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    Oscar Health Inc (OSCR)

    Q2 2024 Earnings Summary

    Reported on Feb 21, 2025 (Before Market Open)
    Pre-Earnings Price$17.23Last close (Aug 6, 2024)
    Post-Earnings Price$16.83Open (Aug 7, 2024)
    Price Change
    $-0.40(-2.32%)

    What went well

    • Strong SEP membership growth is expected to be a tailwind for 2025, as Oscar retains a significant portion of these members whose MLR performance in the following year has been similar to open enrollment members. This growth contributes to higher revenue guidance and an improved outlook.
    • Oscar anticipates significant excess capital generation due to its positive earnings trajectory, which will be used to fund organic growth and reduce reliance on quota share agreements over time, enhancing financial efficiency.
    • The company is bullish on ICRA opportunities, with growing interest and partnerships, expecting positive results in 2025 as they refine their go-to-market strategies and expand distribution.

    What went wrong

    • Medical Loss Ratio (MLR) headwinds due to Special Enrollment Period (SEP) membership growth: The company is experiencing higher MLR implications from SEP members due to partial-year risk adjustment dynamics and increased utilization. SEP members are, on average, 3 to 4 years younger but exhibit higher usage of the emergency room, especially those transitioning from Medicaid. This could impact profitability in the short term.
    • Uncertainty around future growth plans and execution risks: The company has not provided clear details on geographic expansion for 2025, stating they "won't go into the geographies and the expansion plans" at this point. Additionally, there is limited transparency on the expected ramp-up of the Individual Coverage Health Reimbursement Arrangement (ICRA) business, with management preferring to "focus on the quarter" and offering no updates to the ICRA outlook. This lack of clarity could indicate challenges in achieving growth targets. , ,
    • Reliance on non-recurring favorable prior period developments to improve MLR: The improved MLR in the second quarter was partly due to a $36 million favorable prior period development from claims runout, which may not recur in future periods. This reliance on non-operational factors raises concerns about the sustainability of margin improvements and underlying medical cost trends.

    Q&A Summary

    1. SEP Membership Impact
      Q: How does SEP growth affect guidance?
      A: The improved EBITDA guidance is primarily impacted by SEP membership growth. While excited about the strong SEP growth—which will be a tailwind in 2025 as they expect to retain a significant portion of members—it comes with an MLR headwind due to partial-year risk adjustment dynamics.

    2. 2025 Rate Filings
      Q: Why do 2025 rate requests vary by state?
      A: Rate requests are driven by local market performance and economics. For instance, Georgia's requested increase of 13.5% reflects local market dynamics and is consistent with other insurers. The company expects rate actions to always be responsive to local economics.

    3. Market Growth Expectations
      Q: What is the expected market growth for 2025?
      A: The company anticipates market growth of around 15% in 2025, supported by lingering effects of Medicaid redetermination, strong distribution, and enhanced subsidy programs. They believe they can grow better than 20% over time by adding new markets.

    4. Pricing Relative to Competitors
      Q: How is pricing compared to competitors for 2025?
      A: Early previews of 2025 rates appear stable and rational, aligning with the company's expectations. Nothing unexpected has been observed in the rates so far.

    5. ICRA Opportunities
      Q: Any updates on ICRA-related growth?
      A: The company continues to see strong interest in ICRA opportunities and is building partnerships while refining go-to-market strategies. Learnings have been strong, and they expect positive results by 2025. They are focusing on distribution strategies to optimize sales.

    6. MLR Favorable Development
      Q: Explain the MLR decrease due to prior developments.
      A: The year-over-year MLR decrease was primarily due to favorable prior period developments, with roughly $36 million in favorable claims run-out in the quarter.

    7. Capital Deployment and Quota Share
      Q: How will you use excess capital over the next years?
      A: With a positive earnings trajectory, the company expects to generate significant excess capital through 2027. They plan to use this capital for organic growth, expanding into new markets. Over time, they expect to rely less on quota share arrangements as they optimize capital deployment.

    8. SEP Members and MLR Impact
      Q: How are SEP members affecting MLR guidance?
      A: The additional SEP membership growth in the full-year outlook has higher MLR implications. SEP members are 3 to 4 years younger on average and tend to be healthier. While initial utilization may be higher, overall economics are in line with expectations, and the company is pleased with the performance.

    9. Risk Adjustment Assumptions
      Q: Have risk adjustment assumptions changed for 2024 members?
      A: The addition of SEP members increases the risk transfer amount. However, the company's relative risk is approaching the market average, and they now expect to be closer to last year's risk adjustment as a percentage of premiums. Underwriting performance is on plan, confirmed by Wakely results for the first half.

    10. New Geographies in 2025
      Q: Are you entering new states in 2025?
      A: While not providing specifics on expansion plans, the company mentions they have doubled their markets overall but not necessarily added new states. More details will be shared closer to the end of the year.

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