Good afternoon. My name is Christian and I will be your conference operator for today’s call. At this time, I would like to welcome everyone to Oscar Health 2022 First Quarter Conference Call. At this time all participants are on listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I would now like to turn it over to Cornelia Miller, Vice President of Corporate Development and Investor Relations, to begin the conference.

Thank you, Christian, and good afternoon everyone. Thank you for joining us for our first quarter 2022 earnings call, where we’ll share the results about the trajectories of the company and results in the first quarter. Mario Schlosser, Oscar’s Co-Founder and Chief Executive Officer, and Scott Blackley, Oscar’s Chief Financial Officer, will host this afternoon’s call, which can also be accessed through our Investor Relations website. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website. 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. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. This call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our fourth quarter press release.

Good afternoon everybody and thank you for joining us. Thanks, Cornelia. Great intro. As usual, we will provide you today with a look into our financial results for the first quarter of 2022. Before we get into that, I want to remind you of why we think Oscar is well positioned in the evolving U.S. healthcare system. The past few years have seen the U.S. healthcare system shift more and more towards consumerization, increased risk sharing, and technology adoption. We believe we have built a business that is well positioned to capitalize on this shift. And we are confident in our ability to deliver on a vision of making healthcare more accessible and affordable for all. Oscar now serves roughly 1.1 million members across this platform, including approximately one in every 13 ACA lives, or roughly 7.5% of the overall markets. In the regions where we offer coverage, our market share is roughly 16% this year. First quarter membership and premiums are up approximately 100% year-over-year, driven primarily by growth and retention in the individual and small group markets. That’s the kind of growth that we view as a clear indicator that consumers see the value in the different product offerings we have. Importantly, at the same time, we are expecting meaningful year-over-year improvements in the medical loss ratio into the range of 84% to 86% for the year. We saw over 80% of our individual members stay with Oscar, and 85% of our C+O members who were up for renewal after their full year contract period stayed with us. Digitally engaged members are six percentage points more likely to renew, and our net promoter score continues to climb, ending the first quarter at an all-time high of 43. As we see inflation and the cost of goods rising, our ability to direct our members to low-cost, high-quality options is even more critical, particularly given that our book has been shifting towards a higher proportion of silver members, a cohort with higher mobility, where engagement is even more important and impactful. We see in the first quarter that our silver members are 15 percentage points more likely to use our care router to find care compared to other Oscar members. For our small group products, we continue to see strong growth as well. We ended the quarter with more than 36,000 C+O members across eight states. Membership nearly doubled between the fourth quarter of 2021 and the first quarter of 2022, with monthly membership increases across all of our markets. This growth is driven largely by our strong product-market fit, including the expansion of a dual network strategy and the ability for our chassis to meet the needs of small employers. As I mentioned earlier, we are seeing high retention rates with our C+O members and distributors, in part due to high levels of digital engagement. Looking ahead at overall market dynamics, we think the individual market is becoming a more dominant force in U.S. healthcare. Regulatory changes, including Medicaid redeterminations and the elimination of a family glitch, have the potential to push the ACA market up to 20 million members next year. Medicare Advantage, for comparison, has approximately 29.6 million members now. That means it took the MA market nearly 20 years to get north of 20 million compared to just 10 years for the ACA market to reach a similar stage of maturity. As a company, we know how to thrive in such consumer-driven, cost-competitive markets where affordability and experience matter. We think that’s a quiet revolution in U.S. healthcare that will continue to change the game. For the rest of this year, we continue to focus on execution. Our strategic priorities for our insurance business are as follows: first, we are targeting profitability for Oscar insurance in 2023. Second, we expect to improve our margins by harnessing the power of our technology to drive down the total cost of care in a membership. Finally, we aim to drive long-term above-market growth potential. To give you a few examples for each of these: starting with profitability, as you know, we are emphasizing profitability over growth this year. One lever is pricing, and our planned year '23 pricing strategy contemplates market dynamics and our drive for market expansion. Additionally, the team is focused on driving greater variable cost efficiency using our technology to reduce manual processes, as well as leveraging our scale to obtain lower unit costs. For example, today, we automate about 5% of our responses to inbound messages from our members, and we believe we have meaningful opportunities to increase this automation to at least 20% without impacting member experience. Looking at growth and retention, we are focused on balancing this with profitability. For example, we are expanding our virtual primary care offering to new states and markets, given its influence on the total cost of care. Our ability to achieve above-market growth potential, even when we were not the lowest-priced plan in the last open enrollment periods, is the result of multiple factors coming together in the leveraging of the most differentiated parts of the Oscar product offering. We’ve had tremendous growth and we’ve seen good MLR performance trends this year, and those give us confidence in our full opportunity to focus on markets where we can win. Accordingly, we are modifying our portfolio mix by markets and products. This quarter, we decided to withdraw from the Arkansas and Colorado marketplaces for the planned year 2023. These are relatively small markets for us, and we intend to make these exits as seamless as possible while continuing to provide service to the system membership in the states throughout the year.

Thank you, Mario, and good evening, everyone. Tonight, I’m going to walk through our first quarter 2022 results. But before I jump into the numbers, I’ll call out a few key takeaways. We continue to see meaningful top-line momentum and increased scale. Our first quarter results were largely in line with our expectations, and we’re focused on execution in 2022 as a stepping stone to insurance company profitability in 2023. With over a million members, our scale enables us to optimize our 2023 pricing for margin first and growth second. Turning to the results, we ended the first quarter with approximately 1.1 million members, an increase of 98% year-over-year driven by growth predominantly in our individual and C+O books. Membership growth modestly exceeded our expectations, driven by a higher effectuation rate and a retention rate of 80%. First quarter direct and assumed policy premiums increased 104% year-over-year to $1.7 billion, driven by higher membership and business mix shifts towards higher premium silver plans. Specifically, silver members now represent 65% of our overall mix, up from 50% last year. Premiums earned increased 159% year-over-year to $955 million. Note that we entered into additional reinsurance agreements as of the beginning of 2022, increasing our total quota share coverage rate from 34% in 2021 to 46% in the first quarter of 2022. Our first quarter ‘22 insurance company administrative expense ratio was 19.8%, which was roughly flat year-over-year as operating leverage and variable efficiencies were offset by higher distribution costs. Scale benefits drove 220 basis points of improvement in our first quarter adjusted administrative expense ratio, which stood at 23.8% for the quarter. We expect the admin ratios will remain flat throughout the year with a modest uptick in the fourth quarter. Turning to medical costs, our medical loss ratio was 77.4% in the quarter, an increase of 300 basis points year-over-year, primarily driven by the mix shift towards more silver members, resulting in lower deductibles and consistent MLR seasonality. Additionally, we expect our overall seasonality to be less dramatic throughout the year than historically. Our first quarter ‘22 adjusted EBITDA loss of $37 million was $9 million higher year-over-year, but as a percentage of premiums, it improved to just 2.8%, down from 4.6% last year. Rolling up, our first quarter results were in line with our expectations, and we’re making no changes to our 2022 outlook.

Thank you, Scott. Always great. These are complex times and it is a complex market out there. Yet for us, on the back of our record-breaking growth, we’re trying to keep things very simple: serve members well, serve clients well, and continue to move towards ensuring profitability in 2023. We are doing that against the backdrop of a healthcare system that is moving further in the direction of being more individualized and digital, focusing on value. We overly believe that the move away from point solutions in healthcare is solidifying our strategy and positioning. We chose all those years ago to become an insurance company and build our own technology stack. That sets us apart in the markets. We’re quite far along in the journey now, and we’re leveraging our tech to serve members and clients. Doing so profitably is a milestone we cannot wait to achieve. I want to thank all of the Oscar team members; we’re a company powered by people, and their tireless work to serve members makes Oscar a special place for me and for them.

Your first question is from Ricky Goldwasser from Morgan Stanley. Your line is open.

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

Yes. So regarding the MLR, the first comment I would make is about our SEP membership. We saw very high levels of retention among that group of SEP members that we added last year. In terms of MLR, those members performed as we expected, closely aligned to what we have seen with the rest of the membership. This gives us confidence about the year’s trajectory with those members.

And then as we think about those new members that you onboarded this year, do you have a sense of the MLR that’s associated with them, given the mix is now more skewed towards the new members?

Yes, again, I would say that the MLR for the SEP members we added is anticipated to be very similar to the members we previously had in our book.

Okay, great, thank you. Mario, just have to ask about Plus Oscar. Recently, you’ve taken a more active role in leading the Plus Oscar efforts. Can you discuss what you're most focused on and what you’re seeing in terms of the pipeline?

Yes. It’s fantastic for me to be out on the road, having dinners and conversations, hearing what potential clients want. We’re seeing a clear recognition coming out of the pandemic shift towards value and thinking about how to engage closely with members. There’s a lot of interest in our core admin systems, member experience, and our campaign builder. We’ve already started selling our first SaaS module, which we plan to continue to expand. The trend is alive, and we are hitting a nerve in terms of what potential clients are looking for.

Thank you.

Hi, thanks. I just wanted to ask about ACA expanded subsidies. What is your exposure to membership with these expanded subsidies? How should we think about the relative risk profile or probability of this membership versus your overall book?

Yes. We’re now at record ACA enrollments, at around 14.5 million, historically high, which shows many signs that the ACA market is working well. Hence, it would take a lot of political irrationality to undo these subsidies. Currently, we estimate a potential 10% to 20% decrease in membership if those subsidies were to go away, but we are focused on continuing to provide a strong product mix.

Okay, great. Thank you.

With respect to the insurer co-admin ratio, in the quarter, we had more membership that came into our book via brokers, driving higher distribution expenses. On the other hand, we saw variable efficiencies and operating leverage from scale. These factors offset each other, resulting in flat year-over-year results.

Hi, thanks. Just a quick clarification on the change in seated premiums. Did I hear that it’s 46% of premiums this year being seated? And can you confirm that this accounting has no impact on EBITDA or cash flow?

Yes, that’s correct. The overall reinsurance coverage rate is 46%, with seated premiums around 28%. The accounting difference has no impact on adjusted EBITDA or cash flow.

Great, thanks for the question. Mario, you mentioned the decision to exit two markets, Arkansas and Colorado. Can you talk about what went into that decision?

These were relatively small markets for us. While they don’t have a significant impact on our P&L, exiting reduces compliance work and allows us to focus on markets with a better likelihood of success.

Overall, we did not get the scale we needed in these markets, and there were recent regulatory changes that informed our decision to exit now rather than lean into these changes.

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