Oscar Health Inc

NYSE:OSCR

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon. My name is Rachel and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health 2021 Fourth Quarter and Full-Year Earnings Conference Call. Our 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 would now like to turn it over to Cornelia Miller, Vice President of Corporate Development and Investor Relations, to begin the conference. Ma'am, please go ahead.

[Cornelia Miller]

Thank you Rachel, and good afternoon everyone. Thank you for joining us for our Fourth Quarter and year-end earnings call, where we'll discuss our financial results, the benefits of our increasing scale, and reaffirm our 2022 outlook. 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 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 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 quarterly report on Form 10-Q for the quarterly period ended September 30th, 2021 filed with the SEC and our other filings 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 or reconciliation of these measures to the most directly comparable GAAP measures, can be found in our fourth quarter 2021 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, Mario Schlosser.

[Mario Schlosser, Co-Founder and Chief Executive Officer]

Good evening everyone, and thank you for joining us. We have created something unique here at Oscar. We entered 2022 with strong tailwinds in our business, and a clear strategy sets for the years ahead. Building on our record-breaking growth, we remained focused on scaling operations and driving towards profitability. We are leveraging the technology we have built to reduce medical costs, to provide better clinical outcomes for our members, and to reduce our operating expenses.

The ecosystem's changing towards consumerization, towards risk sharing, and towards increased adoption by technology, and we believe we're delivering on a unique business grew points to capitalize on the surface. And we are well-positioned to deliver on our vision of making healthier with accessible, and more affordable for all. We're doing this through both our risk-based business and our plus Oscar client relationships.

As you will recall, we shed some preliminary Q4 2021 results, as well as 2022 guidance in January 27th, we will dig deeper into those metrics now. To starts, Scott is going to take you through our Q4 and full year 2021 financials, and then I will come back and highlight the key themes for Oscar and 2022. But that's I would like to turn the call over to Scott.

[Scott Blackley, Chief Financial Officer]

Thank you, Mario, and good afternoon, everyone. Today, I'm going to walk through in more detail the 2021 results and I will reaffirm our 2022 guidance. Before I jump into the numbers, I'll call out three key themes that are emerging in our results. We are seeing strong traction in the new members and retaining the majority of our existing ones. We have made great progress on efficiency with our higher scale and there is room for more progress. And lastly, we see opportunities for MLR improvement.

Turning to the results, we had a number of onetime items in 2020 that impacted our year-over-year results, the largest of which was a $52 million net risk corridor settlement, which was recognized in the fourth quarter of 2020. We excluded this non-recurring item from all of our 2020 key results, including adjusted EBITDA. Stephen, moving to membership.

We ended the year with approximately 598 thousand members, an increase of 49% year-over-year, driven by growth in our Individual C-plus and Medicare Advantage books of business membership growth continued to exceed our expectations throughout the year as consumers continue to select Oscar's plans throughout the Special Enrollment wind out powering our growth, we retained more than 80% of our year-end individual members in 2022. Fourth quarter direct and assumed policy premiums increased 59% year-over-year to $873 million driven by higher membership as well as business mix shifts towards higher premiums Silver plans and modest rate increases.

For the full-year, direct and assumed policy premiums increased 50% year-over-year to $3.4 billion, largely driven by the same factors. This represents more than 70% annual top-line growth over the past four years. Our enhanced scale drove greater efficiencies across our businesses in 2021. Specifically, our Q4 2021 insurance company administrative ratio was 24.5%, an improvement of 12 points year-over-year, and our full-year in share co-administrative ratio impoved 430 basis basis points year-over-year to 21.8%.

Fixed-cost leverage, favorable cost efficiencies, and the elimination of the health insurance fee. Health insurer fee in 2021 drove the ratio lower year-over-year. Scale benefits also positively impacted our newest metric. Our adjusted administrative expense ratio, which was 34.4% in the quarter and 28.9% for the full year. The full-year metric improved by 560 basis points. Turning to medical costs, our Medical Loss Ratio was 97.9% in the quarter, down 10 points from the fourth quarter of 2020. We recognized 35 million of favorable development in the fourth quarter of 21, driven by lower-than-expected utilization in the third quarter of 21 and some positive prior year development.

The full year MLR of 88.9% was at the low end of our guidance as utilization came in as expected, and we benefited from the favorable development. Compared to 2020, MLR increased 420 basis points year-over-year, largely due to higher net COVID costs and higher SEP growth in 2021, which was partially offset by favorable development. Let me spend a moment on COVID. Overall, net COVID costs were in line with our expectations in the fourth quarter of '21. We continue to see direct COVID costs being partly offset by lower non - COVID utilization. Our overall combined ratio, which is the sum of our Medical Loss Ratio and the insurance company administrative expense ratio was 122.4% in the quarter and 110.7% for the full year.

The full-year '21 combined ratio was essentially flat on a year-over-year basis as improvements in administrative efficiencies were offset by higher net COVID costs in the MLR. Our fourth quarter '21 adjusted EBITDA loss of $164 million was $52 million better year-over-year. And for 2021, it was $430 million, an increase of $27 million year-over-year. In addition to the drivers impacting the MLR and the administrative ratios year-over-year, we had a release of premium deficiency reserves in 2021 versus an increase in 2020.

Turning to the balance sheet. We ended the quarter with over $2.5 billion in total company cash and investments, including roughly $740 million of cash and investments at the parent and another $1.8 billion of cash investments at our insurance subsidiaries. A new funding of $305 million that we announced two weeks ago provides us with strong balance sheet resilience as we start the year. We are also reiterating our 2022 guidance, which reflects the increased scale of the business and builds on the momentum we saw last year.

This includes an expectation for more than 80% growth at the midpoint in our direct and assumed policy premiums from $6.1 billion to $6.4 billion, as well as 400 basis points of improvement at the midpoint in our MLR to 84% to 86%. I'd note that our MLR guidance assumes non-core utilization returns to baseline levels this year. We've had a strong track record of delivering high-growth while still driving MLR improvement. Our direct policy premiums increased 70% on average annually over the past four years.

And during that period, we decreased our MLR roughly 8 points, excluding COVID, our MLR decreased 13 points since 2017 as we effectively we absorbed higher membership while reducing medical costs. We're also seeing a step change in our plus Oscar business results are as we are expecting $65 million to $70 million of fee-based revenue in 2022. Our positive top-line momentum and increased scale continues to drive meaningful progress on our administrative expense ratios.

Our adjusted administrative expense ratio has declined roughly 500 basis points over the past two years, and we're expecting another 300 basis points of improvement in 2022. Importantly, the majority of these costs are in our control. All told for 2022, we are expecting an adjusted EBITDA loss between $380 million and $480 million, which at the midpoint is roughly consistent with 2021 on an absolute basis. On a relative basis, this is roughly half of that of 2021 measured as a percentage of premiums before ceded reinsurance. Our larger scale is a tailwind for reaching our 2023 profitability target for the insurance company. We look forward to discussing this in more detail at our March 25th Investor Day. And with that, let me turn the call over to Mario.

[Mario Schlosser, Co-Founder and Chief Executive Officer]

Thank you, Scott. I want to close with a summary of why Oscar is positioned for success in 2022 and beyond. I firmly believe that Oscar's the vanguard for the new way healthcare will be delivered in the U.S. We feel that we have found a model that works in consumer-driven markets that are best served with deep provider partnerships and with a frictionless experience. And we see real signs of more of the US healthcare system will move further in this direction in the future. The ACA markets has been a proving grounds for the value of this frictionless experience in healthcare.

And our innovative approach, which couples our full-stack technology with industry-leading member engagements resulted in a powerful Open Enrollment season where we saw monumental growth and record-high retention rates to the point where today, approximately 1 in 15 ACA members are now served by Oscar. And the value of the experience we deliver is also evident in our retention with just above 80% of our IFP members. 85% of the groups and C+O with 90% in our latest coupon of plus Oscar Medicare Advantage plans staying with us year-over-year.

Our fourth-quarter of 2021 net promoter score reached 42 and remains meaningfully higher than the industry average of three. So as we see it, our resulting grow to more than 1 million members is driven by our strong brands, our member experience, and by our innovation in plan, design and product offerings. And just give you a couple of examples for these product offerings. We now have 40% of our member's on your plan offering our Virtual Primary Care, which has made the Oscar Medical Group, the number 1 or number 2, Primary Care Group in every market where it is available.

You also recently updated our cost estimator too well, which can price claims real-time and empowers the member with control and choice, when it comes to their care decisions. It's these offerings that enable us to price to achieve growth and improve margins for 2022. We in fact increased our premium rates at the overall book level. In this past open rolling periods, for 2022, only 16% of all of our new initiations came from market. So we at the lowest priced plan offering. And if you look at where membership is now, only 13% of our total individual membership is and markets where Oscar is the lowest price offering.

Now we're also successfully bringing our unique model to +Oscar clients. In the platform we have us delivering clear businesses outs for them. 60 +O for example. We pointed the platform at a different market segments, small group segments, and in one year, we have had nine ex-growth to now more than 30,000 members, actually doubling from the year-end number of 16,500 members. And our broker NPS score in the small business segments is 66, which highlights the value our other stakeholders find in our frictionless technology. We continue to build out this kind of +Oscar business, and we expect as Scott said + +Oscar generates

[Mario Schlosser, Co-Founder and Chief Executive Officer]

$65 million to $70 million of revenue in 2022. Our platform has clear applications across the healthcare system. For example, in one of our clients realized administrative savings of 20% and leveraging plus Oscar. We are encouraged by our negotiations with prospective clients and look forward to sharing more details on this during our upcoming Investor Day. Now, to me, the best illustration of our path forward is the following: when we look across all of our markets, we generally see that the lower the Medical Loss Ratio, the higher then our promoter score.

And in my view, there couldn't be a better illustration of where a more consumerized healthcare system is going and at how Oscar is going to deliver on ambition of making healthcare accessible and affordable. Is that mission motivates us to deliver our business model of consumer rising healthcare profitably. Our growth today provides scale and operating leverage that we will harness to drive improved efficiency in administrative costs and Medical Loss Ratio. The good early sign by the way is that despite our nearly 2X membership growth, we have swiftly met the demand for new members and are seeing higher member satisfaction scores year-over-year.

That said, we still have plenty of ways to operate more efficiently with the leverage our provider and member engagement initiatives to reduce healthcare costs, and that's what we're focused on. In many ways we're still a young company with meaningful improvement opportunities ahead. The balance over the last several years, we have added experienced healthcare executives to our branch, including most recently, former Chief Legal Officer, oversight health, and three long-health Executive normally for PCR as EVP and Chief Legal Officer, and former Edna CEO, Mark with Alenia, a strategic advisor.

Before I close, I want to reiterate our strategic priorities for 2022 and 2023. First, we will continue to drive meaningful growth across our business, both for the insurance company and for plus Oscar seconds, we continue to target profitability before insurance company 2023 years. And we are committed to becoming profitable at the overall company level over time, as our pleased with those are reaching scale and we gain more efficiencies from our technology.

Finally, I want to frankly Oscar team for working so tirelessly during our first year as a public Company to serve our members and work toward our mission of making a healthier life affordable and fiscal for all. As we say here, Oscar were powered by our people and I continue to be inspired by the creativity, tenacity in the dedication, Oscar T-numbers show every day. I'm very proud of what we can accomplish from becomes together as a team. With that, I'll turn the call over to the operator for questions.

[Operator]

Thank you. [Operator Instruction] Given time constraints, please limit yourself to one question and one follow-up. Thank you. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ricky Goldwasser with Morgan Stanley. Sir, your line is open.

[Marianne Scott, Scott Health Consulting]

Yeah. Hi. Good afternoon, I'm Marianne Scott. So my question is on the exchange enrollment that you've seen, clearly phenomenal results significantly. Surpassed your expectation and ours.

[Ricky Goldwasser, Morgan Stanley]

Can you just give us some color on any contribution that you had from marketing or sales channels and how that helped you achieve this milestone growth? And then also, as we look ahead to 2023, do you expect to see continued scaling or do you believe that now you have the scale that you need and from now on you're going to focus on that margin expansion and MLR improvement opportunity?

[Mario Schlosser, Co-Founder and Chief Executive Officer]

They are great questions. Let me hit on both and then have Scott comment on the second question there as well. So in terms of channels, the numbers come through them, I'd say we see a couple of different different things. Generally, we grow in markets where we've got the perfect mix of product design being right, networks being built well, and deep provider partnerships, and ideally word of mouth in the brand as well. So that's where it works best.

Now, the other piece to this is the distribution as well. We have worked quite a bit with the broker channel in particular, and I mentioned earlier the NPS the brokers have when they work with us in our small group business, for example, because we're able to deliver fast turnaround times there. We're able to help them deliver [Indiscernible] to their numbers when they enroll. And that also helps us grow in these markets, all of the market segments.

That's really been -- that's been where the focus has been, but you really can't take any of this elements out of the equation I would say. It's got to be the mix of products, network, brands, and distribution in Baton workspace. Now, in terms of where we are as a company and what our focus will be, I really want to reaffirm these two goals we have for 2022. One; is to continue with the growth in insurance company and +Oscar, and we think we have a lot of runway ahead of us there. We're only in half the markets for the CAT markets right now.

And we're only in eight states for the SEPA soap products, and we have a ton of more runway ahead of us in delivering an A growth to +Oscar partnerships as well, so we're going to keep doing that. However, we have a great focus on making sure we target profitability insurance company next year. And as I said, profitability, the overall company overtime truly as well. And so that is where right now a lot of our internal focus really is going, both in our improvement in administrative efficiency improvements as well. Scott, do you want to add more?

[Scott Blackley, Chief Financial Officer]

No, Ricky. I think that on that point, we'll be sharing more information about future plans at our Investor Day in March. So I won't jump out of that.

[Marianne Scott, Scott Health Consulting]

Okay. And as a follow-up, if you think about +Oscar, are you talk to the pipeline and the negotiations that you're having, can you maybe talk a little bit about what's the profile of the companies in the +Oscar pipeline?

[Mario Schlosser, Co-Founder and Chief Executive Officer]

Yeah. It really is the kind of three major segments we've talked about before, which is some health systems who want to add more risk and go deeper into the risk markets where we've seen quite a bit more people pick up the heads, even just in the last 12 months. The second segment is -- and we have several of those examples in the pipeline right now. The second segment is health systems already have a plan, already in the risk business, in this example, so that the pipeline as well.

In the third segment, it's sort of mid-sized insurance companies who are realizing that's -- as I said in my prepared remarks here, the ecosystem is inevitably going to where it's demanding more [Indiscernible] and provide experience, and where we can really help both taking the cost outs, and enable them to put more innovative plan designs out there. And so all three of these are in the pipeline right now. And some, we're excited about both where that will go in the next couple of years. And how we concerned this increasing from a Business process-as-a-Service model towards a software-as-a-service model as well. And also where we are for this year.

[Operator]

Thank you. The next question comes from the line of Kevin Fischbeck with Bank of America. Your line is open.

[Adam Ronn, Bank of America]

Hey, thanks for the question. This is Adam Ron on for Kevin. We were a little surprised by the fact that you weren't getting more SG&A leve therage. I know we talked about this last time with 2022 guidance, given that you grew revenue membership at such a rapid pace. And so from here, would you expect most of the cost leverage that CCAR underwriting going forward to come from higher revenue on the same SG&A base, or is there actually a chance that on a dollar basis it could actually decline?

[Scott Blackley, Chief Financial Officer]

Yeah. Excuse me. Adam, thanks for the question. I'll start out by saying that I think that our greater scale that we're seeing in 2022 is going to help us to achieve better cost leverage on our fixed costs and our variable costs going forward. We can negotiate better cost with vendors. We have an opportunity to continue to optimize our operations and the opportunity for even further fixed-cost leverage as we head into next year. So we certainly see opportunities on the cost side beyond just what -- what's available from increasing revenues into the future.

[Adam Ronn, Bank of America]

All right. Great. And then on 2023, if exchange subsidies were to end up expiring, do you think the overall marketplace would shrink, and would you be able to grow in that environment? And if not, would that hurt your ability to drive that SG&A leverage and ultimately achieve Insureco profitability? And also, in that scenario are there any offsets like potentially lower membership meeting better MLR?

[Mario Schlosser, Co-Founder and Chief Executive Officer]

Yeah, Adam. I'd say a couple different thoughts on this one. One is, we now have several different business lines that are growing. [Indiscernible] plus Oscar deals and so on. So I do think we are diversifying ourselves in a sense there, that helps. The second point, [Indiscernible], if you're looking for a company that has maybe had the highest volatility of regulatory environments, it might just be us. Over the last few years, we have lived through so many cycles of ACA on, ACA off.

I can't even count them anymore. What we have generally believed, and I think it has proven not to be true, is that a benefits like now ensuring 50 million-plus people, it's very, very unlikely to get the clock turned back on. And so in some shape or form, shape or form I would very strong believe that these subsidies will remain in place or will be replaced by similar subsidies under different names perhaps. That's generally what we're assuming there, however, we have also lived through cycles. Plenty of them where silver loading happens and some CSR subsidies were repeat years and things like that.

And we have followed through them and it's always improved throughout these cycles, which makes me very confident that if somehow we have to deal with some appeal over there, we certainly could. I think a final point there is that we've been building our platform internally partly because we want to be able to react quickly. If there is a regulatory change, like, for example, more testing reimbursements, that we can flip a couple of switches and very quickly react to it, and fly through it, really, and I think that the same applies here. And if there's new regulation, we'll adapt to it quickly. And the inevitable march of the healthcare system towards more consumerization, I don't think would be stopped by any of what might come our way there.

[Scott Blackley, Chief Financial Officer]

Just to pile on to your questions about efficiency in scale, I would just say that -- so one, we continue to think that the company is built to be able to grow but regardless of what we see on the growth side, we still think that there are opportunities to create additional leverage in our model. And so that means that we see opportunities of improving both fixed cost as well as variable cost.

And at the scale that we're seeing at '22, I'm anticipating that we will be able to -- as I mentioned in another question, I am expecting that we're going to be able to drive down vendor costs, that we are going to be able to continue to optimize our operations against that larger base. And that is going to, even with -- in '22, we're starting to see significant fixed-cost leverage. And I would anticipate that we're going to be able to continue to deliver that.

[Adam Ronn, Bank of America]

Great. Thanks.

[Operator]

Your next question comes from the line of Stephen Baxter with Wells Fargo. Your line is open.

[Stephen Baxter, Wells Fargo]

Yes. Hi. Thank you. Can you talk a little bit about how your breakout of metal tiers for the exchanges is shaping up? I'd love to hear a reminder on where you ended up for 2021 in terms of your bronze and your silver mix, and then how that is shaping up for 2022. Any specifics there would be very helpful. And I would also like to hear a little bit more about how you're thinking about your risk adjustment position as you move from 2021 and into 2022 and how that's impacted by [Indiscernible]. Do product mix changes? I would just like you guys are thinking about. Thanks.

[Mario Schlosser, Co-Founder and Chief Executive Officer]

Yeah. Stephen, we start with the middle tier mix, and then, Scott, you can talk a bit about risk adjustment. We talked about this in the IPO and even before that that we were of the market average for quite some time with the higher book of Bronze membership, lower PMPM, therefore a higher risk of a payout as well as the result. And part of our march towards profitability has been to return that dial towards higher PMPM membership and actually more chronically ill members as well.

And would remember is in most of the membership and I think we've done this very successfully. If you trace just the last three years, we've been to 37% silver in OE2020 to think it to be an OE2021 to now 65% silver in OE2022. So I had a very nice shift there. We need to what these higher PMPM server clients. That's again a mix of the same factors I gave Ricky earlier, which is work with our distribution, doesn't plan design, branding, what we put into these plans on.

So on -- So that's been really important shift there for us. You see this also will continuously in the numbers in that the PMPM revenue always goes up from so revenue grows faster than the as we head comment push account there. And we're going to continue to pursue that swing in that same way. Now, we also constantly change our plan designs in other tiers and are very confident there that those plan designs can also add bit of a value and have some in focus there as well. So Scott, you can maybe be talking about that as well.

[Scott Blackley, Chief Financial Officer]

And in terms of the risk adjustment, we've seen strong performance in that line item. We've had primarily policy adjustments on an ongoing basis. And I would just say in terms of RA as a percentage of direct and assumed premiums, I would expect that with the changing mix towards more silver, we'll see slightly improved RA as a percentage of that. And I would expect to see -- we saw some of that in '21, would expect to see further improvement in 2022.

[Stephen Baxter, Wells Fargo]

Got it. Thanks.

[Stephen Baxter, Wells Fargo]

And then just as a quick follow-up to the second question. Just the fee-based revenue you're expecting in 2022, just any insight into how that's expected to ramp up through the year, is expected to be a more even contribution? And as we think about the contribution margin, I guess that incremental revenue, I guess how should we be thinking about the incremental margin or the cost profile of that revenues are bringing online? Thanks.

[Scott Blackley, Chief Financial Officer]

Yes. On the fee-based revenue, I would just say on fee-based revenue we started to help first contract on January 1st. That's going to be relatively stable throughout the year. And then in our C-plus so book of business, that scenario where we're hopeful and expect we'll be able to continue to ramp that up and that will drive fee-based revenue to increase throughout the year. So I would say that in general, it's going to be stable but growing throughout the year. On margin, look, I think that I would just say that we're expecting that that fee-based revenue is contributing positive margin to the bottom line, starting in the first quarter. And so we're seeing that business generating positive returns and positive contribution to adjusted EBITDA.

[Stephen Baxter, Wells Fargo]

Thank you very much.

[Operator]

Thank you. The next question comes from the line of Jonathan Yong with Credit Suisse. Sir, your line is open.

[Jonathan Yong, Credit Suisse]

Thanks for taking a question. Wanted to -- thanks for the details on the percent that's in Silver tier. Is there something structurally difficult within the Bronze mix where it's just more difficult to make money there? Obviously, one of your peers today called out that they effectively exited the Bronze side of the tiers and moved all to Silver. So I'm curious from your perspective, given you have shifted more to Silver, what's the structural issue there, and could you eventually re-expand into Bronze or is it really just all a Silver game right now?

[Mario Schlosser, Co-Founder and Chief Executive Officer]

So we have -- so let me answer this with facts fist. It bronze is a bit more structurally difficult to make money in that adopt part it's trues to as compared to silver for a couple of reasons. One it is a lower PMPM number generally, right? You read here below. The second piece is that it also attracts more members relatively speaking, who don't reutilize a whole lots. And that has two effects, one is that actually is worse for risk adjustments, gain, relatively speaking. And then having members who utilize sort of like, average amounts in a sense.

But the other part actually is that those tend to also be members who have higher churn rates. And so there is sort of like a chunk of the ACA marketplace that is more easily changing plans from year to year, and it's going to chase the lowest price plans. In the past, that was maybe 15% to 20% of the marketplace, so it's probably hard to put a finger on really. And so you have that and we should be a bit more considering [Indiscernible] as well.

Now, those effects are not new. They've been in place for the past new years and we've found a number of antidotes, I would say, in these effect. For example, we think that some of what we're doing in Virtual Primary Care is actually meaningful to bid more attractive plan designs in Bronze. And so what we're doing around certain deductibles, some other plan design elements we have in our Bronze plans. And some of those shift has helped us shift up the PMPM in the Bronze tier.

And so obviously, I think I mentioned last time that generally even when you have a member who is not utilizing healthcare a whole lot, if we get that member into our digital interactions, we get higher retention rates out of them, so about 6 points higher retention members engage with us digitally than the average book of business space in the year. That is not any different in the Bronze plans either. And so with all of these things together, we're comfortable in that tier and have creative ideas what else to do them in the years going forward.

[Jonathan Yong, Credit Suisse]

Great. That's helpful. And then you mentioned that you have an expectation of being at non-coffee utilization. It'll be at baseline levels. I'm assuming this is a bit more gradual over the year. Just want to confirm that. And is there any view of deferred care stepping up as COVID subsides? Thanks.

[Mario Schlosser, Co-Founder and Chief Executive Officer]

Yeah. With respect to the MLR, I would say a few things looking at 2022. One, this year, as we talked about, we priced for better margins. So we're assuming that we've priced to cover costs trends, and we priced for an endemic level of COVID spend. So that's going to be a positive factor for us. Secondly, I would just say that when we think about COVID as we've seen, Omicron starting to fade. And some of the effects of that dropping off. We are based on having an academic level of COVID in our assumptions. We are expecting that we will see utilization from non - COVID subsides one analyzing Allied seeing throughout the rest of the year.

So at this point, again, I'm anticipating that we're going to have about on a year-over-year basis between '21 and '22 will have about 400 basis points of improvement in the MLR, primarily driven by COVID and to a lesser degree, some of the STP things that we saw. And then we also have opportunities in the MLR from some structural advantages of scale. And having a larger number shift book, we think there's some other opportunities for us to continue to drive improvements as well. So those are the key points that are going to drive a year-over-year change.

Yeah. Maybe add two more little points that I find interesting. One is that we have not seen a lot of catch-up here, as I think we talked about in the past as well. And if we look at that number, refresh stats, then the metastatic cancer rates, for example, in cancer diagnoses have been very much on the same level in 2019, '20 and '21. So there's not a lot of evidence there that somehow these burden's getting worse because chaotic get caught up too.

The other point we pointed out last year is that if CP members when they came in last year they too have a bit higher ER utilization early on, the hyperinflated utilization early on. And so you can wonder there is it a different segment of the market now certainly coming in there and what would that do, and one new did appoint we have there is that the retention on those SCP folks was actually the same as the retention rates into this year of the non - SCP folks last year and about 80% as we talked about.

And I would say that that is a decent data point that the population is not that different when you sort like behaving similarly, and therefore not a lot of evidence there that that will lead the cost of care either, why was is going to watch that very very closely. I think that we do a fair amount of that also with our engagement with the members for the provider enablements and so on.

[Jonathan Yong, Credit Suisse]

Great. Thanks.

[Operator]

Thank you. The next question comes from the line of Josh Raskin with Nephron Research. Please go ahead.

[Josh Raskin, Nephron]

Thanks. Good evening. My question's around consumer engagement. Mario, you were talking about this, and I'm specifically interested in the digital engagement on the consumer side. Can you give us a sense -- and I think you gave us some data when you guys were going public, but could you give us a sense on differences by demographic and if that's changing at all, or any expectations in 2022? And then are you finding a correlation? I heard the NPS correlation with digital engagement, but is there an MLR correlation that you guys are seeing in terms of those that are digitally engaged versus not?

[Mario Schlosser, Co-Founder and Chief Executive Officer]

Yeah. Just -- So in terms of statistics, we've talked in the past about how members who create a digital profile, for examples, are 80% in the fourth quarter of last year. And that's still going to run 75%. And obviously here, that's probably influenced by SEP, where we need always some time to create that digital engagements and people to come in. And we still have a -- if you look at app -- mobile app downloads of membership base, we still have a much higher mobile app download ready, if they will last [Indiscernible] a few weeks ago, then pretty much else -- anybody else out there in the insurance indus -- in the health insurance industries will [Indiscernible] can tell.

So look at App Store and some things like that there. So those -- that's how we drive engagements. Where we -- so in terms of how that looks across the age ranges, there is an impact. You have in the 56-year-old to 64-year-old segments, probably about 25% or so lower digital engagement as compared to the younger segments there. But if we then look at the overall engagement with Oscar, that can seem pretty similar because they then end up having more conversations with their [Indiscernible], for example.

The other nice statistic that I mentioned in last earnings call, that I want to reiterate as well, is that if we look at all of the conversations we've had with members since the beginning of this year, and this is again having doubled membership and we got a year older on average membership base shifted more towards celebrate [Indiscernible] and X1 and that all of those conversations beginning of the year, 40% of those conversations were [Indiscernible] meaning insecure messages between the care guides and the member for the mobile app effective or the website.

And so I think also very powerful proof point's. They had even a new segments in a sense, membership base we can right-of-way gets an engagement there. High number I think is very interesting is that we just do a love to outbound engagement as well. And the latest number I have for you is that on a weekly basis, there's about 25% of members who engage with one of our outbound messages as can pay and text messages. As you mentioned mentioned in the mobile app and things like that.

So again, so very consistent. Now the impact on the MLR, we like to really look at in more sort of like nuance detail there and tracing through directly in one piece of data. We have the year now, it starts when you look at the members and Virtual Primary Care plan designs, the number I gave, I think last time was that about 44% or so, those numbers say that they didn't have a PCP year before they came on board with our essentially Virtual for the Oscar, anything virtual PCP. And we are seeing impact there on the photo cost of care on a monthly basis.

And that is coming through, for example, by having referral to better, more efficient downstream specialists, and by consumer moves in shifting more towards drugs that were effective and efficient from a cost point of view as well. And that's why I suggest also because we have more of an opportunity there of getting that MLR down. So that's a couple of points for you there.

We're going to keep very closely working on that this year. And as I mentioned, we're happy with how we've really grown membership base in the last couple of years. But at the same time really gotten good news on the MLR as well. And they are really, in our view there's quite a bit of more opportunity of continuing to do that in the next couple of years.

[Josh Raskin, Nephron]

Great. I think that MLR data would be super helpful to understand the engagement. And just a quick follow-up is that, can you just remind me, and I know I should know this on the accounting side, the PDR was up in Q4 this year versus down last quarter and it felt like -- was that indicative of any change in expectation for 2022 over the last three months or what was the difference there?

[Scott Blackley, Chief Financial Officer]

Yes, you're right. We built PDR in 2020. Obviously that build was related to our expectations for '21. And then in 2021, we had a smaller PDR, so we had a release of reserves and I would just say in general two things, that PDR that we had in 2020 had -- was split between individual and M&A and its outlook at the 2021 PDR. That's really related more towards our non Individual business as is. And I think it just really represents the fact that as we're seeing better performance across our book. We're certainly getting more scale as we've talked about that results in fewer plans that haven't efficiency reserve related to them. So that's really the driver of why you see a lower PDR at the end of 2021 batch. And there's still a PDR accrual, it's just the change in the amount of accrual that got that back.

[Scott Blackley, Chief Financial Officer]

Exactly you got it.

[Josh Raskin, Nephron]

That's the way to think you.

[Scott Blackley, Chief Financial Officer]

Again, the balance sheet we had $85 million at the end of 2020. We've got about $29 million at the end of 2021.

[Josh Raskin, Nephron]

[Indiscernible]

[Operator]

Thank you. And this will be our last question. And it will be from Nathan Rich with Goldman Sachs. Please go ahead.

[Nathan Rich, Goldman Sachs]

Hi. Good afternoon. Thanks for the question. On the MLR, Mario or Scott, could you update us on what you've seen in the cohort data and how MLR tends to trend in? The second and third years, the members are with you and you're relatedly -- Is there a target level of MLR that you feel like the business needs to achieve to reach profitability for the InsureCo?

[Scott Blackley, Chief Financial Officer]

Yeah. So with respect to the MLR, we certainly have data about how membership is, how that performance accrues over time. I would say that there's actually not a huge amount of difference in the near-term as you see members in the first year, there's a little bit of a low at those numbers are on-boarding and getting into their routines with their physicians and pharmaceuticals, etc. And then that starts to stabilize over time, so nothing in the near-term there that I would call out.

And then on a broader perspective, if we think about MLR in general with that new population, I think that we feel like this is a population that we have pretty consistently been able to grow and see these kinds of new members come into the book, and we've got good experience there, so our track record gives us confidence that we're going to be able to continue to bring on these new members and manage that MLR.

[Nathan Rich, Goldman Sachs]

Okay. Great. Thank you.

[Operator]

Thank you. And this concludes Oscar Health 2021 Fourth Quarter and Full-Year Earnings Conference Call. Thank you for participating, you may now disconnect.