Alrighty, so next at the Citi Global Healthcare Conference is Clover Health, and thrilled to have Peter Kuipers here, CFO, and he's going to kick it off with his presentation, and jump right in, and we'll go into Q&A.
Thanks, Trevor. We're happy to be here. Thanks for having us. So, we'll start with a couple of slides: the mission, the strategy of Clover Health, and then I think we'll do some Q&A as well. Here's the customary disclaimer of forward-looking statements. So, Clover Health, we are a technology-driven, technology-first approach-driven insurance plan focusing on Medicare Advantage exclusively. And we believe with our approach that we can drive better outcomes on the wide network powered by AI.
We believe we can drive better care management, early identification of chronic diseases, better outcomes, better quality performance, and also lower what we call total cost of care. So, you can see here some of the pillars. Again, Medicare Advantage is what we focus on. We believe we can improve clinical outcomes. Our platform that's differentiated is powered by AI, and we'll talk about it more a little bit later.
We supplement this with home care services that are actually staffed and managed by clinicians. So, by MDs and DOs that use the same software. Important distinction also is that the vast, vast majority of our plan is actually a PPO basis, where our members have a free choice to choose their physician. And we can do this on a wide network. So, let's first maybe dive into a third-quarter update. A couple of highlights here.
Throughout the year, we have increased profitability. We beat and raised three times this year, so far. We have positive cash flow, so we really feel good about where we are. From an insurance perspective, we have industry-leading medical cost ratios. We have close to double-digit top-line growth this year. And all of this is driven by our technology, which we call Clover Assistant or the Clover Assistant platform.
Also this year, this is what we're really proud of as well. It's a testament to the quality of the plan and the technology. We've achieved a 4.0-star rating for payment year 2026, and most of our members are actually in that plan.
Yesterday, we published a case study also in HEDIS, which is the quality measure within Stars, where we went into a little more detail about how we achieved the nation-leading highest HEDIS score of 4.94. That's a case study that is available on our website as well.
Now, where we are, where we sit today, of course, AEP (annual enrollment period) is ongoing, right, October to December. We feel that we're very well and strong positioned, not only from a financial perspective, and we think we can self-fund future growth, but also from a competitive perspective, right?
We all have probably seen some of the headwinds in the space. You've seen other plans reduce benefits. You've seen other plans close plans, specifically also PPO plans. And a couple of weeks ago, some of the MA insurance plans also stopped paying broker commissions.
So, all that said, without giving specific guidance for AEP, we believe we're very well positioned for growth, not only in AEP, but also in OEP, the open enrollment period, which will be January to March. And the way we really look at growth is really scaling from 2024 into 2025. Where then, as we scale from 2025 to 2026, the new members that we'll get now in AEP will be year two cohort members, right?
So, we can help them with care management, and we can drive better health outcomes and lower total cost of care.
In 2026, we have the added tailwind as well of going from a 3.5 Star rating payment year to a 4-star payment year. Here are the financials. Top line, roughly 10% organic growth rate on revenue. From a gross profit perspective, that's roughly 32% year- over- year. Very strong performance, and we've increased the profitability guide three times this year as well for 2024.
So, how are we different? What were our design principles? We wanted to develop a technology platform that's elegant and easy to use. Now think about it as like an Apple-like workflow, an Apple-like UI or user interface. This is designed for physicians, so by doctors for physicians, integrated with most EHR systems with the clinical workflow. And we actually help physicians. We superpower physicians to perform at the top of their license, right?
And then additionally, I want to point out also here that we have a strong IP portfolio protecting our technology here. So, this page here, this is an actual screenshot of Clover Assistant. So, two important things to think about here. So, interoperability is a big issue in healthcare, as we all know. We believe we've solved that by combining and connecting over 100 data sources, including most EHR systems, most lab systems, pharma, and claims.
And not only consolidating it, but also curating that and going from data to information to actionable insights. So, a physician essentially gets superpowered and saves time initially by really getting the full medical history of a patient that he or she is seeing. Then in addition, our AI and machine learning-powered models generate care management suggestions, which you see on the left side of the page.
In doing that, essentially, the physician can use the knowledge of many, many more physicians and of history at scale, right? That then leads to care recommendations that a physician can choose to act on. In general, we believe that chronic diseases are detected earlier. Therefore, care management can also start earlier. Generally, disease stages are not progressing as fast or not as far, better health outcomes, and over time, also lower cost of care.
That's our model. It's real-time, proactive care at the point of care, at the time of care. Here's a visual of how Clover Assistant and Clover Home Care work together, right? The platform itself is cloud-based, AI-powered. We've been operating at scale here for a couple of years. We are platform agnostic.
We do have an agile technology development here where we constantly iterate with a closed feedback loop. And then we supplement for the higher acuity patients the care via home care physician staff services using the same software, using the same medical history, using the same care management plan.
And we actually go, we actually have MDs go to the home rather than maybe some other plans that have nursing assistants go to the home. So, that is a differentiator.
Again, we believe that we now have a flywheel of growth, specifically going from 2024, going into 2025, and then going into 2026 and beyond. It's both the benefit design, choice of physician for members. We believe we can drive membership growth. Physicians, we believe, can manage more and more Clover members as well. And we believe we can increase the number of physicians using this software as well.
And that flywheel then leads to lower cost of care, better health outcomes, and also further innovation. So, on this page, we wanted to really illustrate the differentiated business model. So, on the left side, you see our business model. We're solely focused on Medicare Advantage. We're focused on, it's a clinical tool enabling the physician. It's powered by AI. And we focus on early identification, earlier care management, and early treatment.
If you compare it to the right side, to more traditional MCO players, which are largely reactive and delayed, waiting really on the claims, if you will, and really rely on risk delegation. On the left side, you can see that we do not delegate risk. So, all the results you see are pure. It's full risk. Again, members have a physician choice, right? It's a PPO on a wide network.
And then again, home care is led by MDs and DOs powered by the same technology. And as a result, you can see that we have industry-leading loss ratios of up to a couple of hundred to up to a thousand basis points differential, apples to apples. Now, all that said, our presence today is concentrated in New Jersey. We also have members present from an insurance perspective in South Carolina, Georgia, and Texas.
In addition to that, so those are four states. In addition, the other 46 states, our strategy is to offer the same leading technology to other third-party MA plans and also to third-party risk-bearing providers. We believe using the same technology that we can help improve those third-party medical cost ratios by over 1,000 basis points. And this is over a number of years, but it's not over 10 years.
So, think about a couple of years here, if you will. Again, same approach, same software, clinical-focused, better care management, we believe, early diagnosis as well in that setting, lower total cost of care, and also quality is super important, right. S o, we believe we can help drive that for third parties, and then for Clover, of course, for us, it's fairly capital-light deployment of the same technology.
The agreements are structured. They all have two elements. One is a SaaS revenue component, so per member, per month fee, cloud-based, and then we also take a share of the savings that the third-party plan or third-party provider has. Again, relatively low cost of acquisition, and over time, we believe higher margin than kind of the pure insurance business. Strong market fit, strong, very strong pipeline, also, we expanded the commercial team in the last couple of weeks.
They're fully trained now, and they're working the pipeline. So, more to come on that. And then looking ahead, very strong business fundamentals. We talked a little bit about 2024 to 2025 and then growth into 2026, also with the tailwinds of a 4-star plan. We have a technology moat from an IP perspective.
Lots of room to grow. We will continue to develop the technology. We're investing there both on the UI side and also on the clinical side. We have a multi-year roadmap. You can see on our website that we're hiring software engineers to continually invest in the leading technology here. And then we'll further expand over time also the SaaS offering of Counterpart Health.
Great. Yeah. Well, thank you for the comprehensive overview. That was very helpful. I wanted to start by talking about Star Ratings, right?
You got some good news over the last month or two that for payment year 2026, upgrade to 4 S tars. I think what we've seen across other providers, that they've lost some star ratings, right? I know there's some things going on in the background, and that might be recalculated, reassessed.
Can you just walk us through sort of how you've achieved this? You mentioned that this week you published HEDIS and kind of gave a little bit more details around that. Then also, how can you best deploy the additional funding that goes along with having a higher star rating?
Yeah. Yeah, I think we're focusing on our own strength, right? The 4-star 20 for payment year 26 is really a testament to the quality of the plan, right? This is what we have achieved. This is what we built.
4.0 S tars is definitely what we want to be at or higher or better, if you will, right? So, what 4.0 S tars actually does is, although it's for payment year 2026, we are now able to market in both AEP and OEP the 4-star rating for the plan from a quality perspective. So, that's super important from that perspective. We believe it will actually help also in recruiting more PCPs and more members, if you will, as well.
And then we believe it will also help on the Counterpart SaaS revenue side as well. Of course, if you go from 3.5 S tars payment year, which is 2025, going to a 4-star payment year 2026, right? You have to enrich also the benefits, if you will, right? So, we are already rich as far as benefits.
So, we'll be even more competitive, likely go forward without giving specific guidance. But so, that's why we're saying we believe really in strong growth going from 2025 into 2026 also.
And can you elaborate a little bit more on the sort of enriching the plans and adding new features? I think what we've seen from some of the traditional players is sort of pulling back the level of benefits. And do you think that going forward, it also puts you in a better competitive position to continue to drive either new clients or membership growth?
Yeah, we certainly believe so. You can think about like LiveHealthy type reward systems that really encourage a healthier lifestyle and, of course, lead to better health outcomes, et cetera, right? So, that could be one component. It could be lower out-of-pocket amounts, if you will, for different services.
So, it all goes into that's called kind of the bid design. And the bid designs, those are due in May for the following year of date of service. So, yeah.
And you'd mentioned that having now a 4-star plan, it can help you in terms of advertising towards further membership growth. So, I guess given this is fresh news, does it help you for 2025, or is this more kind of a downstream in 2026 and beyond?
It helps both for 2025 and 2026, right? So, a couple of aspects there. So, if you look at kind of the go-to-market or the channels to acquire new members, right? So, a channel is the broker channel, if you will, right? So, very visible that we're in many counties, the highest-rated plan, if you will, with the best benefits. So, we think that's helpful. But also in what's called Plan Finder.
So, Plan Finder is a CMS government website that compares the Star Ratings and also the benefits, right? So , that's close to zero customer acquisition cost, right? And also shows up there, if you will. So, we believe this will help and facilitate growth in AEP currently and OEP early next year but also going into AEP October to December next year for 2026 growth.
And the Open Enrollment Period is still open. Are you able to provide any kind of update on how that's trending for you, or is that sort of TBD?
So, the Annual Enrollment Period, AEP, is open now, right? So, then OEP will open in January to March.
Yeah, we haven't given specific guidance, but given that one other plans have reduced benefits, other plans have closed some PPO plans, and other plans that you've seen in the news, I believe, have stopped paying broker commissions, right? So, those are some of the indicators you can read into.
What we've also said is that given the changes in the marketplace, that likely OEP, which is the open enrollment period in January to March next year, will likely be higher as well, given all the changes, because some insured members or some MA participants might find out that their plan doesn't exist anymore in January when they go to see their physician. O r they might be confronted with higher out-of-pocket expense in early next year when they hadn't realized the benefits were reduced, right? So, I think that's an important market dynamic as well.
Have you shared any targets for what you're sort of looking for in terms of membership growth, whether it be for next year or longer-term or medium-term targets? Is there any sort of capacity component to that and how much you can grow from a membership perspective without taking on significant more costs that impact your margins?
Yeah. We believe that we can sell from growth. There's really kind of the two major enrollment periods, right? AEP and OEP, 4Q in each year, and then the first quarter in each year. You can look at some other markets that in the past have had some disruption to kind of ballpark maybe some of the potential growth numbers there. Those are the main growth periods, if you will. We really think this is a strategy and a story really is here.
It's a multi-year scaling, right? So, New Jersey, where the majority of our population is, we have a 10% market share. There's a lot of disruption in that market again. Some plans are closing, benefits are reduced, some plans are stopped paying broker commissions. So, we think we can grow there above market, certainly, for this AEP and OEP next year.
And so 10% market share, as you mentioned, disruption going on within the marketplace. How much of one particular market in New Jersey do you think you can take over time? And I guess the second part of that question is, is that success that you've had in New Jersey, can you replicate that in other key geographies? And have you thought about sort of what areas might be more robust opportunities than others?
Yeah, yeah, great question.
I think so for New Jersey, again, 10% market share before AEP, very well positioned for strong growth there. We see no reason to not continue that strong growth that we implicitly here imply for many years to come, we believe, then really looking at other markets, so we are as a plan also in three other states, Georgia, Texas, and South Carolina, and we're methodical about where we grow, right.
A nd what counties we want to grow. As a plan, we can manage growth kind of by directing marketing expense and digital advertising expense and broker events and member events in certain counties where we also have PCPs using the software, right? So, that's what we kind of, and we create growth from there, if you will, so, there's a lot of growth to be had in those three other states as well.
But again, New Jersey, 10% market share, there's a lot of growth to be had there.
And I imagine in New Jersey where you're more entrenched, you might be able to grow perhaps in a little bit more scalable way than in other states. But in those other states that you're not as fully entrenched, how quickly can you grow at scale in these places? You mentioned certain factors being, whether it be brokerage or advertising events. But how do you think about your ability to grow at speed in some of those new markets?
Yeah, so we have a specific guidance on those three other states. But essentially, the same strategy as we have in New Jersey, right? So yeah.
Gotcha. Gotcha. I want to talk a little about the AI algorithm as a technology. I know you guys consider yourself a technology platform of sorts.
AI is a category more broadly that tends to improve over time as you certainly see more data and more input. So, talk a little about your AI algo, how it learns from itself, makes it better, and then also what capabilities can you add to it over time that you don't already have today?
Yeah. Yeah, so like I talked about a little bit earlier, so we connect over 100 different data sources and transform it really into information and insights, both on history. And then the platform also generates care management suggestions, right? So, we're continuously iterating both areas, right? And then also where we put investments and continue the innovation is really one area is UI. We want to make sure it's elegant to use, user delight. So, the intensity of the usage goes up.
And then from a clinical perspective, I think we've said in prior calls that we'll likely add heart disease as a chronic disease, care gap management, if you will, improved Care Management. So , we have a multi-year technology roadmap there.
So, are the capabilities that you're investing in adding, is it more focused on driving penetration by doctors or more so on the cost side of things?
It's both, right? It's both. Yeah. And then also, of course, the health outcomes primarily also, right? And that everything flows from there.
Gotcha. Okay. Just wanted to pivot a little bit to Counterpart Health, which you've introduced. But a few months ago, I know you signed a new customer in Iowa. So, maybe talk to us a little about that market, your ability to cross-sell the technology into this part of the strategy of the story.
Yeah. Yeah.
Counterpart Health, we launched the general availability end of May, and we did a PR on Iowa Clinic sometime after that, if you will. Iowa Clinic is an anchor partner for us, right, in the Midwest. That's continuing. We just hired, we expanded the commercial team for Counterpart Health, so more to come there.
They aren't starting from zero. The pipeline is already there, right? It takes up to 12 months between an initial meeting and signing off an agreement, and then implementation follows. Implementation and training is fairly straightforward. It's cloud-based. It takes about an hour for a physician to be trained on the platform, again, because the platform is so elegant and easy to use, the user delight.
But then from a PMPM revenue perspective, each member that needs to be covered needs to come in for a visit and be covered by the software. And then it becomes a recurring revenue stream, right? So, that's the way to think about it.
I would say also that given the headwinds that some other third-party MA plans are experiencing, we see some strong demand and interest from also not only small and mid-sized players, but there's a variety there in interest, if you will. So, more to come, still early innings. And we have a great proof point in our plan ourselves, and we'll provide updates as we go.
And maybe you can just add a little more detail to the pipeline that you said you had. And in terms of, I don't know, did you mention 12 months?
Is that for the sort of selling cycle to go from start to finish?
Yeah. Like it's common in healthcare, right? There's a couple of decision makers. You need kind of clinical buy-in and then C-suite buy-in from most of the time CEO and CFO perspective to implement it, if you will, and then the flywheel starts going.
What tends to be sort of the main areas of friction? Is it just simply resisting change and status quo, or are there certain things about using a fairly, I know easy to use, but on the back end, a fairly complex AI model, too?
It's mostly time. It's just deal flow time, if you will. The AI model itself is not fishable for the physician using it, right? It feels really like it's a GPS guiding you to the right or the better care management plan, right?
I wanted to go back on something you said earlier. You mentioned increasing headcount in that particular area. So, maybe you just walk us through a little bit of that. Is that more on sort of the sales side of building out the pipeline and then going from start to finish from sale to implementation? Or so where are you investing from a personnel perspective around that?
Yeah. So, for Counterpart, it's both the commercial side, but also implementation resources also.
Gotcha. Gotcha. Okay. Wanted to pivot a little bit to cost trends, which certainly have been a lot of focus over the last few months with some of the more traditional managed care players. You've made a lot of really good progress on this front in the last few years. I believe it was over 100% a few years ago, was it? 2021.
To now in the low 80% last year, and this year, you're trending for further improvement into the high 70s as you outlined in your slides, so maybe you can just walk us through a little bit of what have been the key drivers to delivering this progress and what will be key to continuing this cost trend improvement going forward?
Yeah, so I think the first part, of course, is the model itself, so it's earlier proactive care, identifying chronic diseases earlier, so treatment can start earlier. It can also start earlier in lower acuity settings, but it's at the point of care at the time of care rather than waiting till disease progresses and claims come in from an inpatient perspective, right?
That's what some other insurance plans are dealing with. S o, that's a big factor just from the principal design of the operating model and the technology.
Two is really continued innovation. Again, we have a multi-year roadmap that we continue to drive innovation and make the models better and drive the outcomes, and it's also, of course, cohort management as well. We know the population well, relatively low turnover, we believe, compared to other plans. A nd then lastly, supplemented also by our care services led by MDs and DOs using the same software, right? Integrated. Those are four factors.
And have you talked about where you can take that cost trend to over the, let's say, medium and longer term?
Yeah, so there are certain restrictions as far as or ceilings, if you will, to profitability from an MLR perspective, which is a CMS threshold. It's not fully one-on-one with some of the other metrics we discussed.
So, the way we look at growth, right, is once you get close to that, and we're close to that, we are accelerating growth again. And that's what we just talked about earlier as well. So, the goal then is, of course, to increase gross membership revenue and absolute gross profit dollars, right? So, that is the strategy that we're executing here.
And how are you thinking about sort of the balance between membership growth, revenue growth, and profitability as it sort of stands today? I mean, are you at the point where it's a more disciplined approach than it was, let's say, two or three years ago? Or are you now at the point of scale with the technology that you can actually grow faster with better rates or equal rates of profitability that we're seeing today?
Yeah, a couple of answers there.
I think one, we've proven that we can be profitable on a 3.5-star basis, right? And then we have the tailwind of 4.0 Stars payment year coming in 2026, right? So, those are some of the proof points. And we believe we can manage growth also, right? But it's not necessarily only a two-year strategy, two-year window. We're really planning multi-year also.
And I guess what are some of the longer-term trade-offs to consider in that respect with pursuing growth if it were to come at sort of reduced levels of profitability into new markets? I imagine as you enter new markets, they don't always start off at a level of profitability that you're perhaps seeing in your more entrenched space.
Yeah, of course, there are some growth costs, but so many initiatives both from a UI and clinical perspective and home care perspective, of course, we're trying to manage, of course, increasingly also new members, right? Additional points, because of the market disruption, we believe that a greater proportion or portion than normal of new members will actually be switchers, right?
Switchers from other plans. Those other plans might not exist anymore. Other plans have reduced benefits, right? Or have no broker commission, so they might not renew, if you will, right? Helped by a broker. So, especially for the switchers, of course, via interoperability and medical records recouping, if you will, we can also help, of course, start there. There's already a medical history that we can accelerate the improvement.
Wanted to quickly touch on policy. Certainly, the change in administration coming, new Congress.
How does that all factor into what you're doing? I mean, there's been quite a bit of talk out there on how a new administration and new Congress might have impacts on some of your more traditional competitors. But how about as it relates to you?
Yeah. So, in general, I think if you look at some of the analysts that are out there, some of the key opinion leaders, a lot of discussions there. But in general, and we believe this as well, is the consensus that incoming administration is generally supportive of Medicare Advantage. So, we see it as a positive, right? And we'll execute on the strategy.
Maybe just one last question on sort of your own capital needs, where it stands today on the balance sheet. You talked about you're investing in a more self-funded way on a go-forward basis.
So yeah, maybe just talk a little about balance sheet capital needs.
Yeah. So, we've proven that we can be profitable on a 3.5 -star basis, right? We believe also for the next number of years that we could self-fund growth, if you will. We have, I think, $530 million in cash and cash equivalents and investments per the end of September on the balance sheet, if you will. A little over $200 million of that is unregulated cash, if you will. So, we believe we're sufficiently funded.
Gotcha. And in terms of, have you looked externally to bring in either new technologies or plan designs, new capabilities to your technology stack while you have this cash on the balance sheet that could potentially be used in that way?
Yeah. So, from a clinical perspective, we believe our platform is best in class, as you can see in the results.
That said, we do have a business process as a service partner for more of the back office and claims processing, if you will. That's some of the cost savings also on the SG&A side and some of the leverage. So yeah, we do partner there, but our focus is essentially on the clinical side and care management.
Gotcha.