Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's 2023 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations.

Good morning, everyone. Thank you for joining us for our third quarter 2023 earnings call, where we'll discuss our strong year-to-date results, our updated financial outlook for 2023, and the path to total company adjusted EBITDA profitability in 2024. Mark Bertolini, Oscar's Chief Executive Officer; and Scott Blackley, Oscar's Chief Financial Officer, will host this morning’s call. This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of 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 quarterly report on Form 10-Q for the quarterly period ended June 30, 2023, filed with the SEC and other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended September 30, 2023, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The 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 the third quarter 2023 press release, which is available on the company's Investor Relations website at ir.hioscar.com. With that, I would like to turn the call over to our CEO, Mark Bertolini.

Thank you, Chris. Good morning, everyone. Thanks for joining our call. Today, I will review strategic drivers of Oscar's momentum and preview our plan to deliver sustainable growth and profitability. We had another strong quarter with solid core business performance, increasing our optimism for 2024, total company adjusted EBITDA profitability. We had a strong membership retention across our book, and our leading NPS increased to a record high of 60%. Our insurance business is performing well with all core ratios improving meaningfully year-over-year in 3Q and year-to-date. In the quarter, our medical loss ratio improved 610 basis points year-over-year to 83.8%, driven by our disciplined pricing strategy and execution on our total cost of care initiatives. Insurance company adjusted EBITDA profitability remains solidly on track for this year. We also maintain total company profitability through the first nine months of 2023, with adjusted EBITDA of $66 million. Given our year-to-date outperformance, we are raising our full-year 2023 adjusted EBITDA outlook. Scott will walk us through a more detailed view of our financial metrics later in the call. Now, I will turn to our business highlights. We are one week into open enrollment, marking Oscar Health Insurance's 11th year as a prominent player in the ACA market. Starting in 2024, we will bring new technology enabled, individual and family plans to 165 new counties in 11 states across our broader 18 state footprint. Based on our competitive positioning, we expect to achieve direct premium growth at or above market in 2024. Our growth strategy includes several expansion drivers focused on accessibility, affordability, and member experience. First, we are expanding in states Oscar knows well, including Iowa, Ohio and Georgia. The expansion appropriately balances risk and includes rural counties that build off of our existing provider rate structures and distribution channels. Second,…

Thank you, Mark, and good morning, everyone. Our strong third quarter and year-to-date results demonstrate that we are executing well against our plan. All of our core ratios saw meaningful year-over-year improvement, and we are tracking at or above our profitability targets. We ended the quarter with nearly 1 million members, largely in line with our expectations. Membership increased modestly by 1% in the quarter, driven by higher retention due to lower lapse rates and increased special enrollment additions as compared to the second quarter. We continue to monitor SCP membership trends, including Medicaid re-determined lives. Our data continues to indicate that SCP members are healthier than expected and are not exhibiting anti-selection patterns. Our Direct and Assumed Policy premiums were $1.6 billion in the quarter, a 5% decrease year-over-year, driven by lower membership, partially offset by rate increases. Similar to trends we saw last quarter, our premiums before ceded reinsurance, which includes the impact of our lower risk adjustment transfer grew 6% year-over-year to $1.4 billion. Turning to medical costs. The medical loss ratio significantly improved by 610 basis points year-over-year to 83.8% in the quarter due to our disciplined pricing actions and total cost of care initiatives. Our overall claims trends were in line to slightly favorable relative to our pricing expectations. Within specific service categories, trends remained consistent with last quarter. Compared to our pricing assumptions, in-patient performed in line, outpatient and Rx were slightly above and professional well below. On risk adjustment, we continue to expect a lower risk transfer as a percent of premiums this year due to our member profile shifting closer to the overall ACA population. We received the second Wakely Report for 2023, and we recognized $27 million of risk adjustment benefit in the quarter as the data continued to be favorable…

Thanks, Scott. In summary, we had another great quarter and we are on track to deliver a strong 2023. Oscar is disruptive and growing. Our solid performance year-to-date demonstrates the strength of our strategic direction. Notably, we expect significant insurance company adjusted EBITDA profitability this year, with a considerably lower total company adjusted EBITDA loss compared to 2022. These trends support our optimism for 2024 total company profitability. In Oscar Health Insurance, we continue to capture tailwinds in the ACA, reinforcing our belief that the individual market can be the market for everyone. In +Oscar, we are well-positioned to serve as a technology solution for more of the healthcare ecosystem. Finally, I would like to thank our employees for delivering the Oscar magic to our stakeholders. It is a privilege to serve our nearly 1 million members. We could not do it without our team's commitment to our vision. With that, I would like to turn the call over to our operator for Q&A.

[Operator Instructions]. Your first question comes from the line of Stephen Baxter from Wells Fargo. Your line is open.

Hey, thanks. Good morning. I know you only just entered open enrollment, but was hoping you could update us on your view of what you're expecting for market level premium growth in 2024 that you're going to grow at or above. And then, just as a follow-up to that, I guess as the pricing data has become more completely available for your competitors, how's your view of your competitive positioning evolved? It seems like a couple of the national players will be re-pricing for 2024, but you may have already been contemplating that and you're thinking. Thank you.

Thanks. On the first question, we still -- I'm totally a weekend, so we don't have a whole lot of data. We do track it every day. Trends look on target to having high-teens membership growth and low-20s premium growth. So we would call it too early. But we are pleased so far. On the second point, our rates are all out. Yes, that's true. However, what is included in our rates this year are this notable total cost of care reductions we've created and also our operating efficiencies. So unless you look relatively over year-over-year, multiple years, you won't see the impact of our impact on leverage, operating leverage and on total cost of care. So we're comfortable with our rates.

Very comfortable.

Yes. And then, just in terms of the competitors, I guess, has there been anything surprising in terms of what you've seen as their positioning has become more fully available for 2024?

I think the big carriers, the big players, the carrier level action; they've actually retrenched and pulled back. We think the market overall is stable and rational. We've seen CVS, Aetna increase their footprint to four new states, but they're less price competitive than they were in prior years. Centene remains in the middle of the market and modestly priced. UnitedHealthcare is a new entry in Wisconsin only, but generally improving its competitiveness. And Blue Cross Blue Shield is probably the most aggressive group out of the group so far in the markets we serve.

Your next question comes from the line of Adam Ron from Bank of America. Your line is open.

Hey, thanks for the question, guys. First of all, congrats on the major progress you've made this year. But that kind of goes to the first question I have, which is for the last three years, I think you've increased total company adjusted EBITDA margins around 800 basis points a year, on my math, if you use the adjusted revenue. And so with next year, you're targeting adjusted EBITDA breakeven that would imply on the new guidance, roughly 100 basis points of adjusted EBITDA improvement. And so given the momentum coming out of this year, all the initiatives you've highlighted, all the tailwinds you've highlighted, 20% market growth next year, are there any headwinds we should think about in context of the margin improvement magnitude you've had over the last three years? That should argue for a much lower rate of margin improvement.

Thanks, Adam. We have not updated our guidance for 2024. We're in the midst of finishing our operating plan and presenting it to the Board this week. So we'll have more guidance on that later fourth quarter call. But I would say it's too early to make a year-over-year adjustment to where you think our earnings are going. Scott?

Yes, Adam, just a couple of thoughts. So one, I appreciate you calling out the trajectory in those metrics because we think that really speaks to the company's strategy and plan, and we are leveraging those same trends and the same set of activities that we've used to drive that trend over the last several years to take us forward into 2024. So when we think about the things that we will see in 2024, I think that we're expecting you talked about being breakeven on adjusted EBITDA. We're expecting to be profitable on an adjusted EBITDA basis for the total company. We look forward to giving you some more clarity on the exact amounts in the fourth quarter call.

Thanks. And then, a couple of clarifications. So you talked about risk adjustment related to 2023. And I think one of your major competitors in Florida, according to a CMS report, kind of had like a shortfall on the risk adjustment payments they were supposed to make. And there was a CMS report saying it was like $200 million in Florida alone. And two of your competitors took kind of like reserve accruals, assuming that they wouldn't be collecting on those payments. And so I'm wondering if that flows through to you at all and if you've already made an adjustment for that.

So just a couple of points, Adam. So, in the quarter, we recognized $27 million of risk adjustment benefit related to 2023. And with respect to risk adjustment, we are a payer, so we're not exposed to collection of receivables that others in the market are exposed to. So the issues related to some exiting carriers don't apply to us.

Okay. Great. And then, my last question, as you pointed to $320 million, I think, of excess capital to subsidiaries. Do you think a lot of companies talk about having excess capital, and I'm not sure if the goal is to run some amount of excess capital, but given that amount, do you feel comfortable with if the market grows 20%, you grow 20%, that you can fund all of your statutory capital outlays through just that excess capital alone? Or do you actually need a substantial portion to come from the parent? Thanks.

Yes. Great question. And so, as I said in my talking points, we do think that our excess capital positions us to fund the growth next year based on our estimates. And not only do we have excess capital, but that excess capital is backed by our quota share reinsurance. So we don't fund 100% of the growth, and we will continue to use quota share next year, and we'll evaluate our total footprint. I think that there's a likelihood that we increase that modestly in certain states as opposed to taking it down. So I think that at this point, we feel very comfortable that we have the right level of excess capital to support growth in most of the scenarios that we see.

[Operator Instructions]. Your next question comes from the line of Josh Raskin from Nephron Research. Your line is open.

Hi, thanks. Two questions for me. The first one just on the new +Oscar arrangement with Stanford. Is that -- is there any risk involved or just fees at risk or sort of any risk on the revenue side? And then, more importantly, can you speak to your strategy in the small group market? I'm just curious your views on expansion of the partnership with Cigna, how important the ICRA opportunity is longer-term and kind of what you're trying to do with the small group market.

Hi, Josh. On the Stanford Health agreement, there is no risk. All of our campaign builder relationships are no risk at this point. Don't expect to have any in the future. This is really a program that reaches out and engages patients for medical groups and others. And so we see this being a high margin -- high -- a high margin product and a good growth product for us, just the first of many that will roll out through +Oscar. On the small group market, we are in the midst of putting together a strategy to approach ICRA, not only in the small group market, but the middle market. We continue to value our relationship with Cigna and that will continue to move forward. And we see the small group market evolving as well as the middle market, and we think that it will be more individualized and digitized and so we look forward to driving that change and looking for ultimately partners in distribution to be able to make that work across the country.

I'll look for the update. Thank you.

Let me just add one thing on C+O. So in the same way that 2023 for our IFP business, we really took a measured approach at trying to drive strong performance. I think in C+O growth rates there have been slower than what we've seen in the prior year. And that's primarily a focus on making sure that we're disciplined in the way we execute against the marketplace. So continue to be excited about the potential for that business. But I think we've really just taken a measured approach at making sure we can create a business and we're happy with the outcomes.

And there are no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect.