Ready to go? Okay. Good afternoon, everyone. My name is Erin Wright. I'm the Healthcare Services Analyst at Morgan Stanley, and we're happy to have with us today Oscar Health, and with them we have CEO Mark Bertolini with us today, and thank you so much for taking the time and- Happy to be here. Taking the time to talk to us. And just for some important disclosures before we get started, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you do have any questions, please reach out to your Morgan Stanley sales representative. And with that, we'll go ahead and get started, and I just want to start out with a high-level question for you, and talk about kind of what do you believe the market is kind of overlooking at this point in time in terms of the growth opportunity and how kind of Oscar is well-positioned, kind of, going forward to harness that growth? Sure. We see a lot of growth opportunity from two perspectives: one, our ability to expand markets, our ability to grow faster than the market. Both of those support, at a minimum, the better than 20% or better than market growth that we expect to see. In this last year, we've grown by 69% versus an overall growth of 30% in the marketplace, still using disciplined pricing, reducing costs, and enhancing margins. Beyond that, we have this boogeyman called the enhanced subsidies that everybody spends time worrying about, and I know you all get paid to be sleepless, to figure this stuff out and listening to people like me talk about it, but I actually sleep because I actually create multiple models that allow me to get to the numbers I need to get to over three years. We look at this from a number of different perspectives. First of all, the CBO, would anybody in here keep their job if they did financial analysis like the CBO does? Anybody? Bueller. So, the CBO number is the worst possible number. It's meant to scare people. On the other side, you have the Paragon numbers, which talk about these enhanced subsidies going away because people are cheating. The reason is because they have a tax bill offset that they used to get these things passed earlier on, and that sets up the advantages of the battle over tax cuts and enhanced subsidies. But more importantly, the Paragon report yesterday said something very interesting, if you all read it or didn't read it. Paragon report called to the importance of the individual market for the future, number one. Number two, the importance of ICHRA as a product in that, number two, and number three, taking people over 100% of the Federal Poverty Level out of Medicaid and putting it into the ACA. Now, I don't know how many people in here have done the calculation of how many people over 100% of the Federal Poverty Level, but there's a bunch. But nobody's put that into their calculation about what's going to happen to the market growth. So there's a lot of market growth opportunity in this business going forward. First of all, no one party is going to win everything. I doubt that one party will win both houses in Congress, so getting anything done is going to require a compromise, which means some form of enhanced subsidy still has to exist. Now, our plan that we presented at our Investor Day says by 2027, we can be at $2.25 a share, EBITDA plus... or EBIT, I should say, plus, and growing at more than 20% over the three years CAGR. And that's without enhanced subsidies. With subsidies, we see more. So that's my overall view of growth in the marketplace. That was great. And so as we think about... Let's dive into a little bit of utilization since that's been a topic kind of today, too, at the conference. Yep. And we definitely want to ask about, you know, subsidies and everything else, too. But could you just give us an update on the latest cost trend dynamics that you are seeing and maybe break out between, I guess, new and legacy members- Yeah and what you're seeing on that front? Inpatient lower than we expected. Outpatient, we have professional services and pharmacy about what we thought it was going to be, and outpatients higher, and it's largely ER visits, and we believe it's a lot of the new growth coming in from SEP. But also, I believe there's a lot of growth coming in from immigration, and for people who never used healthcare before, excuse me, the ER is a convenient place to go to get healthcare, but it's not. Overall, the numbers are where we expected them to be from a utilization standpoint. Okay. That's helpful. And then I guess, you know, on the last quarterly conference call, you did indicate that enrollment kind of would be coming slower or at a slower pace than in the second quarter. I guess, has this played out according to your expectations thus far? Through August, our growth has slowed. Okay ... in SEP. Yeah. Okay. It's moving as we expected it to at the end of the second quarter. Is 15% still the appropriate kind of market growth expectation for next year? So far, so yes, so far that's our number. Okay. Okay. And then, talking a little bit about, I guess, geographic expansion. Yep. In your Investor Day, you did target kind of expanding into some additional markets or 150+ MSAs. Yeah ... I think is how you characterized it, by 2027. How many of those, or how do we think about the cadence of that, and how many of those in 2025? When we look at markets and market growth, we look at various geographies where we can extend our provider relationships from other areas, where we know that the rating area is reasonable and being disciplined in its pricing. As we do that, every year, we look at all of them, and then we go about building our networks where we need to. In some cases, for example, this year, we pulled back in a few markets in Georgia because we just couldn't get there, but they were not big impacts on total available market. Our overall goal is to double our markets from 150 today to 300 by 2027, and we're on that glide path, and we believe we can achieve that. If you look at how we see getting our revenue to where we expect to, half of it's gonna come from current markets, the other half is gonna come from new markets. Okay. And then, have any additional kind of rates come in since your second quarter commentary? And if so, kind of how would you characterize or, I guess, the underlying market, like, seem stable, rational? Very stable, very rational. We don't see anything that looks untoward. We do have areas where we price differently than some of our competitors because we felt we needed to, but that's typical market behavior. But overall, the markets are very rational, very consistent to disciplined pricing, and we don't see any unusual competitive entrances. Okay. And then, I guess you don't have a complete grasp on sort of the landscape until we get to kind of October timeframe. Yes. But I guess, yeah, any other expectations in terms of what you're seeing from a pricing approach standpoint or- Mm-hmm A change in thoughts around that? I mean, the wonderful thing about this market is that the minimum MLR creates a gating mechanism that doesn't allow people to be predatory in pricing. 'Cause you can buy business, but then the next year you've got to price it up in order to keep your margins, and then you have minimum MLRs that causes you to rebate, so you can't win. So the old underwriting cycles of three years on, three years off, that we had back in the day prior to the ACA, are now gone, and it's created a lot of rational marketplace. I mean, the ACA market, with 21 million lives, has the best trend of any other risk pool in America. And that portends a lot of opportunity to what the Paragon people are saying and what the current administration is saying about the ACA being a good place for a lot of Americans to be, and how do we expand that total available market? And that's gonna take pricing. That's gonna take some regulatory changes at the state level in order for us to be able to grow that TAM for the individual marketplace. Okay. And then let's talk a little bit about ICHRA- Mm-hmm ... and the opportunity there. I guess, could you just, for those newer to it and don't know it as well, provide an overview of this, the program and the opportunity you see from here? Sure. So, ICHRA is two sales. The first sale is to an employer to move to defined contribution, and quite frankly, that's been the whole effort so far in the United States around ICHRA. They get employers to move to defined contribution, and then they move the employees out into the marketplace to buy whatever they want to buy. And so if you were to look at our book today, 3,400 of our members are ICHRA members, not through our design, but because they were pushed into the market to buy an individual policy, and they found our products to be the right one. 3,400 members. We picked up 294 this last enrollment. So if you think about that as a model, our addition to the model, and the pilots we're doing with three specific vendors today, is to help enhance that employer sale, but very quickly focus people on benefit plan selection at the employee level. Because getting them into the right plan creates more opportunity for them, 'cause they can buy more product if they don't have to spend it all on health insurance. And it also helps the employer to stabilize a defined contribution over time, 'cause people are in the right risk pool. If you just push people into the market, people tend to buy the plan they had before, 'cause they don't know anything different. What we need to do is work with the broker community, and this is how we engage brokers and get them interested in ICHRA, to move these employees through benefit plan selection into the right products, where they get more opportunity to buy other products like vision, dental, disability, life insurance. Allows more product offerings for the marketplace, for people that don't get that today in the ACA, and allows the employer to use defined contribution as a tool that saves them money over time. You mentioned the pilot programs. Mm-hmm. Like, how is that going relative to your expectations, or how are those progressing, and then the timeline of the ramp, in terms of how to scale? We're learning a lot because we're in different segments. We have one in the small group segment, under 50. Yep. We have one in the middle market segment, and then we have one in the large employer segment, and interestingly enough, the small group and the large market are the ones that are generating more interest. We're finding in the small group market, employers are tired of paying double-digit rate increases. We need some legislative changes, so we are now in the process with four different red states, creating legislative language with them to change the regulations to enhance the interest of small employers in ICHRA, which is where it needs to happen at the state level. Secondly, in the large side of the market, we're getting a lot of interesting interest from hotels, hospitality, insurance, health systems to move their employees into defined contribution as a way of managing their costs. We haven't sold any of those yet. We've sold some in the small end of the market. We haven't sold any in the large end of the market, but we have a lot of interest, and we're working with employers there. All of these studies are showing us ways to approach the broker network more effectively because, quite frankly, it's just been an open, you know, an open game there, and getting more people interested at the broker level on exclusive relationships, allowing them to sell our product the right way, and then on the other side, the go-to-market strategy as it relates to employers and how we approach them and convince them of the economics of the program over time. Okay. And then in terms of those recent conversations that you've had with employers, I guess, and they're exploring this option, I guess, what are they most excited about in terms of sort of the offering and, I guess, what areas make them more hesitant also from a transition standpoint? Even the largest employers offer a few plans, and a lot of employees are over-insured as a result of trying to create a plan that fits everybody, number one. Number two, and interestingly enough, is there's a lot of talk about insufficiency of network adequacy in the ACA. But if you have more people competing in the markets, which is what we want, it grows the total available market, but it gives everybody a choice to get the network they want. So it doesn't have to be in one plan. So one of the big problems we had at Aetna when we were selling large group is we needed to have a network that fit everybody in the employer's needs. In the ACA, the employee picks the plan they want because they can pick the network they want as a result. So we don't need to have these wide dispersed networks in the ACA, counter to the belief that a lot of people are challenging, there's not enough large networks in the ACA. If you've got everybody in and they all have different network models, somebody's gonna be able to find the network that works for them. And so I think that, for the large employers, is one of the big issues: Is it gonna be affordable? Do we have the right networks available for our employees? And then the third thing is that a lot of large employers have benefit staffs of 30, 40 people that buy pharmacy, and buy dental, and buy vision, and you've got to disenfranchise those folks in some way to get to a product sale to a large employer because it's their living. That's how they make their living, and they want to keep it. Okay. I do wanna switch gears to the subsidies, if we can, in terms of... and you've already given a lot of commentary here, but your long-term guidance doesn't include or assume the extension of enhanced subsidies. But what's your latest thoughts in terms of just what you're seeing from a political standpoint in DC? Yeah. I, when you look at our overall membership, 63% of it is from red states. 76% of the growth in 2024 were from red states, so there's a constituency problem. I think the enhanced subsidies. One of the other things is some of the data we picked up this week, Scott Blackley, our CFO, was doing this work, is that a large number of people who are in zero premium plans don't use healthcare. It's just a safety net. They're worried about if they need it. So if you think about that as a trade in no enhanced subsidies, if they have to trade down from a silver zero premium plan to a bronze zero premium plan for safety, then there isn't that much of a cost of a conversion to have to make. So the real issue is going to be with people who are using healthcare and are getting full subsidy and not having to pay any premium, and how you move them from one plan to another. And again, that's if the subsidies completely go away, which I don't think will happen. So in DC, I think once the dust settles on the election, whatever that may be, I think there's a good story for us on either party, in being able to offer a solution that's gonna help get more Americans into an individual market, which has the best trend of any risk pool in America. Do you think that there's anything else? I mean, obviously, subsidies being the big question area, but is there anything else percolating from a regulatory standpoint on either side that you're paying attention to in particular? So we are paying a lot of attention to a bigger idea, which is there are a number of red states who have either recently or are in the process of building a state-based exchange. And the idea is: Let's separate the financing decision from the investment decision and allow people to pick a product in the individual market if they're in Medicaid, COBRA, ACA, or ICHRA, and let them keep it if their circumstances change by moving the funding mechanism instead of making them pick a new plan. So creating state-based exchanges that are for all individual products in one pool. That's got a lot of interest. We actually have a red state team coming from the commissioner's office to our board meeting this week to sit down with our board and talk about that idea and about ICHRA regulatory changes in their state to support it. I mean, how meaningful would that be for you, I guess, in terms of broader implementation of that? Given our NPS and our product offerings, particularly our culturally competent product offerings we offer, I will compete against anybody else in this business to get market share. We proved it this year. We can do it, and so if we can get a state-based exchange in every market across the country that allows people to keep their product while their funding mechanism changes, we win. Yeah. Our retention's higher, our growth is higher. We have an NPS of 66 when the industry average is 0. And so for us, it's a huge opportunity to take that to a competitive advantage. Okay. SG&A efficiency is another area where we get questions. It's clear that Oscar is embracing AI. I guess, to what extent can that help accelerate kind of expense efficiencies, such as kind of the 2027 target of that 16% SG&A? On the AI. So let me just sort of make one comment about our three-year strategic plan. Our financials doesn't include anything of any significance on ICHRA. It has some membership, and a lot. We don't rely on it, number one. Number two, it has no enhanced subsidies. And number three, it has no additional AI improvements in the business. So last fall, we grew by hundreds of thousands of lives, with 200 less people, fewer phone calls, and higher service standards using large language models. We are continuing to implement that. We now have what I call the continuous hackathon, where we have a four-stage project process, where we have people ideate on what a large language model can do to help their business to spec out. The second bucket is spec out those projects to see how much it'll cost, what it takes to deliver, what the customer experience is, 'cause we want the member experience always to be enhanced, and what the returns are to the company as a result. The third is to test it, to see if our estimates are right on specing, and then fourth is to implement it. We have three large language models in each of those stages continuously as a way of driving our business further. So we believe there's a lot of room in AI. We're using it now on our risk adjusters, on collecting charts, on finding members who have high risk, as a way to get ahead of the curve of collecting the data necessary to submit to CMS for risk adjustment. Okay. So AI is one. The other is we still have room to grow. We've been using AI in our payment integrity business. And where we thought we had a lot of opportunity, we've already passed that. We're making more opportunity. And ultimately, what we'll do is we'll replace our vendors on the back end of the business that help us by using large language models to create their support of our business, which will further reduce administrative costs. Okay, anything else from an efficiency perspective to call out? You know, we have a lot more discipline about our around projects. We only put on the page what we can afford. We track them. We have a management process. We get together for a week every month. As my predecessor at Aetna used to tell me, "Mark, the only price of success is eternal vigilance," and so you've got to constantly manage the business and look at where it's headed, and so we bring the team together, go through the business from top to bottom, make sure we're meeting our commitments. Secondly, we teach people about the longitudinal nature of the business, because prior to my arrival, people didn't connect the business from front to back, which left hundreds of millions of dollars on the table in internally generated capital. Finally, it allows us a way to assess talent, on which we continue to act on. So, the company should be generating kind of excess capital soon. And so how should we think about kind of capital allocation on- So we have a lot- reinvestment in the business, and We have a lot of trapped capital in subsidiaries- Yeah ... because we have to be profitable for two years in each subsidiary in order to dividend it up. So our first state in that area will be Florida. But that doesn't mean we can't use it. So we can use it to grow in those markets, obviously. But secondly, we can do reinsurance contracts across our entities to move capital to other states. Now, what that does is it. You know, for example, if we used Florida excess capital to handle Texas, all of a sudden, we've got the Florida Commissioner looking at both Florida and Texas. So it has risks from a regulatory standpoint. We prefer not to do that, but we have ways of using it to get at it. Okay. I did wanna turn to Plus Oscar, and kind of what are some of the monetization opportunities that you're seeing, I guess, or are you prioritizing kind of beyond Campaign Builder, for instance? Yeah. So Plus Oscar will also be used in ICHRA, as one. Secondly, we are working on a number of very interesting partnerships with large players in the industry, which we have yet to have enough confidence in them moving forward to be able to talk to the street about. But again, what we've done is we pulled all the way back, started right from the beginning again. How do you build an externalized platform? How do you take it to market? Who's gonna be interested? Where are the best places to offer it? And so, while people are impatient to see Plus Oscar's results, we wanna be very deliberate about making sure that whatever we put forward next works. Okay. So more to come, but I'm actually excited about it. I think it's a great opportunity for us. So, any details on timeline or any—no? Mm-mm. Okay. So I'll leave it at that. I do, but I'm not gonna share it. I'm glad there's individual plans there. Yep. Okay, and then, feel free to ask a question, too, from the audience if you want. 2024 guidance, I guess, could you walk us through some of the nuances in terms of the impact of SEP or SEP's impact on- Sure on guidance, given kind of the increase in both MLR and adjusted EBITDA. Sure Which is kind of a nuance there, I guess. Can you talk a little bit about that? The first thing I wanna say is that SEP is more a revenue problem than a medical cost problem. What we have is a mismatch in getting the revenue that we should get for those members, because we don't have the data to apply for that revenue as part of the risk adjustment model. It's a revenue shortfall in the near term. That results in, generally, for the SEP population, a 10% higher MLR, largely driven by the revenue. Some by the medical cost, but largely by the revenue. It gets worse as the year goes on, so it's not a straight 10%. It's 10% on average throughout the year. The later it is, the higher it gets, because we even have less data on those members. So between getting our members into care in products like our diabetes product or our Breathe Easy product or our culturally competent programs like, you know, Hola Oscar, all of that gets people into care in the right places for their illnesses, but it also gives us all the information we need to be able to apply for the risk adjustment, which in 2025 is actually a big tailwind. Now that the business has tailed off, the growth in the SEP has tailed off in the third quarter. We're not expecting as much SEP this year as we could have had. As a matter of fact, we actually looked at accelerating that SEP growth and taking a hit on margin this year to get it next year. But we said, based on operating costs and everything else in managing the business, we didn't wanna take that risk, and so we let it tail off through the broker channel. We're still gonna get growth through the end of the year, but not anything like we saw in the first half of the year. Okay. And then any other headwinds or challenges we should be considering as we're bridging to 2024? No, I'm. Twenty twenty-five. No, I think we've got more opportunity on admin. We got definitely opportunity on growth with the market expansions we have. I'm feeling really good about next year, actually. Okay. You know, 2027 is when we get to $2.25 a share and, you know, 5% margins, but it doesn't hurt to get there early. Doesn't hurt. No. And then in terms of those long-term targets and thinking about, you know, squaring up your long-term targets, and you seem relatively passionate about this, but the CBO and Paragon reports that have come out, I guess, how do you match up between what we've seen from there and your long-term targets? I mean, we're again assuming enhanced subsidies go away. But we've done things to ameliorate the impact by offering other products to our members that allow them to keep zero premium, by stepping down a tier. Okay. All right. And then anything else from that you think is kind of underappreciated that you wanna express to folks today? If there's any other questions in the audience, you can- I mean, a lot of the activity in our stock, I'll just say we have large holders who are, you know, been long investors. They've done real well over the last year, so a number of them have shorted their position to protect it, so you're seeing that in the stock. So a lot of the downward pressure on our stock are large investors who have taken actions to protect their own gains in our shares, and you know, while I used to run a hedge fund, I hate it, but I understand why they're doing it, but that's what we have to do, and so we're working on ways to help these groups move out of the stock when they have huge gains, that they need to correct their portfolio. That's our problem right now in the stock price. And I had one follow-up, I guess, on utility- and I always love to really outperform and hurt the shorts anyway, so... Okay. And, just one follow-up on utilization trends. I mean, anything you can dig in further in terms of, you mentioned inpatient, but anything else to call out from a utilization standpoint, just as- No, ours is largely outpatient. Everything else is performing as expected or better than expected. Okay. Including pharmacy, which is great. Okay. If there's no other questions in the audience, I think we're great. No questions? Thank you so much. All right. I appreciate the time. Thank you.