enabled there yet to be able to give you a full view of where the financials go over time. And then expand the individual market place. So let's talk a little bit about ICHRA. Here is the 2024 individual market TAM, including ICHRA, 76 million lives, you see on the right, $720 billion worth of premium. Small group employers under 1,000 is $40 million. Small Group employers under $50 million, it's $35 million. These are the market segments. The smaller segment being the one that is probably the most palatable today to do it. There's a 2-level sale. You have to get the employer converted and then you have to get the employees moved in. And what we bring to this equation that's different than other people is we're not just doing the banking function. What we're going to do is underwrite the group in a way where we understand what are the best plans to get these individuals into in order to make the risk profile work for the employer and make their savings as much as 15% against the prior plan, stable over time. So they're not doing it once and moving away. And so what we're finding is that 4 out of 5 employers renew this business every year once they're in it. So it's getting the employers in and building a stable population. And today, what's happening with a lot of the vendors, and we met with all 11 of them, and I'll have some logos to show you, is that they're really just taking the money from the employer, chopping it up for the employees, monitoring their use of it and letting them go find something in the exchange. And to that end, we actually picked up 294 ICHRA members from other -- from one of these players on the January enrollment. So we actually have some passive enrollment without even offering the product ourselves as an insurance company. So here are the innovative plan designs we think about budget -- so for the employer, it's budget control, quick setup and employee participation. In ICHRA, defined contribution takes less than 10 minutes to set them up and we can get any number of employees, doesn't have to be all of them, where in the traditional, you have premium increases, premium taxes, takes 30-plus hours. And I would argue that that's a generous view. If you look at the fully elapsed time, at Aetna, it used to take 45 days to implement small groups and a minimum of 60% employee participation. For the employee, they get the same plan as everyone in a traditional product, and they actually cross-subsidize the people that are sick in the group, so the employer can have a flat premium, and they see pay checks deductions that aren't fair to their actual experience. It's to the group. And again, they're cross-subsidizing through their employee participation where in the ICHRA, they pick their own plan and they see their own contribution. And they're in this big pool of 21 million lives, it's more stable than the other pool in the healthcare business today. So here's a couple of examples. We have Eric Walker and Rebecca Jones. I hope they aren't any Eric Walkers or Rebecca Jones in the room. We tried to find random names that wouldn't intersect with anybody. And so on the current plan, you can see for the employer, Eric, 25% year-over-year increase and a 375% -- $375,000 reduction in costs. We're in the ICHRA plan flat year-over-year and another -- and a 15% savings overall. This is the employer value proposition. On the right side, you see Rebecca, who has type 1 diabetes, and she's limited plan options and insulin costs are $100 out of pocket each month. In the current plan, she only has 3 plans to choose from and her insulin costs are $1,200 a year. Whereas in the ICHRA plan, she has 118, including a diabetes plan, like us, at Oscar, and she -- and her insulin costs are only $300 a year. This kind of stuff matters are making individual plan options available for every individual. Think about it as an individual market of flexible benefits. And what we haven't even touched here yet and is on the drawing board is when they have more money to spend beyond their own defined contribution, they have a choice to buy other products, like vision and dental, workers' comp, if their employer doesn't offer it, life insurance. And this is also great for a gig economy without an employer. So here are the platforms we talk to. We've had a meeting with the team, with every one of these people, and we spent time with them understanding how do you run your business, how does your technology work, what's your go-to-market strategy, how do you relate to brokers, how does distribution work for you? And everybody was in a little different place. We have -- we believe we're going to work with all of these because we want to be on every platform that we possibly can. And we want our competitors on every platform as well, so we can compete and create a bigger market. But there are 3 we're working with, we'll go unnamed, and it has nothing to do with the way the boxes are shaded. And we have 3 of them that we're going to work with, one in the small group market under 50, one in the large group market. There's a lot of interest in this, on this part of provider health systems and then somebody who plays in the middle. And we're working with them on strategies about how do we go to market. We're going to have co-marketing support, technology integrations and advocacy and awareness to build the market. And we're doing that this year in anticipation of rolling out the products for 1/1/25. So this is the story. Grow a 20% revenue CAGR, achieve 5% operating margin in 2027 or sooner, as I always remind the team doesn't hurt to get there early. Focus on -- it's not like going to parties 20 minutes late. It's okay to get early. Focusing on improving the member experience and everything we do, externalize our technology platform to power the industry as a whole and to expand the individual insurance market with disruptive products like ICHRA. So with that, I will turn it over to my friend and partner, Scott Blackley, Scott?

Thank you, Mark.

You're welcome, sir.

All right. Good morning. I'm Scott Blackley. It's nice to see a lot of faces consistently. So to those of you who I've gotten to know, welcome. And to those of you who I have yet to make the acquaintance, I look forward to spending more time with you in the future. I get the privilege of sharing the financial outlook and also coming after Mark, which is always a rough go. Let me start off by giving you some guidance about our full year guidance. So today, we're reaffirming our full year guidance. And when we last had our earnings call, we talked about the fact in Q1 that we were ahead of plan on adjusted EBITDA. And to give you a specific update on that through April, we're $40 million ahead of where we expected to be when we laid out our plans at the beginning of the year. And the reason that we are not making an adjustment to guidance is that we are still evaluating some of the recent growth trends that we've been seeing that potentially could create some MLR-related headwinds in the second half. So we need some more data. And we're waiting to see that before we really have a strong point of view about where we should be adjusting our guidance, if at all. So let me just make a couple of points like specifically. And for SEP growth in March and April, we saw robust growth. And in fact, that's even continued into May. And if that growth were to continue for the rest of the year, that -- and particularly in the back half of the year, that can create MLR pressure. And that MLR pressure is associated with the partial year risk adjustment dynamics. It's not necessarily associated with utilization problems. It's really possible that what we're seeing in these growth amounts that I just talked about is that we could be seeing a pull forward of Medicaid redetermination lives that we expected in our plan to come in, in the second half of the year. That's possible that we're just seeing a pull forward. It's also possible that the market may simply be growing faster than what we had expected. And so we'll be looking at that along the way, and we'll give you updates in the normal course. But my key takeaways for you are: number one, that the business is executing well. The core fundamentals of our business are doing really well. You can see that by our results year-to-date. And that makes us optimistic about the plan that we're going to present here, right? We're running on all cylinders. And while we could see some SEP growth-related pressure on MLR in the back half of the year, if we do see that, that's going to be a really good thing for 2025 because what we've seen historically is why those -- when we get those SEP members, they do have a higher MLR in year, but we have a good track record of retaining those members into the next year. And when we do retain them, their MLR performance looks like other OE members in that cohort. So we end up with a strong tailwind in terms of the membership dynamics the following year. All right. Let's talk a little bit about the past before we get to the future. My key takeaway here is that we have demonstrated that we can grow and we can improve margins. We've shown that we are able to grow at above market rates. And during that period, we've been able to substantially improve the bottom line performance of the company. So 40% membership growth between 2021 and April 2024 and then on the other side of this is adjusted EBITDA, which we've seen improvements in MLR. We've seen improvements in SG&A. And since 2021, and based on the midpoints of our guidance, that's $580 million of improvement to adjusted EBITDA. I just reflect on the fact that we committed to getting the insurance company profitable in 2023. We did that. We committed to getting the total company to profitability this year on an adjusted EBITDA basis. We're well on our way to doing that. So I think it's a compelling track record that this management team continues to deliver against the promises we make, and I think that's an important thing to bear in mind as we talk about our long-term targets. So what are those long-term targets? I'd start off by saying that the long-term targets that we're going to show here today are both ambitious and achievable. As Mark talked about, these targets are based on an assumption that enhanced subsidies will be allowed to expire. Well, I think that the more likely scenario is that some level of enhanced subsidies will continue. We're not banking on that in this plan. And so if they were to be extended in some part or in full, that would be upside to what we're showing you today. So the first thing I want to talk about is revenue, and we are expecting at least a 20% revenue CAGR through 2027, which is really driven by our footprint and by expanding our market share. Second point here is our operating margin. We are expecting our operating margin to be around 5% by 2027. As Mark likes to remind me every day, earlier is better, so get on with it. And so that is a critical part of our plan. So I just want to point out that to date, we've historically focused on adjusted EBITDA to measure our margin performance. As we think about going forward and being more comparable to others in this marketplace, we've shifted our guidance to be based on operating margins. And that is operating -- income from operations over total revenue. So that -- when we're talking about 5%, this is based on operating margin, which includes stock-based expense, which we think is going to be around $120 million in 2024, so it includes that and includes our depreciation. So this is a 5% margin that I think is comparable to what you would see with other insurance companies and again, is based not on adjusted EBITDA, but on operating margin over total revenues or operating income over total revenues. Second thing I want to just point out here is that we do not expect to be a corporate taxpayer during the course of this plan. We have a $2.3 billion [ NOL, ] which we will be able to use to offset taxable income over the course of this plan. And when I take all of these things all told and I put them together, we expect that our EPS in 2027 will be more than $2.25 a share. Again, that's with a presumption that enhanced subsidies are allowed -- subsidies are allowed -- some portion of them are extended. We think this is meaningful upside in our EPS opportunity. Okay. Let me talk a little bit about the drivers and how we're going to deliver on our top line growth. So -- the first bucket here is the subsidy expiration. We estimate that the impact of subsidies on our multiyear CAGR is a headwind of about 5% to 7%. And our plan assumes that next year in 2025, the ACA grows by around 15%. From that elevated level we expect that over the next 2 years in 2026 and 2027, the market will shrink. We think that by the end of 2027, the market will shrink by about 18%. So we're expecting to see growth in '25, shrinkage in '26, '27, getting this back to about the place where we expect to end '24. The estimates that we have here based on a little bit of our experience that we've seen historically, and I'd point out a couple of things. Number one, we look at our book today, and we look at the number of people who are receiving subsidies, about 70% of those members could today buy down to a similar or cheaper-priced out-of-pocket premium plan. And so we think that there's a strong opportunity for those people to stay in the ACA and maintain the same out-of-pocket premium. Now that does create some additional financial burden on them because they're likely to have higher deductibles. But we think that once you've been able to take advantage of this country's healthcare system that, that's a sticky proposition, and we would expect that the vast majority of those people would stay in the marketplace. Of the remaining 30%, based on what we've experienced in the past with price changes, we would expect that roughly half of those people will stay in the ACA marketplace even if they experience a price increase. So that's the basis of the shrinkage of 5% to 7%. We think that's a pretty good proxy of what's going to happen in the market overall. Now the good news is that we are seeing against that shrinking impact of the subsidies expiration. We think that we have opportunities to grow in 2 different ways, each of those being 12% to 14% of annualized growth. The first is really growing inside of our existing regions. The second is footprint expansion and entering into new markets within our existing regions, entering into new states and introducing new and innovative plan designs like those for ICHRA members. Alessa Quane will spend a few more minutes on digging into these in the next section. And so I won't carry on more about those today. And then finally, on +Oscar and investment income. What we would expect there is that we intend to continue to build out our campaign builder product. We expect that we will see meaningful growth in that product from what today is a relatively small revenue base. That's built into the plan. And then on top of that, on investment income, we expect that rates are going to normalize over the period of this forecast, but we also expect the cash and investments are going to grow. So net-net, we would anticipate that investment income continues to grow through 2027. Those 2 factors drive up to 1% of our CAGR. So turning to operating margins. Here's the path of achieving 5% margins. So the first part is related to our disciplined pricing strategy. We would project that medical cost trends are going to increase annually over the course of -- through 2027 by around 3% to 5% each year. And we expect that using our disciplined pricing strategy that the combination of pricing for trend and our total cost of care initiatives will, at a minimum, offset those trends. And the key thing I would say here is that our approach to pricing is that we want to have a competitive price position, and we want to be able to do that in a way where we can achieve our growth aspirations and at the same time, improve margins. That's what this plan is built on. The second part of this strategy is to create fixed cost leverage. So the company has a fixed cost base that I think is sufficient to support significantly larger growth and significantly more members. And we think this is the -- one of the simplest things to achieve in this plan is maintain discipline over fixed cost while allowing the company to grow significantly. We think this is a 200 to 400 basis point opportunity and the -- what we have to do to achieve this is to maintain our disciplined approach to managing our fixed cost base. So we would anticipate the revenues will be growing significantly faster than fixed costs. And then the third level -- lever here is to leverage technology to drive down costs. And we have identified specific ways for our technology to impact our cost structure, we expect that to drive 100 to 200 basis points of margin improvements over the next few years. And we'll talk a little bit more about the details of those on the coming slides. So with respect to getting to that 5% operating margin, we are targeting a medical loss ratio of approximately 80%, which is modestly below our current 2024 guidance. The key levers to improve the MLR over time are: one, driving medical cost savings through our affordability initiatives. Two, leveraging our scale in provider and vendor negotiations to drive favorable unit costs. And then three, and most importantly, continuing our disciplined pricing approach. That's how we're going to get to around 80% by 2027. I just want to reiterate that we expect that some, but not all of the benefits of our total cost of care initiatives, will get rolled back into rates to keep our rates affordable to members. As a result, because it's some, but not all, we would expect that we don't have to price above trend in order to create margin. We'll be able to price at a competitive level and continue to improve our margins. So switching to the administrative cost side of this thing. We're targeting a 16% SG&A ratio by 2027, which represents 4 to 5 basis points of improvement based on our 2024 guidance. We expect this improvement is going to come from operating leverage as we really grow our revenue at a faster pace than fixed costs. And we wanted to mention how big is the fixed cost base. And today, we're projecting that fixed costs are going to be around 30% of our total costs in 2024. And you can see that we are generating significant operating leverage this year. And with growth, we would expect that, that ratio of revenue to fixed cost is going to continue to improve throughout the plan period. We've also successfully been able to utilize our technology to improve our administrative costs. And we see some of the highest ROIs when we apply technology on our cost to our variable costs. So a lot of the most powerful use cases are actually on the variable cost side. Things like automating our roster ingestion, self-service options for providers and members. And utilization management is an area where we think we can generate significant cost savings through the use of technology. We also see opportunities here to deploy AI. And I think that we have a unique situation where we have both the infrastructure and the people that's going to allow us to really leverage AI in a way that I think will be differentiated compared to our peers. And in this plan, we have some fairly modest expectations of what we can do with AI. We don't want to front run the development of those opportunities. But as Mario will talk to you, we'll share -- we do have a number of things that are currently in the works. And what I think is that we will find that AI will continue to be a source of upside to this plan. And so modest expectations built into the plan, but we think that we have the ability to do some things that will really be spectacular, and Mario will talk about that. So in summary, we think that fixed cost leverage, tech-driven efficiencies are going to be the path that will take us to that 16% margin target in 2027. So what does all this mean when you put it all together from a capital perspective? Clearly, generating 5% margin, growing the business is going to have a positive impact on cash generation on capital formation. Our #1 capital allocation priority is going to be to fund our organic growth. We believe that we have currently strong amounts of excess capital, coupled with the profitability in our insurance businesses will give us the ability to fund the growth that we're projecting using the existing sources of capital plus the income that we expect in the future. We also see opportunities over the next few years to really optimize our capital structure. Quota share, which we use today, is an important tool that we use to manage the total capital needs of the company. We think that there will be opportunities to optimize how we use quota share. I think it will still be part of the playbook, but the amounts and where we use it, which states, I think we'll be able to optimize those to improve the cost of using that to reduce our capital needs. So that's an opportunity over time. And then the other thing I would say is that we expect that we'll be able to start moving more money dividends from the insurance subsidiaries to the parent to help fund parent cash and holding company needs. I will make the point that we anticipate that the needs of the parent and the holding company from a cash perspective are going to be decreasing going forward. And that's because we are expecting that our insurance companies are going to bear more of the cost -- the total cost of the company directly. So we'll be seeing parent cash and holding company cash decrease over time as a result. So just to summarize, we think we're in a great place in terms of capital today. We think that we have an opportunity to generate significant amounts of capital going forward. We think that we can do that in a way where we can fund our growth, and we can enhance shareholder value along the way. So let me summarize with a few key takeaways here. Number one, we expect to generate at least a 20% top line CAGR through 2027. And importantly, this plan doesn't place reliance on growing in any one single area. So it's a fairly distributed plan in terms of risk. Number two, we think that we have an achievable path to achieving a 5% operating margin by 2027. That's going to drive EPS of at least $2.25 a share by that time. Overall, this plan creates strong cash flows, strong capital position. We'll use that capital to fund opportunities. First, on organic growth will be our key priority. Optimizing our balance sheet and capital stack will be another part of that. And we think we've got significant opportunities there. And then finally, I just want to reiterate that the targets that we're presenting today are based on an assumption that enhanced subsidies are allowed to expire. We believe the more likely scenario is that some solution, some negotiation will be found where some -- where all of those subsidies will continue. And in that case, we think that there is significant upside to the targets that we're sharing today. So thank you guys very much for the first half of this presentation. I think at this point, we're going to be taking a break and having some coffee and drinks. And so with that, I will hit the pause button.

We will now take a 20-minute break. Please enjoy refreshments in the break room. [Break]

We will now welcome Alessa Quane, Chief Insurance Officer, to the stage.

Good morning, everyone. Welcome back. I hope you had a good break. I'm the Chief Insurance Officer here, and I have the privilege of talking to you about our growth strategy. So as I've seen up here today, Oscar is hugely proud of everything that we've accomplished since we started in the ACA just about a decade ago in the infancy of that market. We've grown into one of the market's top players, and we have delivered on our growth and our margin commitments. Since 2021, we've grown our membership by 150% to 1.5 million members as of April this year. We've grown our ACA market share from 4% in 2021 to approximately 7%. And most importantly, we moved the insurance company to profitability. And it's based on this success that we plan to deliver on our mission of making healthcare more affordable and accessible to more Americans. So since our last Investor Day, 2 years ago, we've continued to focus our portfolio. I know you've heard that from us in many of our earnings calls, and we continue to focus our resources, our time and our energy very much at the market level. So with the greater scale that we've achieved and our deepened ACA expertise, we've figured out what has worked for Oscar, and we're planning to leverage that as we move forward. We have a clear view on how we're going to do this. There's the long-term goals that Mark and Scott talked to you about, and we've designed our growth strategy around 3 core pillars in order to do that. A disciplined footprint expansion, innovative products and experience and robust total cost of care management. And I'm going to go over each of those 3 with you today. So in order to achieve our growth goals, we need to make sure that we can succeed at the market level. We have developed a proven and scalable playbook that we have utilized over a variety of different markets in order to do this, and we think this sets us up well in order to do this further in the future. There's 4 key components to that playbook. The first is that we need to establish an attractive network with strategically aligned provider partners and also develop really key relationships with distribution partners. Second is that the approach needs to be localized. We need to really understand the local market and make sure that we have product market fit and that we build an Oscar brand with members, brokers and providers that resonates in that local market. Third, we want to continue to innovate on our products. We use these to attract people and almost more importantly, retain them in our portfolio. But most importantly, we like to differentiate ourselves from our competition. And last and probably most importantly is that we have a disciplined pricing approach, and we will continue to use that in order to balance the growth that we need that gets us to be able to achieve the margin targets that we've got. We fuel this by our total cost of care management, which I'll talk about a little bit later. So I also want to talk about 3 markets, where we've actually deployed this playbook and actually use them as sort of the basis for building this as we go into the future. The first is Miami. So when we entered Miami, we were there with foundational network of providers and some strong distribution partners. These people were actually early adopters of Oscar, Oscar's vision, how we could be different in the market from the competitors that they've seen over time. We had a product offering that really resonated in the Miami market. And because of that, over time, we were able to expand our provider network and be able to offer the product to a broader portion of the Miami market. We've had extremely good retention in that market over time as a result. And after 5 years in that market, we now serve one in every approximately 3 ACA lives in Miami. Iowa is a little bit of a different story. This is one where we've had more of a consistent growth trajectory over time. We entered there with an exclusive provider, network partner, and we've steadily expanded with them across the state to merely statewide in the state of Iowa. With this, our name has become synonymous with access to a reputable provider even in very rural parts of the state. And now we've moved from 4% market share in Iowa when we first entered to approximately 18% today. And lastly is Atlanta. So when we first entered Atlanta, we had a very narrow network, an extremely limited footprint. We decided we really needed a new way to rebuild what we were doing there. And we went for a boots-on-the-ground approach. We put people into the market to really understand the local dynamics and to really enhance our relationships with provider partners and distribution as well. By the third year, we were able to get a relatively broad network with some real key strategic partners that have allowed us to price more competitively and to serve a much broader population geographically within the Atlanta market. Last year, with the -- or I guess it's this year, in 2024, we introduced HolaOscar, which is our Spanish-speaking experience. And that really unlocked further growth for us in Atlanta's underserved Spanish-speaking population, and we now serve 1/3 of Atlanta's ACA lives. So based on the success that we've had in the focus and the discipline of using these different tools and understanding the local dynamics, we're going to leverage this and use this as we go and expand in both our existing and our new footprint. So let's talk a little bit about that expansion. So today, in our current footprint, we only access 50% of the ACA. By 2027, we plan to extend our reach up to 70% of the ACA through expansion as well as product innovation. And clearly, if we're only at 70%, there's room for additional growth for us beyond 2027. Not only do we believe that we have a long way to actually serve current markets -- more markets in the current ACA, but we also believe that there's a future opportunity to grow the individual market itself through ICHRA. Mark talked quite a bit about that. And we think that as Oscar and as a real key ACA player, we're positioned well in order to accelerate that ICHRA market. And we want to make sure that we are creating product offerings that will be attractive to that market segment as well as the IFP segment that we know really well. The last thing that I would point out is if the enhanced subsidies are extended, we believe there's an additional upside of 4 million eligible lives in 2027 in the footprint that we will have at that time. So overall, we feel really good about our opportunity for growth. As Scott mentioned, our growth is going to come from 3 primary sources: existing markets, new markets and product innovation. And I know you're all wondering where is that going to come from. So first, we estimate that the maturing of our existing markets is going to drive approximately 50% of the incremental membership growth between now and 2027. Through this, we should move from a 13% market share in our current footprint today to 18% by 2027, 18% of our current footprint today, 2027. Second, we'll expand our footprint. We're going to go into new markets, both within the states, where we already are, as well as new states. We're going to leverage the playbook that I talked to you about a little bit earlier. And we think this expansion will account for approximately 40% of the membership growth, the incremental membership growth through 2027. And then finally, we're going to position ourselves with products that we think will be attractive regardless of the continued enhanced subsidies to take advantage of the market growth through ICHRA. The one thing that I think you should also know about the team and the importance of this is that what we do in order to grow ICHRA is not separate and distinct from what it is that we need to do in order to grow in IFP. We do need to make sure that we have the right product portfolio in each of the markets that we go, but the vast majority of the work that we do from the network building and the distribution partners and those various things are all skills that we possess, and those are things that we can do as we grow in that market. And I would just say that from an ACA perspective, I would imagine that 2027 is only scratching the surface. So our second pillar was innovation. Our product innovation starts with our member. And with the member in mind, we use our technology and we focus on easing challenges that we think people see in the health care system today. So I'm going to tell you about a couple of challenges that we think about and the solutions that we've had in the past to give you an idea of what this looks like. So let's talk about reducing cultural carriers -- cultural barriers to care. Talk about carrier as well. So the Hispanic and Latino population is the fastest-growing cohort in the ACA, and it actually represents 1/3 of Oscar's membership today. So we've leveraged our HolaOscar, which is a Spanish first experience, to better serve Spanish-speaking members, which have served as a proof point for how if you really deliver and focus on culturally-authentic experience, you can actually get better outcomes. So our retention and our NPS for our Spanish-speaking members is higher than our non-Spanish speaking on average. It's also led to an outsized broker NPS, where we see our Spanish-speaking brokers have approximately 30% higher satisfaction rate than our non-Spanish speaking. So we're going to plan to scale this experience to more markets, and we're also experimenting on how we can replicate this success with other culturally-authentic experiences in the future. So a lot of Americans suffer from chronic conditions and that these conditions require very specific care, and this really impacts their healthcare costs. So we've designed some profitable products to address specific chronic conditions, like COPD and diabetes. So the diabetes plan that we have, we launched in select markets in 2022, and it includes benefits that are designed to lower out-of-pocket costs for people that suffer from diabetes. Mark went over a couple of these earlier. So -- but beyond these uniquely designed benefits for these people, we also leverage our technology to actually deliver a different care journey for them. And it's through this care journey where they get access to very relevant services for them and superior member experience that we've actually seen real results that are different for diabetics on the diabetes plan than on our other Oscar plans. Some of these include things like a 9% better adherence to their medications, a 17% higher rate of eye exam screenings and a 12% higher rate of kidney screenings. So we're going to continue to explore items like this, whether it's disease-related new products in order to focus on the individuals in the individual market to the point that Mark made earlier. And we really think that this is important not only for the current ACA type population, but also for people that will enter through the ICHRA channel. The small group market and even the large group market, individuals that are in that actually also suffer from affordability issues and choice issues. As Mark sort of pointed out, you get to choose in your employer between 2 plans. And here, you can choose something that's really specific to your own needs. Okay. So finally, our third pillar, the total cost of care. So Scott made the point that driving affordability is really key in order for us to actually achieve the 5% margin that you saw in our -- not in our guidance, but our long-term plan. So if we can continue to drive the offset to the trend that we expect to have, we can then price competitively that will fuel the growth, that will give us the fixed cost leverage that we need to really generate the margin that we -- that's central to our overall strategy. So there's 3 things about the total cost of care that I think you should understand. So first and foremost, the initiatives that we do in total cost of care do not drive one-off savings. But really, it eliminates spend sustainably over time. And the cumulative nature of the graph on the slide is what's designed to demonstrate that for you. These savings are also not concentrated in one area of the business, but they actually come from a diversified pipeline of opportunities through network and portfolio management, payment integrity and clinical programs. And third and most importantly, we actually have a track record of executing this. So we -- our teams are focused. We have a program of work. We say that it's humming constantly, and it's supported by the technology and the data that we have, and it gives us really great confidence that we have the ability to nearly double our -- our incremental TCOC efforts by 2027, drawing on the work that we've already built. The other thing that's important to know about this is that in order to execute on these initiatives, it actually takes time. We have to design them, we have to kind of build it, implement it, test it, and then we measure it over time. So when I stand here in 2024, I feel really good about the numbers that are going to be achieved in this year. And I also have line of sight into what I think those will be in 2025 and can make informed decisions about how much of that I want to build into my pricing in order to be able to situate myself competitively in the future in order to grow. So I think that the flywheel effect that we've created here that's multiplying for us year-over-year from a TCOC perspective is something that we're really going to be able to leverage and is a big driver of us achieving the goals that you saw on the screen today. So finally, just to bring the point home, I have a graph here. And this chart compares the difference between the annual inflationary pressure indicated by medical CPI over the last 5 years in that of Oscar. So if you use 2018 as a starting point, the actual and forecast medical CPI trend is depicted here in gray, and the purple line is the trend fitted to Oscar's allowed claims. The medical CPI has risen at approximately 3% annually over this period, while Oscar has achieved a slightly negative trend in allowed costs as a result of these TCOC efforts. So I think you can see that we can demonstrate that there's tangible impact on the performance of this program at work, and we have -- we've utilized this to invest in our rates, which allows our members -- remember our vision, our mission rather is to make sure that healthcare is affordable. And so we do bake a lot of this into our pricing that allows us to remain competitive and make it more affordable for our members to move forward. So just to summarize, the Oscar team is executing. We have a focused plan. It leverages on our successful execution to date and it leverages the technology that we have that supports us. We're confident that there is a long runway in the individual market and that our strategies are going to position us to take advantage of that. We are disciplined in our approach, and we can manage the total cost of care while providing products that meet individuals' needs. Most importantly, we're really excited, and we're eager to deliver on this mission of making healthcare accessible and affordable to more individuals by growing both our market footprint as well as the ACA market itself. And so now I will hand it over to our Co-Founder, Mario.

I am Mario Schlosser, Co-founder of Oscar and the Chief Technology Officer. And I only get one arm because AI is doing all the work now anyway. No, just kidding. Dislocated my shoulder. Sorry for that. It was all the cheering about the good numbers. I couldn't help myself from just raising the arm too much. It's good to be under covenant health care system every now and then study, how it actually works. And so that is part of what drove this, but it's better now. Thank you for asking. We started 12 years ago now almost to the day, very simple motivation. Health care system is too complicated. It is too costly for everybody in it. And we thought that the insurance company can play a major role in addressing these issues, but insurance companies have to first clean up their own acts because somehow they and the health care system are okay with very, very burdensome administrative processes, very slow processing times, information going from point A to point B, members getting lost in the shuffle providers as well. That meant for us that we had to, from the very beginning, built our own technology stack, and we built that in a very thoughtful way, have come quite far with that. Singles source of truth for everything, very integrated, highly customizable, very configurable, very easily by nontechnical people as well. And so the vision where this is going and the vision, I think we can finally with more confidence speak about, but now that the numbers already have gotten so much better is that this should be the most maximally automated insurance plan on the planet. No manual work on anything, no friction getting in the middle, no delays in any processing. Claims, payment speeds has come down a tremendous amount in the last -- speeds gone up for delays in paying claims have come down a bunch in the last couple of years. the only logical claims processing speed should be 0 hours, 0 minutes, 0 seconds, all happening in real time. That's been the pathway in which we've been on. That has a direct impact on member experience and provider experience. And therefore, we think our own costs and our own retention and growth as well because only information can flow easily, members will know what they need to be doing next and providers will be happy being in a network, hence we can mix smarter decisions altogether. So that's been the very simple vision, maximally automation with 0 [indiscernible], 0 errors, 0 friction. Three general areas that we focus the technology team on, that's engineering, product data science, but inside of Oscar, the tech team is deeply integrated in all the other aspects that we're doing, Campaign Builder, +Oscar, operations already side-by-side and [indiscernible] sort of structures. Point number one is power the growth of Oscar Insurance. We, ACA has gotten very competitive and very consumerized. And you can really stand out, as Alessa showed you with novel plan designs with new network arrangements, with new member experience, new features all of which we have a better chance of launching into the products as we go along. One fun data points that we have mentioned before is that one of the highest sources of now information that people quote back to us and we ask them after they join Oscar as to how they've heard about us is their friends and their family members. It's much higher, for example, than our marketing channels. And that's a powerful, I think, illustration of the fact that, yes, word-of-mouth really matters. And it's going to matter only more, the more they can also tell their friends and employers about Oscar because of ICHRA, we can start slicing in there and that word of mouth can travel further. So driving Oscar Insurance and its success, obviously, any automation-driven efficiency we can get, we can pass right back into benefit design or better pricing and so on as well. So what's happening there. Second one is externalizing our technology to the broader markets. We call that +Oscar, campaign builders, our first product there. We've been very pleased with the performance there. The revenue there this year will be higher again than last year. All of our clients have been adding in the first quarter to membership there. And the way we think about this middle bucket continues to be that we can double dip, if you will, we can build something for ourselves and for making Oscar Insurance better, and we can then let clients serve on that wave of technological greatness, if you will. And third, infuse AI everywhere. Health care is probably the single industry with the most structured and unstructured information, language models, the grade going from one to the other and back again. Personalization is still a big opportunity as well. I will say, when I was in the ER on Friday, I did ask ChatGPT, I had to relocate the shoulder. I had done it before, so I know kind of how to do it. I took my wife how to do it, and she wasn't quite strong to pull it back in and took another doctor and another nurse to pull it back in. But -- so that's the limitation of AI still, but we'll get over that eventually as well. This slide, we used to show you a lot slides of -- in the past slides of accomplishments of what we think the technology is driving in the business. And I have to say it's a lot more convincing now that we're actually making money. We have always thought that the technology translates directly into business outcomes on all different kinds of levers we talked about. It is, again, much more convincing. And a couple of areas you want to highlight here on the claims side, 98% auto adjudication rates now in the first quarter, that means only 2% of claims coming in get touched manually, which is a powerful number as compared to the broader health care system where that adjudication; rate is maybe 80% to 85% and therefore, literally factors of higher manual intervention than what we have been able to build there. it means 2 things. It means we can have a lot fewer claims operators and even as recently as a year ago, 2 years ago for membership numbers and it means fewer errors as well. Machines -- well programmed machines can just stick to the plan more closely, and this has been a powerful driver of results. understanding and engaging members, of course, our bread and butter as Oscar for many years, 54% of members coming to the care router, asking us for which cardiologist should go to, PCP should go to, they follow our recommendations, they are good one of the top providers that again helps with building different network designs. We can now have different value-based care arrangements sitting in these networks. We're going to have different health system arrangements sitting in these networks and so on. Third one, personalizing health experiences. Alessa mentioned one great example, holaoscar.com [indiscernible]. It's 87 NPS now of the members in that plan because it's so close -- it's not just sort of like a layer on top, but there's Spanish-speaking staff. There is some Spanish-speaking features in there. We have culturally competent care and routing mechanisms to the right physicians as well. We structured network design around some of these plan designs as well. And that matters because when we look at churn and retention and we just did finish the annual sort of like refresh of the model after open Romans, we see a couple of points of retention increase. Everything else being equal, everything else in terms of utilization and some premiums and changes and so on for members who are happier and members who are digitally engaged, both of these push up retention by a couple of points. And so the pathway there is very clear. Again, deconfounding this as much as we can. And finally, this has to all ladder up to higher value clinical care. And an example there is that when we look at the members who are in the Oscar Medical Group, which has continued to grow as well. Then that OMG group has about twice the diabetes eye exam completion rates for the population as compared to our broader network. It's not surprising. They have about twice the number of interaction points between when a member has joined OMG versus before that. So we can push a lot more messaging out there. It's more personalized, more directly tied to your life situation and therefore, quite powerful. So lots of levers here. We're going to keep running, of course. And again, growth retention, admin and then clinical and medical loss outcomes are generally 3 areas we think in terms of here. +Oscar is our externalization of our technology here. And again, pleased with the momentum there on campaign builder, our first part in the markets. It's around 0.5 million members now on that, and that compares nicely to the 1.5 million we have in the rest of [ OHI ], which, of course, +Oscar and Campaign Builder also support. So we've been able to run more campaigns there and of course, also learn more about the data about the reactions of members there as well. And couple of hundred campaigns have run there all the time. This is essentially allocated towards the belief that the health care system overall is undergoing a certain type of conversions if you look at the last couple of years, maybe last 5 years, or last 10 years even or so. Clearly, we're going towards a health care system where the boundaries between payers and providers have been blurring, right, retail clinics and payers investing in clinics directly pay [indiscernible] and so on. So that's happening. The system has gotten more personalized in various ways. And of course, there's all kinds of other ways now of using health care , whether it's going to him or her to get drugs directly delivered, go direct or whatever else. So that consumerization is happening, and we think of +Oscar as the tools that you need to perform well in such a convergence health care system. If you want to have a powerful member experience and if you want to make money doing that, you need these tools that we have built for ourselves. This will mean higher margins for Oscar over the long term. Campaign Builder, again, only 1-year-old, 0.5 million lives. We talked about it. Revenue, we expect to grow again this year because all of the existing clients we have added more, and we've got a funnel there of more clients coming down the pike as well. also a good way for us to be in other segments. Then we sort of monoline the ACA, but of course, expanding with ICHRA quite a bit. We have Medicaid. We have Medicare Advantage and Medicare People Service members in the +Oscar mix of membership already. More modules will come out there over time. Just a few words on the value +Oscar is driving for the clients here. There's real demand in the market for this. And you can see how flexible really we are in deploying this both in use cases for clients, but also across a fairly big TAM. We don't just sell this to insurance companies. We also sell this to provider practices, which, of course, makes that TAM quite a bit bigger. I again will say that profitability of Oscar has helped quite a bit and has been a marketing tailwind for this because it's much more convincing also the clients to hear us to tell the story about how well these tools are working for us and ourselves internally and then see that the numbers are following suit that we can both increase NPS, decrease admin and decreased medical loss ratio in the last 2 years or so, that's what clients want from us, not just the technology, but the ideas of how to do that. And so part of +Oscar has always been a bit of a not consulting business, but sort of like a way to give people tips about how to really run their own business. But of course, we can do this efficiently because we program this into the campaigns and then they just run. It ranges from -- I don't want to read the slide here. I've talked long enough, you can see it yourself here, but we doubled or so annual wellness visits. We've been better able to increase appointments by tapping into appointments workflows there. By the way, one great insight on that bottom left box there is that we test the same appointment reminder campaign, and we sent messages from the insurance company, this is from your provider, provider messaging works a lot better. Not surprising kind of into to be the case, that's the person you want to have lead your health care. But that's again the power of putting these tools in the hands of our partners and our clients here. Medication adherence, retention, these are all the things we can run. We've just concluded another OE periods of running retention campaigns for ourselves. Those can be campaigns now going out to the clients going forward. So now comes the points, the inevitable point in any Oscar presentation where you'll see a demo and I'm so glad we filmed that before because otherwise, you'd see me navigate this awkwardly with my left hand. And therefore, I will step off side a little bit here and just play a couple of minutes worth of what is currently happening in the products, so you can see it for yourself. [Presentation]

The guys seem very excited about the products. Great. Let's talk about the AI a little bit here. So the video you saw had AI all over the place, which is a really good indication of how we have been dealing with the language models across our stack. We really think about all the various workflows we are in the middle of and see where we can infuse AI. I think there will be opportunities for years to come in working through this backlog. And in fact, we have a very large backlog, and we track it sort of a funnel logic of seeing, which ideas come in, which ideas can get piloted quickly, where can we get results that we can work through. Importantly, the model in AI, it's not really the most difficult part to deal with. I think the most difficult parts in language models tends to be -- can you use the model in production quickly? Can you get feedback quickly? Can you use data from the front lines to learn very, very quickly? And so that is potentially the biggest strength Oscar has that we can just be very fast at taking something 1 or 2 people even develop initially and push it into the front lines, get some feedback and see how it works. In this list on here, is an important reflection of that. That list really has almost to the majority of it all use cases we have in production today, either in full production or in, let's say, 10% of the members of operators are already seeing this. As an example, just recently rolled out now here when you onboard as a member with Oscar Medical Group, that first conversation, the first kind of ask me some questions about what do you do with your shoulder, what a fool are you? The dislocated -- that will be a bot having a conversation with you. And then that conversation summary will go to the doctor. That saves a couple of minutes there in time or, let's say, the adjudication interpret of the claims, you saw that in the as well. That's as the demo said, it takes a trace in the claims system, runs it through GPD and all kinds of other stuff and explains why there was a denial potentially or a duplicate. So these are things actually in production that our people internally can use or that members can directly use. I would think of this as, to some degree, us trading up apprentices might be a good way to put it. You see all these different models they explain parts of what makes up health care. As a claim explainer, there's a commission explainer. There's a sort of patient explainer and so on. At some points, you can wrap around that a master agent, a master model, that's a bad term. That sounds a little too -- too dystopian. An overall super-agent, if you will, that can kind of call back on all these underlying models and again, do so much more in the move towards full automation of Oscar and have the humans of us who still be there, I don't know Mark, my job will get taken by an AI soon, I think. But -- but we do the actual work, the nurses and the customer service agents, they can focus on the higher-value activities than the sort of managing of the admin here. One last case study is actually the Oscar Medical Group we thought that, that would be a nice encapsulated view into how we do this. You see a couple of dates on this slide here, started in August 2023. And when the present day there on the right side. This is a good example for how quickly we can push language models into production. Within a very short period of time, these -- whatever 9 months was here, the engineering team backing up the Oscar Medical Group launched summarizing lab results. So lab results come in and then a machine writes the summary and the doctor seeing the edited. Then they launched message and documentation. So those asynchronous messages, they get summarized. You saw in the demo video as well here. And then the instructions for the patients coming out of that, you saw this in demo as well. These are all things that got pushed out in there. The bots that does the patient intake most recently now here in going against a couple of percent of members and then ramping up from there. And it does 2 things: one is it reduces the time provider spends with these administrative tools, and that's great. But the other thing it does is it makes provider is happier. And we've had a really tremendous rise in the promoter score from the providers using this technology as well, and that's powerful. Here is one important thing as well. The entirety of the engineering theme of the pods, as we call it, that supports the Oscar providers internally is 9 people. It's 9 engineers, and 1/3 of it roughly worked on all these use cases. That shows you how much leverage you can get with, obviously, on the one hand, AI. But on the other hand, by building on a very, very modern technology stack like the one Oscar has. You're just standing on the shoulder of giants, if you will, because all these other components that you need as part of this, we already built in the years past. So a good example for a practical use of AI, driving up satisfaction, driving down costs, that's the flyway we want, and that's the fly we're driving the business. In fact, this is my last slide here. Again, 3 important priorities for Oscar technology: Power the growth and the profitability of Oscar Insurance. A lot more to do on growth and retention, on admin costs, on clinical management as well, a lot more in pushing new plan designs and new features out there. The more the market consumerizes, the more this will be sought after, the more word-of-mouth will matter, things like that. Second, externalize our technology, launching more modules following on the heels of Campaign Builder. I continue to think that there isn't really any other legitimate competitor in some sense for a modern cloud-based claim system that's got the scale that we have and we will continue to find ways to make that part of the strategy and the rollout. It's all happening in due course. And finally, innovating and strengthening our technology with the help of AI language models. At the very beginning of that, we've got a close partnership with OpenAI. They just filled a video recently at Oscar, you're welcome to watch it. And on this last one, by the way, I would also add that this is partly a talent brand question. You want to have a talent brand in AI that attracts people that come to Oscar because they want to work in a modern AI shop. And we publish all of our AI research on hioscar.ai, and we put our results out there, and that's become a very powerful flywheel of getting more ideas and people again, who can help us bring us to the next level coming into the company. And with that, Mark, back to you for some wrap-up remarks.

So here's our summary. We're a prominent player in the fast-growing market in health insurance and one of the most stable markets, if not the most stable. We have a clear path to long-term sustainable top line growth and profitability. It is our aim to get there as soon as practically possible with the tools we have. We don't get in front of ourselves because we're in this for the long run to create a sustainable organization that will continue to grow and take share. So we will let you know when we know we have more in the tank for each of you to bank on. I've never increased guidance in the first quarter because in the first quarter, 15.5% of our claims are complete. So we didn't even know what we have. And given the current circumstances, I would ask you to be patient because around the corner, we'll have more news to share with you. We have a significant runway to continue driving technology and efficiencies and realize fixed cost leverage. Our opportunity is to get leverage every point in the chain. As Mario has pointed out a number of times, on growth and retention, medical costs and administrative costs. We believe we're uniquely positioned to drive the ICHRA market and it's our intention to do so in 2025, after we learned some more here in 2024. And we believe that we will have more to say on +Oscar as we go through the rest of our planning for the rest of this year, getting ready for '25 or '26, '27 and '28. So thank you very much for your time and attention. Appreciate it. We'll be back in 5 minutes [indiscernible] 15 minutes. We'll give you a 15-minute break, and then we'll have 4 chairs up here, and Mario, Alessa, Scott and I will be up here to answer any questions you may have. Thank you.

We will now take a 15-minute break. [Break]

We will now begin the Q&A portion of the presentation. Please state your name and firm. We will bring a microphone over to you. We will now begin taking questions.

Steve Baxter, Wells Fargo. Appreciate the color on NPS and retention that you're generating. Can you talk a little bit about how you think this compares to the rest of the market, your competitors and how you're doing on a relative basis on, at least the retention metric?

Unfortunately, we don't have that data. We've looked for it. Generally, what we've seen in the market is 70% retention. We're ahead of that. But to date, we don't have any specific competitor data that says we're better or worse than they are.

And just a question a little bit on the special enrollment period membership dynamic that you talked about. I appreciate that some of these members can come on with higher initial MLRs. When we think about how they translate to the P&L this year potentially, at least at the EBITDA line or the EBIT line? How should we think about that? Is there any difference between SEP members that you get earlier in the year versus later in the year? Just trying to understand how you guys are kind of trying to talk about that.

Appreciate that question. So with SEP members, the -- interestingly, with SEP, a lot of people think that people coming in SEP are sicker types of people. What we actually see is that they tend to be younger and healthier than the average population. And so we end up having people who join us. It's a little bit of a lag for them to get connected to their PCP, get all of their prescriptions and other things online. And so you just don't have as much time with that member to gather the risk information about the member, which results in this risk adjustment dynamic where you don't quite get as much benefit on actually being able to collect and have the right interactions with the health care system to give you the risk transfer benefit that you would see with the regular member. So obviously, if you have someone who joins later in the year, that becomes more significant, the calculation that you do as part of the CMS calculation of risk transfer actually doesn't give you -- like it's just not a very effective tool at annualizing risk scores. So I would say, Steve, the way I think about this is for an SEP member that we had early in the year, positive contribution margin. as you work your way into the second quarter, it starts to become neutral. And then if you're added in the back half, those are contribution margin negative. So the -- we are thrilled to have all of the SEP growth early which is good for the bottom line. But as we see that membership go -- if we saw growth go all the way through into the back half, that's where you would start to see some MLR pressure because of that partial year risk adjustment dynamic.

But in the second year, you got a tailwind.

And then just the $40 million above plan at the EBITDA line so far this year. Could you just help us think about the components of that? How much of that's coming top line, MLR any contribution on fixed costs?

So the $40 million of kind of through April performance in excess of our plan that we set at the beginning of the year, really a couple of drivers of that. Number one, strong revenue growth. Number two, we have seen favorable claims run out on 2023, in particular, which is a big driver of the $40 million. And number three, we've seen administrative expense leverage. So both fixed cost leverage associated with the growth as well as better-than-expected variable cost performance. So those are the big things. What isn't included in that is any update to our 2023 risk adjustment. We have not received any reports from Wakely on risk adjustment. So we're -- we still don't have any new information about that, we feel like that's an area risk adjustment in general is an area where we have a lot of history and good modeling on risk adjustment, I feel very comfortable with our '23 accruals. But we'll get Wakely information about those sometime as early as next week. And then we'll get the final CMS report a little bit later in the summer. But none of the dynamics of the $40 million are being driven by adjustments to our '23 risk adjustment accruals.

And I'll ask one more and then give it back to you guys. Just when we think about the $2.25 that you put out there is the greater than target. Just give us a little bit of framing. I guess, like I think you mentioned that some of the capital that you generate might be used to do things like optimize the balance sheet, maybe less reliance on quota share. Is the $2.25, do you potentially use all of the incremental capital that you're going to generate? Or is there some sort of untapped capital that potentially could be used for another purpose...

Yes. I appreciate that. So a couple of things on the 2.2% -- $2.25 of EPS or above. Number one, that's based on diluted EPS, right? So the shares that you saw us use in the first quarter, which was calculated based on a diluted calculation. Those are included in that number. Number two, with respect to taxes, at the moment, we have not recognized any deferred tax assets. We have about a $600 million deferred tax asset that is -- has a full valuation allowance today. Over time, as we become more profitable, that would be recognized and it would -- part of that asset is our net operating losses. And so taxable, well in 2027, let's say, for example, we're at 5% margin. We've grown at a 20% CAGR. We would end up having net income before taxes where the NOL would fully offset the tax liability. And so the bottom line would have no impact of taxes. Aside from that, I think that on the EPS target, the -- again, the upside here is if we saw the enhanced subsidies, something got past, some continuation. We tried to dimension how many members that may be, and that will be upside to the target that we provided.

Josh Raskin at Nephron. Two questions. The first one, I'm just sort of thinking about the premium trend and the pricing paradigm in health insurance. So right now, insurance companies look at cost to do this big bottoms-up analysis and then you price for that, right? And so is there a way you start to think about starting at price, right? So you've got an employer group that says, "I need to stick to a 3% trend or that's what I've contributed to the ICHRA accounts for my employees." It's only 3%. Is there a way to sort of like turn that paradigm upside down and say, "Hey, we're going to do sort of instead of a bottoms-up cost analysis top down from the price? And how do we get to that? And sort of what are you doing to prepare for that?

Well, I think one of the things we did this year, the two of you can talk about this you worked on together, the Monte Carlo analysis and pricing by market to understand where we best be competitive. So we did it both ways. What do we need to get versus what is the dynamic in the marketplace look like. And after we've got the first generation of pricing back, we could make corrections where we actually decide to take more margin in some places.

Yes. Maybe something from the perspective of history of Oscar. When you draw the chart all the way back to 2018, you look at the ACA rate increases versus the large group and small go rate increases, that's a big gap. The ACA inflated a lot less than the small or large group markets. And the first couple of those years, the ACA even shrank. So it wasn't even a risk pool change, whatever. And really from the front line supporting back, this is because we all have to look at where we think the competition will price. And that is just much lesser dynamic than it is the case in large employers, for example, where you do much more of this, what do my margin to be, and therefore, then price down there. You have to really battle it out, if you will, and therefore, have to have competitive plan design, operations and things -- all these things we talked about. And if you can introduce those dynamics into the employer markets, I absolutely think you can then go to the employers and say, employer, take trends, that's the number you're going to put into your ICHRA. And then everything else will be the individual markets competing at ours. And that's how we intend to compete certainly in the market as well. It's part of the pitch of these folks like stretch dollar and where they all called is to go to the employer and say, "Look, guys, forget about your health plan." Just give us the trends, give us a target of what you want to spend every year and how you want to inflate it and the rest the market will take care of. So a huge change into how this works, how this worked in the last 60 years.

Okay. And then just a second question around that buildup. You talked about the enhanced subsidies going away. You have an embedded estimate, I think it was 5% to 7%. Sort of how did you come to that number? It seems relatively low versus the market growth we've seen since the subsidies have been enhanced and sort of what gives you comfort that that's the headwind versus something bigger?

Yes. Well, we started off by looking at the actual data and our plans today and saying how many of the people receiving subsidies could move to a similar or lower priced out-of-pocket premium. And so that was 70% of the people currently receiving subsidies in our plan. We didn't assume 100% of those people ultimately stay in. We did assume some of them would still drop out because of the risk of the fact that they would bear a higher cost for deductibles, right? When you move to a higher deductible plan, the price changes commensurately. So what happens here is basically people who stay in ACA, who buy down to a lower price plan, end up taking on a bit more risk because they have a higher deductible. So that's kind of the first thing that we modeled. And then the second, we looked at our actual performance where we had seen examples of where, based on our own pricing, we had changed pricing in a similar magnitude of what we thought might happen to people who lost enhanced subsidies. And we looked at that and said, "Hey, for the 30% that isn't going to be able to buy down to a similarly price plan, what happens to those people? And in that case, our history is that once you've been engaged in having health insurance, we see that -- it's pretty sticky. So even with the price increase, we estimate that roughly half of that 30% is still going to stay with us in the ACA. So that's kind of the bones of how we built the estimate. And again, I think that the 5% to 7% negative impact on CAGR that we laid out is based on the fact that, first, you grow -- the market is going to grow in 2025. And then from then from there, it shrinks both in 2026 and 2027, cumulatively about 18% over those 2 years. And it's going to be a little bit more front loaded towards more of that shrinkage is going to happen in '26 than '27. But that's kind of the framing of how we built those estimates.

Great. Nathan Rich from Goldman Sachs. I guess I wanted to start with ICHRA and that opportunity. Of that $75 million TAM that you laid out, how should we think about maybe the number of people within that where getting to choose their own coverage would be appropriate? They're either over-insured today or underinsured today and would maybe benefit from that increased flexibility? And then can you talk about what you're looking for from the pilot projects that you're working on with the carriers? And when you maybe have a sense of the level of adoption you're seeing from employers relative to kind of what the longer-term targets you've laid out?

We think that the lower end of the market, so the small groups will be more amenable to this kind of change, given the pressure rate increases are seen from the Blues and others at that end of the market. So we think there's an opportunity there. We're also seeing, which we sort of discounted when we started the project at the large end, particularly with provider health systems, they're very interested in this model as self-funded employers as a way of managing their costs. So we see that sort of barbell kind of approach. I think the middle market is going to be the harder part to do because their rate increases aren't as stiff as the lower end of the market, the small group, and there are more employees. So you have a geographic dispersion issue that you have to deal with and getting them coverage. As we -- the pilots that we're working with are focused on distribution and go-to-market strategies. So in the ICHRA market, you have 2 sales, you have the employer sale, the wholesale, get the employer to move to the model and then you have to place the members. Now today, largely the ICHRA players have -- make the employer sale and then they start to just move the employees into the ACA market, exchange market to find their own coverage and let them buy. And they keep track of whether or not there's money -- the money that they receive from their employees properly spent because there are rules around what can be spent on what can. So our experiment as to what can we do to have a more robust presence in the second level sale and getting people into the right level of products so that we can maximize the savings for the employer over time. Because what employers worry about as I move to a defined contribution plan. I give up my ability to pick the benefit. All of a sudden, my costs get out of control. My employees need more coverage. My defined contribution isn't worth as much to them anymore. And now I've got a problem because I'm only negotiating on how much they give them to go buy their own health care. So the second level is what we believe we bring uniquely to the market and being able to help have sort of a flexible benefit approach for the employee. And so we're looking at a couple of different models that some of these partners use to see which one works most effectively.

Great. And then as I think about sort of the positioning in existing markets today, how many markets are you in where you're still not at the profitability where you want to be at this stage as we think about because I think you had a slide where the 3% to 5% medical cost trend that was going to be offset by pricing increases. I'd imagine it's pretty different by market. What markets are you in today where there's still -- you still need to kind of catch up to where you want to be from a margin standpoint?

Yes. So I would say that we have only a few markets. That are already at sort of the margin level that we have in our long-term plan for 2027. As I sort of talked about, this is a multiyear process and sort of able to get there. So we have this use to work through our total cost of care work in order to offset trend on an annual basis, right? And so we're able to offset a portion of that trend or offset that or more of the trend, invest that in, in order to grow and then move the margin forward. And so it is a multiyear way in order for us to get there. You're absolutely right in that it varies market by market, and it will continue to do that even once we're overall at the 5% or better in the future. We'll still have some markets that are above and some markets that are below, and I think that would -- you would see that consistently even with our competitors.

Thank you. Michael [indiscernible], Baird. So +Oscar, I noticed in the long-term growth slide that +Oscar growth less than 1%, including investment income only includes Campaign Builder, if I'm not mistaken. If that's true, I want to dive deeper because I know +Oscar is so much more. Mario's working on some very interesting things. And even the vastness of AI on the revenue cost side, what you can embed in existing products and then externalized seems massive. And I feel like it's not yet in your long-term growth estimate. So I wanted to get a sense on the runway and what the upside looks like realistically. And then next modules, what that could look like. The one that comes to mind to me is the fact that you improved your risk adjustment 20% with AI. Are there implications to Medicare Advantage? Could you package a product, especially with how relevant risk model revisions are and that's a massive TAM. So...

Yes. And the risk adjuster one, the question is, how much do you want to give to our competitors because it's a zero-sum game. Do we want them to do better on risk adjusters so that it offsets what we have on risk adjusters. So we're thinking about that, but we're wondering how we could do that effectively without [indiscernible] our own results. There are other modules we're working on. We don't have them fully ready to go to market. Again, this is early in the process for us in +Oscar. And the larger the platform moves, nobody is going to rip and replace. So we have to have this more sophisticated approach. And so we're now looking for partners where we can do a focused delivery of the product at a more wholesale of a larger platform instead of build it and hope people will come. And so we're early in that process. We have a number of people we're talking with. We don't want to get in front of ourselves. But we believe as we get near year-end, we'll have some more information on -- but you're right, it's not in the numbers longer term. And that's the bigger opportunity.

Yes. I mean from my point of view, the story for us and what we have to offer to the market eventually by spinning out new models, offering more were building is only going to get better. It's going to get better because our numbers are getting better and better. And therefore, that tailwind of being able to tell the story of here's something we build, here's what it improved for us. It's going to be more compelling. And it's going to get better because we're going to find more and more ways of innovating with AI and technology and so on. And at the same time, as compared to 2 years ago when we first started talking about +Oscar, I still don't see much in, for example, the co-admin space where you can now suddenly renovate your shady old claim system with going into anybody else. And really, therefore, we're not in a huge hurry on this, while being very, very conscious of the fact that the opportunity clearly is very big if once we find ways to power the rest of the system with it. We think there's a big opportunity in Medicare Advantage because that market is starting to unravel a bit as we're seeing in certain plans being investigated by the DOJ for transfer pricing and how they set their fees and other plans, trying to keep the zero premium plans by thinking that they're going to lean into their medical -- their total cost of care, the only find out that they can't do it, and they call it utilization increase, but it's really they've mispriced. And so for us, that market is in turmoil. Providers are dropping out of Medicare Advantage because they don't believe that the large as that has been captured by the commercial carriers has gotten down to the provider level, and we see an opportunity of working with them going private label and Medicare Advantage. And that's specifically the kind of partner we're looking for a bigger investment in +Oscar.

Great. And maybe to my next question, which is MA and hospital co-branded plans. Curious on how you're thinking about the time line, how those conversations are progressing? And maybe more importantly, I know is there any friction that could be created if you partner with a health system, hospital versus their existing relationship with other plans? And how do you swage those concerns and get that deal in?

That's why we're looking for the right partner. Some of them will say, "I don't want to private label because I'm in competition with the other Medicare Advantage contracts I have. So we're looking for specific situations where we have partners that can work with us on this, both from the provider side, but also from the standpoint of the systems integrators and other partners, we need to make this thing work fluidly and well versus what happened with Health First.

Got it. One more question, sorry. Since we're talking a 3-year plan, PBM savings renegotiated. I know you're making savings this year, step up next year, step up '26. I think there's even more you can get through performance incentives. And when I think about the watermelon-size opportunities and I look across the country in Blue Shield of California, there's a lot of skeptics about that 10% to 15% savings. But Mark, I know you've very vocal in support of it. If I even run a high math on '26, approaching $10 billion in medical costs, 20% drug cost, 15% of that. That could be the biggest watermelon. Is that farfetched? Or is there a realistic...

I really -- Paul Markovich, I know Paul, he took a bold step. He disaggregated the profit pools of the PBM and went out and contracted for them separately. Now whether you can coordinate it properly and make it work is the big question. So that's his big model problem right now. But I think the days of PBMs being the [indiscernible], we're on the street corner in New York, where is the [ clean ] is they're about over. And I actually had an interview yesterday that will play today, then I was asked if you were the CEO of a PBM, what would you do? And I said I'd start looking for another job. And so in the end analysis, it's going to be -- it's got to change. There's a lot of money tied up there that, in a lot of cases, don't get to the consumer at all, and we need to find a way to do it. So it's on our radar. We're not going to just joyfully [ ride ] out the current contract and then think about it, we're already thinking about what we do next.

Jess Tassan from Piper Sandler. I wanted to start and maybe just ask about the 2024 guide. You guys referenced $40 million of upside to adjusted EBITDA as of April, but just declining to raise the guide in case you see dilutive SEP enrollment in the back half. I guess just what is the kind of magnitude of SEP enrollment that you'd see in the back half that could offset that favorable adjusted EBITDA run rate year-to-date? And then just was that already contemplated in your '24 guidance, the...

So just to unpack that a bit. The -- we did assume that we would see continued SEP growth into the back half of 2024. And -- when we look at the magnitude of growth that we're seeing right now, it is in excess of what we had expected. We did grow membership from the end of OE through April by 200,000 net members. So very significant growth. Just to give you a sense of magnitude, if we were to see growth above our estimates of 20,000 SEP members every month from May to the end of the year, that would create a headwind to MLR in the range of talking about this in terms of adjusted EBIT terms of around $40 million. So again, if we added 20,000 members every month above our estimates from May through the end of the year, that would be a $40 million adjusted EBITDA -- the adjusted EBITDA headwind.

And then my next question is just how do you, I guess, just the cadence of the ICHRA opportunity? How do you expect that to unfold? And do you guys have a strategy around brokers in the small and midsized employer market?

On the second part of your question, the strategy is we're playing with potential strategies. One could be where we could become the first sale. So Oscar could be the GA and sell the employer, that would eliminate a set of fees for us. I mean we could pay ourselves, but it's part of the distribution costs of the business. So we would step into that role. And then there are various ways. We could work with any broker in the community or we could find brokers that we're adept at getting people linked to the right plans and offer them an exclusive on moving our members that come out of the employer into the right plans. So we're considering all sorts of different ways of working with the broker community. But the one thing that's for certain, brokers in the past have not liked ICHRA because they go into an employer and sell the employer on ICHRA and there's no commission for them. So they're getting paid base fees. If we split the distribution between the employer sale and the ultimate movement of employees into plans, the broker commissions can be preserved in a way. So that's it. On the second, you were mentioning how we're going to grow and where we're going to grow, we are conservative in our estimates but realistic. And we believe that depending on how quickly the ramp picks up in the market, could be a lot bigger, but we don't know.

And then just my last one is, I think you guys mentioned fixed costs are -- where your fixed cost base can support significantly larger membership. I guess, contemplated in that fixed cost guidance, are you thinking about all of these potential alternatives for distribution on the ICHRA side? For example, if you became the kind of first sale, is the infrastructure required to support that contemplated in your flat fixed...

One of the great things about ICHRA that I really like is that it rides on the rails of so much of our existing infrastructure, right? So we don't have to have a significant quantum of additional costs in order to deliver the ICHRA plan. And all of the costs necessary to acquire the members that are in our plan, we put -- we fully loaded those into our long-term target. So we don't see any of our investments materially changing the fixed cost requirements, which we're expecting to grow at a very slow rate compared to what we expect on the revenue side, so.

To answer this from a technology point of view, for all these early partnerships that Mark talked about, and all the launches we have this year really in ICHRA, it's a small single-digit percentage of a technology resource going into that because we've had such a big amount of investment already go into broker web application. Mark talked about how easy it is to get it, become a broker under Oscar and get members into the membership base and so on. And so that's a hugely powerful leverage we have there. And then we have, to Scott's points, just a good-sized capacity on the engineering side that we can pivot to where we think it is best invested. And so we thought ICHRA becomes a bigger and bigger deal than we thought earlier, more plan designs, more network designs. Do we want to build to the systems? We can just do that and not do something else that would help somewhere else in the business.

And just one point of clarity, distribution cost for us, we view as a variable -- part of our variable cost structure. So that's included in that component.

And I would just add, the partners we're working with are in different segments. So each segment is going to be different, depending on your approach of how you deal with the employer and the member. The more -- the larger the employer, the more sophisticated the sale and the more the displacement. I mean if you go to a large employer, that's a large self-funded employer. They got benefit staffs of 50 people that make all these purchases and these decisions, very different sale.

This is Adam Ron with Bank of America. In your longer-term revenue growth guidance, you mentioned that you assume you're taking market share, both in existing markets and new markets. But you also sort of mentioned that within pricing, you've contemplated that you'd be pricing medical cost to cost trend. And so does that mean that to take share, you're assuming these total cost of care initiatives are required to lower premiums below trend? And then besides price, what are the other factors that you see are important in taking market share?

So I think you're on the right track, right? In terms of the total cost of care, we want to include that within our pricing so that we are able to have a competitive price. And we think that, based on what we've seen relative to medical CPI, et cetera, to the extent that the competition is not as successful in managing the total cost of care down, they'll be more forced to price at trend, et cetera. We would expect our competition to be rational in their pricing just as we would. So I think that, that's important. I think there's other things, though, that matter when you're being attractive other than just price. You need to be in the game and you need to have a competitive product, but it doesn't necessarily mean that you have to be the cheapest. I think the network matters, particularly for people who are already insured or who are contemplating switching, they want to know that their provider or provider group that they already frequent is in the network. So I think that, that's important. I think the -- I spoke a lot about innovation and into the dualization of the product. And I think that matters for people that are actually managing a chronic illness or have particular things about their own health. So having that ability to choose something that is more personalized, i.e., differentiated from some of the others actually matters. I think the other thing that matters, and Mark touched on this a little bit, it can be distribution, right? There are really good distribution partners out there who are good at talking to the individual about what their needs are, what medications they're on, et cetera, and making sure that, oh, on the formulary for this carrier, your drug is covered on the lower tier, you'll have a lower co-pay, et cetera. They're good at finding the right plan for the member. So I think that, that also matters when you think about it. And that's why when I talked about the localization, it's really understanding what are key provider and facilities that need to be in your network that will make the product attractive? Who are those really good distribution partners that are able to really put people into the plans that they really should? And we think we offer good plans. And once people are in and they have a taste of the Oscar experience, I think that's one of the things that drives the retention that we've seen, that they stay with us over time. Even if their price goes up a little bit or what have you, we've been able to have strong retention.

And just to reiterate, like our plan assumes that we are able to both grow and improve margin. So while we do think we'll take a portion of those total cost of care benefits and put them back into pricing, we also would expect that some of those will go to the bottom line. Our ethos is, we should be able to grow faster than the market and create margin, right? So this isn't an either or, this is a both. And we are getting a significant amount of advantage from creating fixed cost leverage, but we also expect that both on the MLR and in our variable costs that we would see those 2 components as a percentage of revenue continue to improve.

Great. And then one more question I have and that I've had for a while is that, this year, it seems that many of the exchange competitors are doing well like yourself, CVS, Centene, Molina, United have all talked about, and Cigna being at target margin in the exchanges probably for the first time in a long time. And one potential contributor to that is that the exchange subsidy have become so strong that, potentially, that lowers price sensitivity from a consumer perspective. And to your point, you're assuming that subsidies go away, 70% of your members that are subsidized can buy down and so that definitionally means that they're buying plans that are more benefit-rich than they need. And so around that line of thinking, do you believe that the market is, today, less price sensitive? And that if the subsidies go away in your plan, does that not have any impact on margin from an industry perspective?

Yes. I would argue that when people buy down, they're going to get a plan that's going to cost more out-of-pocket in the use of it. So if they buy down to keep a zero premium, they're going to still have a plan design that they're going to pull more out-of-pocket when they need it, but they'll still have the insurance coverage. So what is the effect on their behavior if they know they have more out-of-pocket, if they use the system indiscriminately. The opposite side could be true as well. People get in a bad place or don't get the care they need. And so the only thing that we have in defense of all of that is to price with discipline, make those estimates and price properly.

Given that dynamic where you have the potential for people buying down, incurring more out-of-pocket, one of the things that we also have built into this plan is that we're not assuming that retention stays at the levels that we've seen most recently. We assumed that we would see slightly lower retention because when you have people coming out of pocket, you do experience more churn. So we were thoughtful about trying to make sure that our plan didn't rely on the same level of retention that we've seen most recently and that we've given ourselves some room to see a bit more transition in membership, given some of the changing environment that we are projecting.

Our NPS scores are lower on people who pay out-of-pocket premium.

I guess one quick follow-up to that. You mentioned earlier that for 2026 bids, you would submit 2 bids, one for if subsidies go away and one for if they stayed. Just curious, like what would the 2 assumptions complement? Which scenario would have higher premiums and why?

Boy, I'll tell you what. I would not even try to get ahead of how that may be. Ultimately, I think what we've seen in the past is when there's uncertainty, the way the regulators ask you to participate in that is they help you by saying, "We would like you to create a bid that looks like this and one that looks like that, that's reactive to whatever the situation is." So I don't want to get ahead of trying to guess what is that going to look like. But what we do know is that when you have people buying down, you are going to have the PMPMs on Bronze or likely going to be less than on Silver. So that comes with a little bit of revenue compression. But in terms of the profitability, we actually could see equal profitability under either of those scenarios, whether it's Silver or Bronze. So I don't know that I can give you a specific of what would happen with the pricing in that kind of 2 bid situation. But we think it would be responsive to kind of the regulatory environment that we'd be in.

I was going to say, the thing that I would say is it doesn't necessarily affect the price that you build up from the bottom. What I think it will have a greater impact on is what the plan offerings will be, right? So someone may have a portfolio out there today, which is it has been limited by CMS, right, in terms of the number of plans that you can offer, et cetera. So when we think about our plans that would not be the standard plans, we may want to file different plans that we think will be more attractive to people such that the premium is lower and balance that with out-of-pocket, differently than we are today given the way that the subsidy actually works. So I think it's less about like -- what I think of it is like, ignore the subsidy. You don't look at the subsidy when you set your actual price, I think we'll have a bigger impact on what plans are actually offered and how attractive those will be based on how much people will have to pay out-of-their-pocket.

Only additional thing I would say is, and Mark talked about this when he had the slide of the people up is that's in -- we don't know what happens in the future, but we have gone through these things before. Unlike the majority of the competition in the ACA, in United, CVS, Cigna, none of them were there when we had previous situations we had to file more than one rate, which has been plenty of times the case in different states because regulations change, 2016, '17, defunding of risk orders, things like that. And the actuary surprise of these plans are still the same in the Oscar team today. We have probably the most experienced actuarial team of ACA pricers in, maybe in -- probably in the whole country. And that will serve us well because we've only gotten better at this.

Hopefully, those actuaries are all less needed and appreciate how well paid they are and how happy they should be to be out with Oscar.

Yes. Don't even bother calling them. They have no place else they would ever want to go to.

While we're waiting, I realized, Steve, that I never actually got to your question on what do we do with the capital generation. And so I'll come back to that, which the plan that we've laid out allows us to create excess capital, right? We think we can fund all of the growth based on our current excess reserves plus the additional capital generation and we think we'll be able to dividend over time the excess capital out of the insured subsidiaries to the parent. That will give us a lot of capital flexibility. We would expect to have a significant amount of excess capital if we achieve this plan, which we can use to do a variety of things that we think will optimize shareholder value. That could include, even at the simplest level, doing things like today, when our executives vest in their stock, we use a sell to cover where they sell their stock in the market to cover withholding taxes. We could just, as most companies do, use your cash to buy those shares to do withholding. That's the simplest example. What we would do, though, is to optimize around. I think our first objective would be how do we put that cash to work to maximize growth opportunities, whether that's organic or inorganic. So that would be kind of the first stop there. Long term, if the company continues to generate significant amounts of excess capital, I think we would find opportunities to invest in growth, but we would also look at common tools like share buybacks and other things that -- I think that's a much longer-term horizon for us. But we think that we will be in a great position to optimize on our return by whether it's how do we improve the bottom line performance of our existing capital stack and look for opportunities to improve our growth.

Are there any additional questions?

So on that topic of capital allocation and inorganic, I guess, with the implosion of the health care services valuations across the board over the past couple of years, is there -- and Mark, I know you're not into value-based care, but are there any types of assets, tuck-ins, capabilities, I don't know, provider enablement things that would help bolster your existing capabilities and would be attractive?

We will not be buying any provider practices. Let me state that upfront. Yes, there's always -- I think inorganic versus organic is really a measure of what is the need, what are the timelines doing it on our own versus buying it, is there a reasonable value in buying, which you know, so it's a means to an end. And so as we go forward with our strategy, ICHRA could be a place, maybe, maybe not. There may be places in the technology sphere as we think about how do we evolve our technology model to support more than just this business and look at other businesses, and how do we build the team around that. And so Mario and I've been talking about, what does that look like. So I think that's always a possible deployment of excess capital, but it has to make sense from the standpoint of what we're trying to accomplish strategically.

Thank you for attending Oscar Health's 2024 Investor Day. We invite you all to stay for lunch out in the break room.

Okay. Thank you.

Thank you.

Thanks, guys.