Clover Health Investments, Corp. (CLOV) September 15, 2026 Conference Transcript

Fantastic. Thanks, everybody. So I'm Dave Winley with Jeffrey's Healthcare Equity Research. We're here in Nashville at our Healthcare Services and Technology Conference. Appreciate your attention. If you're listening live here in the room live or listening live, and then we also, I told Clay that we're competing against a CMS CIO topic with AI in the title. So, you know, that probably attracted some ears and eyeballs. So, again, Dave Winlay, I'm here with Clay Thornton, the Interim Chief Financial Officer for Clover Health. We're going to talk a little bit about MA over the next 30 minutes or so. So, Clay, I'm going to start you off with just Clover does have a different model. You're an emerging player in Medicare Advantage. And so just talk to us to start with, level set on Clover's differentiation and how you guys are trying to grow.

Yeah, I mean, we've definitely taken a contrarian approach to the MA business in a number of ways. First off is we've spent years developing our own proprietary platform called the Clover Assistant, which really serves as our physician enablement platform that engages both the in-network physicians in our network, as well as powers our own employed clinicians that are seeing our members. So ultimately, everything starts with that technology platform. And then from there, where we get really interesting is the actual reach of the platform itself. So in any given year, we're reaching two-thirds of our members with at least one visit that's powered by our technology. And then lastly, where we really differentiate just from an economics approach standpoint is that we take full risk on our entire population. We don't delegate risk downstream to value-based providers. We are holding 100% of the risk on our population, which creates interesting dynamics, particularly with a company like ours, that's growing at the rate we're growing. And happy to get into that later, Dave.

Yeah, we may come back to that. So at a high level, let's start kind of MA level, profitability and margin sustainability. So the basic question here is, is the industry through the worst of this? You know, over the last few years, we've dealt with V28. We've been through an elevated utilization cycle, Part D redesign, Starz volatility. You know, there's a lot of things that have gone on. Are we through the worst of it?

I mean, we don't have a crystal ball, so it's tough to say. It's definitely been a turbulent few years. And I think what you've seen really starting in 26, and you're starting to see this heading into 27 as we get first looks, is plans are starting to adjust for that volatility. through pricing discipline so we've seen a lot of that through the the national players itself uh and i think that'll play out in margins at large in the industry as far as what happens into 28 29 and beyond that's that's really anybody's guess sure but uh your reference so in first looks you are seeing the a pricing discipline aka some some benefit you know stable to to down not up for the most part yeah that's that's largely what we've seen so really in the past two years you've started to see a lot of the national players i would say move away from ppo and move away from zero dollar ppo we're seeing that trend continue and then again a little bit more pricing discipline into 27 yeah um on this topic of i mentioned the utilization cycle And the messaging maybe for the last two-plus quarters has been, certainly in year 26, has been elevated but stable utilization or trend.

We got some news, competitor news, in the space this morning that called out a couple of areas of utilization as maybe, you know, heating back up again. What views, insights, you know, or comments would you have on that?

Yeah, I mean, I think some of those comments were largely focused around inpatient and SNF specifically. Those are two areas that we highlighted on our second quarter call that have actually been bright spots for us this year. And our position on that really hasn't changed. So we're seeing really favorable trends on the inpatient and SNF side within our business where there has been trend pressure, but as we said in the second quarter, kind of started to moderate is more on the outpatient side uh less so on on inpatient so sorry trend pressure outpatient but even that is moderating yeah definitely moderated so we like we said at the second quarter we we kind of saw those trends peak in march uh and then start to level off a little bit into the second quarter yeah okay so good segue into into margins so we you commented on a price discipline in first looks, but also some commentary about a moderating utilization,

perhaps. You know, I think we all want to be a little careful, you know, predicting that too strongly. But how do you think about the contributors to, you know, a margin recovery where most MA players are under earning these days?

Yeah, I mean, from what we're seeing on benefit design in 26 and then the first looks in 27, pricing discipline has been the number one lever that the industry at large is pulling. And really, I think Clover is the beneficiary of that. When we've seen significant disruption in the MA space, the natural reaction from other players is to use benefit design to offset that pressure.

So when they use benefit design to offset that pressure that drives more shopping that drives more growth within our plan which ultimately feeds our cohort maturation model sure um so on member growth and retention let's let's transition to that so i think one of the things that clover um does tout does look at as retention as a competitive advantage highlighted retention above 95 stands out relative to what we've seen across most of ma you know albeit you know your smaller base to what extent is that retention being driven by your benefit stability versus, say, maybe other factors like your member outreach and engagement within the Clover Assistant, things like that. Can you attribute on those factors?

Yeah. Benefit stability is certainly a huge driver of our retention rate. So when you think about 2025 and 2026, we've zigged while the market zagged. So we've either enhanced our benefit offering in 2025 and in 2026 was more of a strategy built around stability. So when there's wide-scale disruption in the market and you're offering consistent benefits to consumers, you're going to see favorable retention. So we've absolutely seen that. As it relates to Clover Assistant and its impact on retention, it's not a direct impact, but it's absolutely an indirect impact. So ultimately, what happens when we see high engagement in Clover Assistant is that powers our cohort maturation, which improves our financials, which then allows us to maintain stable benefits. So it's absolutely a driver of our retention, but indirect, and that's really the secret sauce that allows us to hold benefits stable while the market is disrupting. Sure.

And Clover, you and the management team do think, I think, pretty explicitly about your vintage or cohort economics and how that progresses. You alluded to it a little bit just there. Maybe talk about how you see year one to year two and year two to year three progress in a typical fashion, and are you holding to that?

Yeah. So historically, what we've seen is from year one to year two, we see about a $70 per member per month step up in insurance gross profit. And then when members move from year two to year three, we see that increase another $85 PMPM. So that's what we've kind of measured historically within our own book of business. And we're focusing really, really closely on that this year and feel like things are progressing well. So that's a good signal into 2027. And the other leading indicator that we look at really closely on that on that form, Dave, is what is the Clover Assistant engagement within a particular cohort? because the engagement of the year one cohort or the year two cohort is a really good leading indicator into the cohort maturation we'll see next year and that's another thing that we're seeing kind of track in line with historical results this year yeah on on margin i'm stepping off the page here a little bit you're so you mentioned the 70 improvement um at the insurance gross margin line and then one of your larger competitors has talked about you know commissions drop approximately in half from year one to year two as well.

And so you get that would be more at the SG&A line. Is that something that you see? And is that a big contributor to your scaling as well?

We see that a little bit, but that it's there's there's a lot of nuance in that statement. So I want to I want to kind of clear that up.

Yeah, please do.

Yeah. So when you think about commissions, plans are generally structuring their commission through the lens of are you an MA switcher or are you new to Medicare? The standard maximum fair market value rates dictate effectively 2x the commission on a new to Medicare. People generally equate that with year one members. But in reality, that's, you know, for us in particular last year, about 86% of our AEP sales were actually MA switchers. So they're at that lower fair market value uh commission rate so in that case you're not really seeing that major step down from year one to year two in general and our approach we actually switched this uh in 2026 we've now set the commission rates for an ma switcher versus a new to medicare enrollee at the same factor so we really don't see that dynamic as i shouldn't have stepped off the page as i asked the question and I remembered that you had told me that already.

Excuse me, so my apologies. On the technology, we talked about Clover Assistant a little bit, and that's, you know, the Clover engine has been built on that assistant since before AI was, you know, a twinkle in somebody's eye maybe. But AI, I'm guessing, has an augmentative effect. How are you thinking about investments in AI and application within Clover Assistant? or other places for that matter?

So, I mean, we continue to invest a significant amount of R&D dollars into the Clover Assistant platform every year. So we've been at the development of Clover Assistant for over eight years now. And with the advent of AI, it kind of accelerates the impact that we can see from Clover Assistant and the progress we can make. As far as AI at large, an area where we really haven't tapped into to this point, but see significant opportunity coming down the line is the more traditional back office insurance functions, right? Things that are repetitive tasks by humans that can be sped up through AI. That's really low hanging fruit on things like claims processing. There's significant applications in payment integrity. There's applications in member services to kind kind of address simple inbound phone calls, right, and reroute those to an AI front door So there's a lot of low-hanging fruit out there that we really haven't tapped into yet, but will do in the coming years.

So a topic around this, again, probably didn't specify this as much, but, you know, prior authorization is an area that has gotten attention and scrutiny, and some of the bigger peers are touting a fairly significant reduction in prior auths, but the magnitude to which they actually have an impact is questionable. Given your PPO model, is that as prevalent of an issue? Like, is prior auth that significant in what you're doing in the first place?

I would say relative to the national MCOs, no. I mean, we're a bit lighter touch on the prior authorization front. I mean, it is a necessary function within a Medicare Advantage plan, but relative to, you know, Humana, United, Aetna, others, we're not leveraging prior auth at the scale that they are. Yeah.

And in my earliest introductions to Clover, I know the point of emphasis was we are ingesting and integrating tremendous amounts of data around the patient and then, you know, making those, you know, tactile to the doctor at the point of care. And, you know, there's a part of me that says, like, well, aren't the big guys doing that, too? And can you bring to life how it is that you're able to, you know, assimilate that in a way that's more usable for the providers than you think your competitors are?

Yeah, I mean, I think the key phrase in that question is at the point of care, where the national MCOs and our other competitors have really focused a lot of their efforts for years is more on the population health management standpoint. So think of that as sort of retrospective analytics that are kind of fed to the providers in a report mechanism so that they can inform what may happen in a future visit. In our case, our technology is live at the point of care. So the Clover Assistant platform integrates into the physician's workflow and actually helps the physician work through each individual patient encounter. So they're reviewing that data in real time with the patient in the room. That's the key. The patient is in the room, and it's part of the workflow. Okay.

On utilization, we've touched on this a little bit, but I'm going to kind of combine the trend call-outs that you've given us with how we're thinking about 27. You know, I insinuated this, but is it right to think that your philosophy and your management's philosophy is kind of an extension of current trend as you're thinking about, you know, out-year? or were there some assumptions about, say, a moderation from current level or otherwise?

I mean, our view of kind of base trend heading into 2027 is not going to be all that different than our peers. I mean, we know what the CMS fee schedule increases are. We know what kind of core utilization will generally do. We're largely focused on our individual cohorts and what the contribution profits are of that cohorts and making sure they mature from one year to the next. So if the question is centered around, you know, how did you think about your 2027 bids and what trends did you assume? You know, we're not going to be assuming a different baseline trend than anyone else. What we will be assuming, though, is, you know, more detailed, more granular expectations of how our individual cohorts mature into 27 and what that means in our aggregate results.

Do you think investors, as you talk to them, do you think investors – understand um well the current utilization environment or are there elements of confusion or misinterpretation of utilization and i for context i kind of asked the question in so much as the the news this morning is causing a decent amount of volatility and you know it is new yeah it probably is but again back to the understanding level yeah i mean i i think there is a level of confusion.

And there's a level of confusion because there's a different level of sophistication and trend mitigation that exists at different companies. So some of the news that you heard this morning, like I said, was really focused around the inpatient and skilled nursing facility space. And that is a space where I think we are particularly well-equipped to manage trend in that space we we manage trend in that space uh first through our clinical programs i've talked about this on prior earnings calls where engagement in our longitudinal home-based primary care program is up significantly and that's the program that's managing kind of the the sickest of the sick right the the 10 of members that drive 60 of your costs that's also where you see a lot of inpatient utilization so um where you might hear individual competitors cite pressure in a particular space where others do not it's because others have different capabilities to address different different areas of the trend problem if you will yeah I think I think

you guys have said that you are expecting the upcoming AP to be another disruptive period your earlier comments about early looks and seeing you know generally some pricing to margin is that what you mean by that like that it's disruptive, kind of a go-shop-for-the-member type of disruption?

The level of disruption remains to be seen. So at this stage, we have the first looks. We don't have the full view and the benefit design for all competitors. I think what you're going to see is selective disruption in different geographies. When you have a large national payer execute a strategy of pricing margin recovery, you can see that play out over the entire country. And in this case, I think we're going to see selective disruption in specific geographies, some of it from some of the smaller payers. Yeah.

And we, I guess, relative to, it depends on the timeframe I pick, but relative to maybe four to six months ago, the level of continued PPO plan exits is perhaps a little higher. I thought maybe most of that got taken care of for 2026. It seems like there's still a level of shifting away from PPO into 27 that, depending on whether that happens in your markets or not, could be beneficial to you. How do you see that?

Yeah, I mean, we definitely see that trend continuing. As far as full-on exits, remains to be seen how much of that is in play. But we are absolutely seeing a shift away from the zero premium PPO market. And frankly, it's not surprising to me because of our differentiation versus others. We're actually purpose built to succeed in PPO because we don't heavily rely on traditional value-based contracts or capitation arrangements. Those types of arrangements are incredibly difficult in a PPO product. They're much more easy to navigate in an HMO product. So because that's not core to our strategy, that's why we're able to win in the PPO space where others have struggled and are now retreating kind of back to their guns of HMO because HMO is really purpose-built for value-based contracts.

And to what degree do you survey your members, query your members to gauge how explicitly is their Clover plan choice because of the open network PPO?

That's a good question, Dave. I would say I don't have a firm answer for that. I would let the data do the talking. We have roughly 98% of our members are on the PPO plan, and the benefit value that we're offering on the PPO in terms of cost-sharing, supplementals, Part D, is actually fairly consistent with what we offer on HMO, but our members are selecting PPO time and time again.

Got it. On the cohort economics, we already talked about kind of $70 incremental in year two. I think 85 is the number for year three. And then continues to expand thereafter. Have you quantified, like, where does that top out?

We have not quantified that. What I can tell you is every incremental year of tenure, we generally see incremental margin associated with that. And that kind of ties back to the underlying thesis, the underlying impact of Clover Assistant itself, right? What Clover Assistant is designed to do is to identify chronic disease earlier and then enable clinicians to manage that chronic disease. So when you identify that chronic disease earlier and you manage it, you see those savings accrue over a period of years. And those savings kind of extend really deep out into a member's tenure. Yeah.

On that, I mean, you hear AI, I'm coming back to AI and jumping around a little bit, but you hear AI applications of like having AI read imaging and do a better job of diagnosing the disease through a more accurate assessment of an image or something like that. um in the and you talked about ai applications more on kind of the back office and sgna functions i suppose it gets into a little bit of you know technology as a medical device and are we practicing medicine through the technology but is there is there an opportunity for ai over the data that you have to do an even better job of identifying you know comorbid indications earlier

Is there a better, is there an opportunity to be better? And that's where we continue to invest R&D dollars. But one point I want to make very clear is, you know, we are still very much operating in a human in the loop environment and must continue to do that on the clinical side in particular. The Clover Assistant technology is designed to enable the clinician to deliver better care, not replace the clinician's decision-making itself, right? So it's there to provide support. It is the Clover Assistant. It is named the assistant for a reason. And we've seen incredible results when providers engage with it. to the previous question i asked you haven't quantified like how many years you continue you can continue to add incremental gp dollars have you alternatively quantified where you think a mature mlr can be we have not quantified that dave and and we likely won't for some time so you know even even inside of this year we're we're we're tracking toward our first year of of gap net income profitability and 49% of our members are in their first or second year. So we're going to continue to, to look to feed the growth engine through cohort maturation and, you know, where that MLR kind of stabilizes over time remains to be seen.

Moving on to stars and your specific situation. So you, the company prevailed in getting a recalc on the, on the, the stars outcome. I believe, you know, high 90s percent of your members are in the PPO contract that recalc to a four and a half. How do you proceed strategically in terms of, you know, the potential volatility around stars that your peers have seen you've been able to avoid? Do you, you know, was your assumption that you get that money and so you went ahead and put star bonus payment into benefits or is it, you know, dropping through to the bottom line? How should we think about, you know, the star payment coming through?

Yeah, I'm not going to be able to comment too specifically on the litigation itself. But as it relates to 2027, our bids were submitted at four and a half stars on the PPO contract and also four and a half stars on the HMO contract. So our benefits were submitted and designed under a four and a half star construct. as it relates to kind of how we approach benefit design and the growth versus margin standpoint, we did the same thing that we do every year in the bids. We assess our competitive positioning in 2026, what growth that drove, and what we expect the competitors to do in 27. And when we are designing our bids for 27, we expected continued disruption. We made assumptions around what key competitors would do. And based on the first looks, those have largely played out pretty close to what we assumed when we went into the bid. So we feel like we're in a pretty good spot heading into the AEP.

Okay. And from a star strategy standpoint, it seems like there are pros and cons. You have fewer H contracts to worry about, so it's more streamlined. It's less noisy and messy. On the other hand, you lose it in one contract, and it's a big deal, kind of like 52-16 for Humana. How do you all think about the pros and cons to diversifying that across more age contracts?

That's a good question. So as we kind of progress further and look into new markets in the future, that may be something that we entertain, right? Do we break up the diversification and bring new age contracts into new markets? So at this point in time, you know, we feel really comfortable with what we have with our large PPO contract and aren't looking to break that up anytime soon. Okay.

And then maybe as a final question, on the EPS bridge, you mentioned breaking into net income profitability.

What should investors think about as the factors that inflect or deflect the model? uh the the factors that that drive the model for us are largely clover assistant engagement within our membership population so i mentioned in any given year two-thirds of our members are going to receive a ca-powered visit and that's the number one leading indicator for us that tells us how 2027 will play out so so long as we continue to see strong engagement with our technology and our R&D efforts in that technology continue to yield fruit, we feel like the model's got a lot of momentum behind it.

Are all those CA-powered visits in person in the clinic?

There's three primary channels through which we deliver CA visits. One is our in-network physicians that are contracted to use Clover Assistant, and they do that each time that a member is in office. And then the other two are actually our internal employed clinicians through Clover Care Services. So we operate two verticals within Clover Care Services. One is an assessment arm, and the other is our home-based primary care, which is longitudinal in nature. And the assessment arm itself often serves as kind of a warm handoff into the home-based primary care. So So that program is designed to care for the sickest of the sick patients. And a lot of other companies kind of use an algorithmic approach to determine who should be in those programs. We certainly use that approach too, but we use a human in the room to make the final assessment and then ultimately drive that referral into the home-based primary care program.

Okay, so I kind of lied. It's my last series of questions. So on this Clover system, and you kind of segued into this for the assessments, where is Clover's RAF score and how influential is RAF on your economics?

I mean, I think accurate documentation of risk adjustment is critical to the success of any Medicare Advantage plan. I'm not going to comment specifically on what our RAF score is. What I'll say is, you know, we're really confident in our practices around documentation and the quality and rigor of that documentation to ensure it's clinically supported. Great.

I think we're really close. I'll land the plane on time, which is rare for me. Clay, thanks for making the trip down I-65. Really appreciate it.

Thank you, Dave.

And I hope everybody has a good rest of the day. Thanks for joining.