Michael Ha, the managed care and healthcare facilities analyst at Baird. Our next session is with Oscar Health, a technology-enabled managed care company with plan offerings in the individual exchange marketplace, and I am very, very pleased to have with us today Chief Financial Officer, Scott Blackley. So thank you for being here. With that said, would you like to make any intro remarks or jump straight into Q&A? You know, I think that I would just probably, before we get into the details, characterize Oscar's performance year to date. Our core business is doing incredibly well. We've seen utilization that is kind of right along what we would expect, you know, at expectation or favorable. We've had terrific SEP growth. We updated our guidance in the second quarter. It's pretty rare to be able to outperform on SEP and increase your guidance, which is showing kind of the strength of the core book, which is, you know, kind of offsetting some of the headwinds from SEP, and in general, I think that the fact that we're going to be a larger company this year than what we expected is certainly going to be a great jumping-off point for us as we think about the potential for 2025. That's great. So I think I'm going to, in terms of question flow, definitely want to talk about the SEP and how it's going to drive that EBITDA bridge into next year, and then maybe talk more about your cost structure and everything else. So starting with SEP, so you're expecting a decelerated rate of SEP lives into the end of the year. I think you said it peaked in May, decelerated in June and July. Curious how—what have you seen since July? Are there states that are still yet to complete redeterminations in your book? And how should we sort of think of the rate of deceleration into December? Because if I looked at it just based on your guide, the implied rate of deceleration is quite steep into the end of the year. So yeah, I know, I recognize you probably don't want to talk specific specifics, but would be great to get the- Yeah, look, for the states that we're at, we've got a couple of very small states that haven't finished redetermination, but the vast bulk of, you know, the membership in, or the potential membership in states where we are, Medicaid redetermination has completed. There's probably going to be a tail of the people who are being moved out of Medicaid and coming into the ACA. That tail is what we're seeing kind of in the back half of the year. So growth has, you know, it peaked for us in terms of SEP, new additions. It's been decelerating. We saw that again, kind of through August, which is important because if we had more growth than we had expected in the back half of the year, that could have some MLR headwinds. We've seen everything moving along pretty much in accordance with our expectations. The one thing I would just say on SEP, all the growth we've seen isn't all due to Medicaid redetermination. There's actually a fairly, you know, significant amount of SEP growth this year that I think is coming from factors unassociated with Medicaid redetermination, whether that's just people coming through because of the enhanced subsidies, you know, continuing prosperous and large gig economy, other factors. And so a lot of the things that we're seeing after we kind of strip out what we can measure as being associated with Medicaid redetermination, we think those factors will continue into next year, and it gives us confidence about the growth rate that you know, we were thinking about for 2025. Great, great. Definitely want to dive into that, but maybe a couple more on SEP, so I think you mentioned your SEP lives this year are about three to four years younger than the overall population. They tend to be healthier, so when we think about the sort of an MLR implied in these lives, again, based on your guide, the implied would be about 84.5%, so much lower than, I think, typical SEP lives. I think you've mentioned, like, 90% MLR, so would it be fair to characterize these SEP lives are actually better profitability, and then rolling that into 2025, I think that's when you get the real benefit. 2025, should we expect that sort of implied 84.5% MLR on these lives to then potentially improve to match the rest of your book, so closer to the lower 80s%? Is that the way to think about it? Boy, I wish those SEP lives had an eighty-four MLR. I think the complication in doing that math is we did have some prior year development. So if you include that in your calculation, you know, kind of back out the prior year development favorability we'd have. I think that the implied MLR on our SEP lives is somewhere above, you know, right above ninety, which compares to the core book, which I would say is kind of in, you know, around the low eighties. So the way I would think about SEP, historically and this year, what we're seeing with SEP is that SEP members come onto our book and have an MLR that's about ten points higher than our OE population. And it's higher not because of adverse utilization patterns, it's higher because we have less time to get the risk scores for that member. The member has less time to get connected with the you know, healthcare system in general. They're not able to you know, connect to PCPs, they don't have all their scripts moved on to their health plan. So we have less information to generate a risk score, and as a result, they come with a higher risk transfer that generates a higher MLR. Those factors don't carry forward into the next year, right? As we've been able to have those... If we're able to retain those members, which historically, we've had a very strong track record of retaining, you know, a high portion of those members that come in through SEP, we retain them in, you know, through OE into the following year. In the next year, you'll see MLRs that are similar to the rest of our open enrollment members. So it is clearly a tailwind for us to be able to have this SEP growth start into open enrollment with a larger membership base, because we will be able to retain, you know, a high portion of those into next year, and we would expect that they're going to have MLRs that will be, you know, consistent with the rest of our population, which should result in us having, you know, pretty strong economic performance for 2025. Great, great. And I think another thing is outsized growth, excess membership from SEP. I mean, everything you achieved this year, would love to get your thoughts on just how much faster does this maybe accelerate your ability to achieve 2027 earnings targets? I know Mark has mentioned that in recent conferences. Because I guess based on my quick math, the excess growth this year is driving, let's say, like north of $1 billion annualized run rate revenue, 5% margins on that, right? That would be $50 million. I mean, I guess that is a small incremental step, but are there other nuances to this equation, like increased, you know, scale economies, improved pricing abilities, that makes this more attractive in getting this growth sooner? So our long-term guidance assumes that the company is going to have revenue growth at about, you know, a 20% CAGR through 2027, right? Which gets us to a 5% EBIT margin by 2027. The plan that we had, that we provided at our investor day, midsummer, assumed that enhanced subsidies went away. It also was based on our original guidance from 2024. So anything that increases membership, I think is a positive to the getting to those long-term targets. If we saw enhanced subsidies in some form or fashion continued, you know, I think that the message I would leave is, if Oscar continues to grow at a faster rate than what we planned, our 20% CAGR, that is, you know, likely to come with two consequences. One is, I think it allows us to get to our 5% target faster, and two, I think that it is, it positions us to have even more bargaining power, whether it's with network partners, with other vendors, you know, so in this business of scale, where we are coming from a point of being very subscale for most of our history to, I think, getting to the point now where we're at the scale where we can be profitable and competitive. As we get larger, I think all the benefits that come with scale, you know, we think we're able to maximize all of them. Great. Great, and as I look forward to the next year, couple years of Oscar growth, I think the Street right now is modeling 20% revenue growth in 2025, 16% in 2026. But my sense, I think the Street's off on their cadence. I mean, I know it's too early to comment direction, 2025 guidance, but high level directionally, given that next year is another year of enhanced subsidies, and 2026 and 2027, maybe a year where you get that potentially cumulative market, shrinkage of about, I think you said 18% roughly. Would it be reasonable to assume, in order to achieve 20% CAGR from now through 2027, 2025 has to be a year of higher than 20% growth, then 2026 and 2027 then sort of tails off to be lower, right, to average out? Yeah. So I will not change our long-term plan, and what we've given as, you know, kind of our long-term targets. I would say, you know, I am incredibly excited about the opportunity for our company for 2025. We think that the market is going to grow somewhere in the mid-teens. We think we can grow faster than the market. So we've, you know, we really feel like we've got a great opportunity moving into next year with the growth I just talked about, you know, kind of SEP growth. We'll have a better starting point than maybe we had previously expected, so that's a nice tailwind. So I look at all those things and think that we're set up for a really good 2025. Growth rates over time, you know, while our 20% CAGR in a scenario where enhanced subsidies go away, in the back half of those years, even though the markets are shrinking, we do think that we can continue to grow the company. We think that's going to be growth from, you know, market expansion, from growing in footprint, you know, potentially entering into new markets. So, you know, I don't think that just because the market is shrinking, we don't think that, you know, that's gonna curtail our ability to grow. I do like our chances for some outsized growth in 2025. Got it. Thank you. And, in terms of your long-term 2027 targets, I'm curious what, in terms of the decremental margins on, you know, if enhanced subsidies expire, and you're going to expect some market shrinkage, on those lives, what decremental margins are assumed in your targets? And I know you mentioned in your Investor Day, a thirty/seventy fixed variable split. Is that the, sort of the right, reasonable assumption to consider? Yeah. So the reason we set the long-term guidance the way we did with our long-term targets, excluding enhanced subsidies, is, you know, every one of us can have a different point of view about what may happen in the political process and what bargain they're going to come, you know, come out with. You know, it seems pretty reasonable to me at this point, you know, listening to last night's debate, I thought it was pretty telling that the conversation wasn't about eliminating things, it's about how are we going to, you know, improve the current situation? You know, so I'm optimistic that even though our long-term plan assumes no enhanced subsidies, it certainly feels like that the political process is going to end up with something where it's an extension of enhanced subsidies in some form or fashion, or there may be some other trade-offs that just bring more lives into the ACA. So, you know, certainly some upside potential to the long-term plan. Our long-term plan assumed, you know, a 5% margin target by 2027. If there was in, you know, some level of enhanced subsidies that were extended past 2026, I think that gives us an opportunity to both reach that 5% margin target faster, and potentially get to an even higher margin than the 5% that we have, you know, as our long-term target. Again, I'm not trying to change those long-term targets at this point, but if we did see, you know, the legislative process work out to where we did have some level of subsidies beyond what's, you know, currently contemplated. If enhanced subsidies expire, that is all upside to the base plan, and I think that we would lean into that as much as we could. Got it. Got it. So maybe pushing aside the topic of enhanced subsidies or the, you know, expiration of them, since the genesis of exchange marketplace, I think we've seen underwriting cycle after cycle, and right now, the market's looking very stable, very healthy, no irrational pricing. But just given the fact that it's been, we've had this dynamic historically, and it's, I think it's still arguably the best entry point for new managed care plans to enter. I guess going forward, what gives you ultimate confidence that the exchange marketplace won't see those similar underwriting cycles in the future? Or is the view actually that, okay, it's probably still gonna happen in the future, it's unavoidable, but rather our strategy is also to create new TAMs, right, with ICHRA, with potentially MA co-branded plans, and then the exchange marketplace, you're gonna continue to price, protect margin, and overall consider? You know, I think that the most critical thing we can do is to make sure that we stick to a disciplined pricing strategy, right? And we price with the objective of being able to both grow and increase margin. It is one of Mark's, like, absolutely, I will not negotiate with you on this topic, which is our pricing has to achieve both our ability to grow the business and increase margin, right? I don't think we're gonna step away from that. When I look at the ACA market, it is, you know, at 21.5, 21, 22 billion lives. It's reached a mass where, you know, the risk pool is very distributed. The players in this market space are all, you know, pretty large, sophisticated. Of course, there's some regional health plans that are involved, but I look at pricing over the last, you know, couple of years, what we see with pricing this year, rational pricing, pricing that on average looks to be, you know, above trend, and those are not the kinds of behaviors or patterns that I think lend themselves to, you know, some contraction or problems with margin in that marketplace. So, you know, feel really good about the stability and the potential for this market to continue to grow, to have stable MLRs. The risk adjustment process, I think, which was a little bit bumpy along the way, you know, has reached a fairly good cadence in terms of, I think all of us in the industry know how to make it, you know, how it works and what has to happen there. So, you know, I feel like all the bone structure that you would need to have a stable and growing ACA market has certainly been put into place. So I really don't have... You know, I'm not planning for a big, you know, problem in this marketplace. Now, separately, I do think that we have opportunities to continue to expand our opportunities in the individual marketplace, and I mean that to be, you know, leveraging the ACA with ICHRA products. You know, we continue to believe that we have a lot of opportunities with ICHRA. And then, you know, other things that we can do within the ACA beyond the products that we have right now. We certainly have some new products that we would expect to, you know, bring to the market, which we think will allow us to continue to grow in the ACA market. Great. In terms of quota share, I'm curious, what quota share assumption is currently baked into your 2027 earnings targets? Because, you know, based on my model, assuming your 20% revenue CAGR, assuming margins continue to perform in line, and assuming your enterprise capital grows, I think you mentioned 37% CAGR, you're gonna be north of $3 billion enterprise capital. Even if you had 0% quota share, you'll have well more than enough cash to fund your statutory capital and then some. So is this an assumption in your 2027? If you reduced it, could it be upside potential? Yeah. How should we think of that? For those of you who don't study our financials closely, the quota share for us is a way for us to take some of the risk in the book and pass it on to a reinsurance partner. Right now, we have about 55% of our premiums are subject to a quota share arrangement. That means that they fund the capital for that portion of the premiums. That does come at a cost, right? Those costs are part of our admin expenses. There is an opportunity to rationalize that as we generate excess capital. We'll look at, you know, does that continue to make sense to leverage that much quota share? So, you know, we really are fortunate to have a number of quota share partners. We've appreciated the business that we've done with them. I would expect that we'll have some form of quota share through 2027. I do think that there's opportunities to rationalize that, bring, you know, some of our excess capital to bear in terms of capitalizing what quota share does with our own capital. The other thing I would say is that your math is right. You know, by 2027, this year, we believe we're cash flow positive this year. We would expect as we're getting to that 5%, 2027 target, we're gonna be generating a significant amount of free cash flow. That will allow us to, you know, certainly do things on quota share, but I would also anticipate that we would be able to, you know, look at other opportunities to optimize our capital stack. And the first thing that we want to do is to generate enough capital to be able to fund, you know, above-market growth with organically generated capital. So, you know, that's gonna be, I think, a real opportunity to just create a flywheel. As these businesses become more profitable, we're gonna generate more than sufficient capital to fund our growth. That's gonna create the opportunity to, you know, really lean into the highest ROI part of our business and still have extra capital to do other things. Got it. So next year, you expect the industry exchange marketplace to grow 15%. You're optimistic you can grow above that level. And I know looking back over the past few years, you know, each year you continue to grow 50, 100% and achieve your MLR goals. And, I mean, I was neutral-rated at one point until I couldn't be anymore because you kept hitting your goals. With your pricing strategy and heading into next year, is there any growth level beyond, let's say, 15% or north of that, that might compromise your earnings targets? What's your confidence level, or given your pricing and your expected profitability in Year One lives. Is it basically, even if you grow 20%, 30%, 40%, you're gonna hit your targets? Well, so again, we really focus on making sure that we take a disciplined pricing approach. So our pricing is intended to be supportive, that we can be both profitable and grow, and that one doesn't come at the consequence of the other. So I really believe that for us, because so much of our opportunity to create additional margin is through scale, that if we're able to grow at faster than the market, and you know, as you mentioned, we have had the opportunity to grow, not at 15%-20%, but at much higher levels than that. And so the you know, the things that we've seen in the past is, even as we've grown well above market, we've been able to actually improve MLR performance. I think that is reflective of our disciplined pricing strategy. So, you know, from my seat, if we could grow 40% next year, I would be thrilled, right? That would be. I'm not suggesting that's what my number and my target is, but I'm using that as an example of whether it's 20%, 40%, 100%, any of those numbers I would expect to be the bigger we are, the better the margin performance and the better our financial performance. So, you know, the great thing about Oscar is that we have, you know, with our tech, we've really made the company capable of scaling up pretty meaningfully without having to add a bunch of additional fixed costs. So, you know, we get a bunch of fixed cost leverage as we grow, and I am again, excited about our opportunity to grow in 2025. Probably not gonna be 100%, but you know, I do think that we've got a great shot at growing a lot faster than the market next year. Great. Maybe shifting gears a little bit to ICHRA, and, it's a long question, but bear with me. Is it fair to assume Oscar could, in the future, at least achieve the same national market share you have on your traditional HIX as you can in ICHRA over the coming years? Because to me, it feels like a completely white space opportunity, so why not? It sounds like you have the opportunity to maybe achieve even more market share at this point, or are there any nuanced, sort of competitive market dynamics that could prevent you from doing so? And the main reason is, and I've done some math, I've looked at the HHS estimates on ICHRA by 2029 being 11 million. If I back into 2027 market assumption and, you know, apply your market share, use similar economics, I think the opportunity for upside and just getting to that, like, 5%-10% market share could drive significant earnings upside, so. Well, we're super bullish on ICHRA. A lot of the work we're doing now, which is working with platform partners, you know, spending time with... Yesterday, I was meeting with Stretch Dollar, one of our platform partners, around how do we work together with them to build out this market? When we talk to, you know, potential employers who want to come into ICHRA, they're excited about it. I think this is gonna be a market where it may take us a little bit of time to really start to see significant growth in that, but it's pretty evident that the structural reasons why ICHRA should win are going to, you know, prevail over time. And so, you know, I would just say this: Our 2027 plan isn't reliant on ICHRA growth to achieve, you know, the targets. We do have. By 2027, it's starting to become, you know, not an insignificant part of revenue, but not a massive contributor to the bottom line. I'd expect by 2027, though, it's gonna be the fastest growing part of our business. I think the fact that we're going to be a constant force in trying to shape the market and to be a leader in ICHRA suggests to me that we should have, you know, a significant share in that marketplace. So I think while it's early days in building out that market, it may be, you know, take us a while to get there. I really do think there's reasons for optimism to believe that this is going to be a multimillion, you know, tens of millions of members over time, with Oscar having a pretty significant share of those, that business. Got it. So switching over to sort of SG&A, your cost structure. In the second quarter, you had 260 basis points of improvement year to year, while still growing basically 50%, which I think it's pretty unheard of to do that level of growth and get that level of, you know, cost leverage, operating leverage, and I believe people just aren't focusing on that enough. So I was wondering if you could talk more about your cost structure. What do you attribute as sort of the secret sauce in achieving, you know, that level of cost leverage? And ultimately, how far can SG&A go? I know you have a 16% target for 2027, but is there opportunity to go to low teens? And as a 10-part question, are there any low-hanging, like, fruit opportunities? Yeah. On admin, honestly, incredibly proud of the progress we've made there. I think it really speaks to one of the metrics where you can see the differentiated of being a company that was, you know, kind of built around technology, and I anticipate that that's gonna continue to allow us to drive better and better administrative expense ratio. The. So there's a part of our admin load, which is broker fees, exchange fees, taxes, right? Those kind of are what they are. On broker fees, we try not to be the highest in the market. We don't chase, you know, the top end of what some may be paying for broker fees. We try to be, you know, competitive, but not at the top end. They tend to be relatively stable in terms of, you know, PMPMs. So broker fees, taxes, exchange fees, I'd expect that we're not gonna be able to do a lot in terms of changing those as a percentage of the ratio. They also happen to be the highest portion of our variable costs. The rest of the costs, you know, in the variable side, we continue to drive those down. I think that while our long-term plan didn't assume anything heroic with AI, I look at the use cases that we have, they're really interesting. Like, we have a lot of opportunity to continue to make it much more efficient for the company to leverage our technology to do everything that we need to do. And so, you know, when I look at 16% as our long-term target, that is not the end destination. I think we, you know, we believe that we will have continued opportunity to drive that even lower from that. You know, some people have asked me, "Geez, your SG&A, dollar-wise, looks to be going up in the second half. What's going on with that?" That's really a variable cost thing, where, you know, a lot of the costs that we have are per member, per month, and so we've got larger average membership in the back half that's driving higher dollars. But as you've mentioned, our efficiency ratio is improving, you know, in the full year, and I think that is... We would think that that's gonna continue for a while to come. Great, great, and on the topic of sort of broker channels, I'm just curious, anything notable in terms of expected changes in distribution that you're seeing in the market for 2025 and anything that- You know, I think that the ACA has really become a broker-driven marketplace, and as much as I would like more of the membership to go through, you know, HealthCare.gov, it just has proven to be. It's a complicated product. People need, you know, oftentimes need help. They turn to brokers. I think the brokers have actually been pretty instrumental in bringing a lot of lives into this marketplace, so we've certainly had favorability from having a large, complicated broker, you know, structure in the ACA marketplace. I don't think it's gonna go away anytime soon, and we have great relationships with those. We provide great tools to the brokers. We think that that's a reason why we've had great success with them selling Oscar product. You know, it is a big cost for us, but we feel like we get a lot of benefit out of the relationships. Terrific. That's time. Thank you, Scott. Thank you, appreciate it.