Good afternoon or good morning, everyone. Thank you for joining the Clover Health presentation here at the Citi Global Healthcare Conference. My name is Daniel Grosslight. I'm the Healthcare Technology and Distribution Analyst here at Citi, and I'm pleased to welcome Peter Kuipers, the CFO of Clover Health today. Peter's going to give a brief presentation, and then we're going to open it up for some Q&A. Thanks.
Thanks, Daniel. Great to be here. So what is Clover? We are a healthcare insurance plan. We do have a differentiated vision and approach to improving healthcare for seniors and Medicare Advantage. So we are deploying technology so that physicians can earlier diagnose chronic diseases, earlier treat chronic diseases, drive better quality of care, better health outcomes, and also at total lower cost of care. If we look at our total business, we are enabling physicians to perform at the top of their license using our software platform. Our software platform is powered by AI. We have developed this technology roughly over the last decade using large data sets, starting with machine learning, and now the last couple of years also powered by AI. We have dozens of patents regarding our proprietary technology powering our clinical platform. The market in Medicare Advantage is large.
It's an over $500 billion market annually, with over 35 million seniors in Medicare Advantage today. We are focusing on the PPO side of Medicare Advantage. Close to 100% of our members are in our PPO plans, where members have freedom of choice to choose their physician, to choose their provider, which we believe is very important for quality of healthcare. We are growing. That's also a differentiator in the market. We are growing from a membership perspective. We are focused on our core markets, which are New Jersey and Georgia. We are managing the growth as well.
We're focusing on areas that we call top priority markets, where we do have a combination of already a large member base combined with a base of physicians that are using our software platform, and also where we do have our own home care that can help our patients and members with a higher security to make sure they get high-quality care. On a year-to-date basis, we have grown, it's an exception in the MA market, by 33% in membership year-to-date, and that is a September 30 number year-to-date, while realizing $45 million of year-to-date adjusted EBITDA, which is also exceptional given the new membership growth, which typically comes at a loss-making first year. We are looking at continued growth. We have high conviction of net income GAAP, net income profitability for fiscal 2026, with a number of drivers that I'll discuss in a bit as well.
Looking at the differentiated model, like how we actually have strategically designed the company, we are focusing at the front end, at the point of care, at the time of care, so that members can get the best clinical quality care, so we are enabling physicians with technology to use at the point of care to help them identify chronic diseases earlier so they can get treated earlier with better health outcomes. If you contrast that with more traditional approaches on the right side of this page, traditional approaches focus more on back-office, administrative measures, denials, claims processing, and technology there. As a result, the more traditional approach is, of course, delayed from a clinical perspective becse it's back-office oriented with essentially very little or no clinical tools upfront. We are managing a wide PPO network with free choice of members.
Traditional approaches are more focused on HMO, which is a more narrow network with less choice for members. I would also point out that we are not focusing on risk delegation in the traditional sense, whereas that is a large focus for traditional players. They delegate risk. So what you can see in our financial results essentially is full risk of cost, if you will, and performance of our members in the P&L powered by our software, proprietary software platform, clinically oriented. So that is direct proof that the model is working. So we're not a—we don't just sell the software. We're actually using it for ourselves here, and you see it in the performance.
I would also say that from a differentiation perspective, we have a very strong leading home care business unit that is focusing on home care for our highest acuity patients, where our physicians become the primary care physician for that member with highest acuity. We, of course, use the same software where we can manage the disease, of course, better as well, whereas home care in the traditional settings is more nurse-led as well. So our practitioners are mostly MD-led pods, right? So direct clinical care at the appropriate level. And lastly, again, pointing out that the exceptional performance, growing 33% year-to-date, and membership with $45 million of Adjusted EBITDA is exceptional in the market. And that is because of our differentiated approach that I talked about earlier.
If you look at that compared to industry average or traditional MA or Medicare Advantage, we are roughly in the same ballpark as far as the cost ratios. That said, though, we are doing that with 33%-35% membership growth, which is exceptional, whereas the industry overall by itself is roughly flat. So if they would have grown, the industry would grow at a much higher percentage. Of course, there would be hundreds of basis points higher cost ratios for the larger MCO players as well. That's the way we look at it. Now, how does this actually work in reality here in practice, right? So I have a technology background. I'm very passionate about user interface and technology because I believe that technology needs to be elegant, easy to use for user adoption, and for effectiveness as well.
So this is actually a screenshot of our technology, Clover Assistant. What Clover Assistant does, it combines over 100 data sources you can see on the top right from various sources. So essentially, most major EHR systems, all pharmacy, all claims, and almost all labs. So that is, first of all, the aggregation of all data, which is exceptional. That takes years to combine. But then it's also synthesized and captured. And the most relevant medical indicators or items to look at are surfaced for the physician. So already, and this is, of course, powered by machine learning, proprietary technology, and AI models, it helps the physician focus on particular areas. You cannot expect the physician to go through hundreds and hundreds of pages in EHR. So this helps the physician focus on very specific areas that require attention. Then also, the ML-powered, AI-powered models provide care management recommendations also.
That typically is difficult to do, just if you're just by yourself as a physician. You can ask a second opinion, a third opinion. Here you have thousands of opinions that aggregate to essentially hear a care management recommendation. Now, the physician ultimately is still responsible for making the clinical decision. That's not what we do. We just empower the physician to perform at the top of their license. Now, another proof point or a number of proof points besides the financial performance are a number of clinical academic white papers that we have published over the last years. In general, I would summarize it as that our white papers compare a member group or membership group that is treated under, has coverage under the Clover Assistant technology versus a comparable group that is not covered by the technology.
And we can do that because we are operating at scale for the last couple of years. Roughly 2/3 of our membership base is covered by the software platform, so we can actually compare. So it's a different A/B testing, if you will. So statistically relevant. So in general, I would say there's two main results there. So diagnoses of chronic diseases typically are earlier. So diabetes about three years earlier, chronic kidney disease, for example, a year and a half earlier. So those are significant earlier diagnoses, which then gives the clinician, of course, the opportunity to start treatment earlier. Generally, if you start treatment earlier, you can have better health outcomes as well. And also, generally, those treatments that are earlier, you have those at lower treatment cost also.
Then the second area that the white papers in general highlight is really the lower hospital admissions and also lower, significantly lower hospital readmissions. So these are very significant percentages as well, double-digits in the 20% range as well, which is significant. In healthcare, again, that, of course, improves the quality of care. It improves health outcomes, and it also, of course, lowers total cost of care. Now, we're using this proprietary technology at our full economic risk for our own membership, mostly in New Jersey and in Georgia. But we also have very strong interest from third-party payers, both national and regional, very strong pipeline, and also from risk-based providers. Again, same software when implemented. These third parties get the same benefits as far as earlier diagnoses, earlier treatments, better health outcomes, lower total cost of care, and, of course, an MCR improvement as well.
We have conviction that we can help these payers and providers when implemented drive an over 1,000 basis points improvement in the medical cost ratio, which is very significant. We are now in a phase for, and this offering is called Counterpart Health. We are in a growth phase now where we are focusing on the number of total lives covered by the software within Counterpart. So we're scaling that. Very strong product-market fit, absolutely there. We're not in a phase yet where we will disclose the regular cohort metrics like CARR and ARR. We will get there at some point. We'll disclose more. So lots of momentum on the Counterpart side as well. Of course, you can expect also that given the cost trends in the industry, Medicare Advantage, that, of course, there's more interest as well this year.
If we now look at our performance year-to-date here, again, we've grown 35% in membership while delivering Adjusted EBITDA of $45 million while managing, of course, a large new membership cohort. We've also improved from a leverage perspective fairly significantly. We've lowered SG&A as a percentage of revenue by 370 basis points. So we are managing through, of course, a higher cost trend that you see in the industry. We have more new members, slightly more new members than we expected. I would say from our third-quarter earnings call, we had expected to be even better. We did not achieve that quite yet. That said, though, if you normalize for PPD, you look at the underlying year-to-year cost trend, excluding pharmacy, our cost trend is roughly 4% while growing 35% in membership. So that's an exceptional performance.
Now, looking forward, our large new membership cohort this year will be a returning membership cohort next year with improved financial performance. Now, let's look at the drivers of profitability and growth next year and the next couple of years as well. We have disclosed in the last earnings call that we have very strong voluntary member retention, likely the highest in the industry of over 90%. That helps with the economic model, of course, as cohorts mature and become more profitable. That helps in that model too. Going into 2026, of course, we'll have a larger returning number of members in that cohort. And then we also believe, powered by both the technology, further increase the home care and other initiatives from a quality perspective. We believe also that those cohorts by itself will also perform better.
Again, membership growth, strong growth this year, over 30% growth just in members. On the right side, you can see the membership mix here as far as returning and new. Of course, looking at 2026, what we have said is that, and we said this before the start of AEP, that we expect a roughly similar growth in new members as we had in the prior year AEP. We've also said that we're specifically focusing on priority markets where we have already a strong membership base, where we have physicians using our software, and where we also have home care coverage, our own home care, and then also matched with attractive MCR percentages in those specific pockets as well. We are managing the growth via that lens by allocating marketing dollars and marketing events, member events in those specific areas where we want to grow.
So we steer the growth to where we want the growth to be. On the next page here, this is a cohort analysis of essentially the impact of the technology. So you can see here that on average, the medical cost ratio from year one to year two, so essentially from a new member to a year two or returning member, improves by about 700 basis points, which is significant. And then going from year two to year three, there's another 700 basis point improvement to about a 1,400 basis point improvement from year one. That is significant. That is underlying the drive of the model also financially. So this is the foundation. Then going one click further, we have disclosed now also what we call contribution profit per member per month.
You can see here that the contribution profit loss for new members is about $110 per member per month. And how is that defined? That is revenue per member per month minus med costs per member per month, minus customer acquisition cost, minus also variable SG&A to service that member, right? So it's a fully inclusive metric. If we now look at returning members, so those cohorts generate about a $217 profit PMPM. And we expect both numbers to improve in 2026 for a number of reasons that we'll get into in a second. Looking into 2026 and beyond, again, we believe we can maintain strong voluntary retention for members, resulting then, of course, in an even stronger returning cohort. We are performing well financially on a three-and-a-half-star level. Next year will be a four-star payment year with the financial benefits and tailwinds there as well.
We have initiatives to further increase the use of the technologies by providers and PCPs specifically. We have a multi-year roadmap. Every quarter, we have new features and capabilities to make the platform, proprietary platform, even more impactful. I would also say that, of course, from an industry perspective, next year, the CMS final rate notice will have, of course, a tailwind. Also, Part D Direct Subsidy also has a substantial increase year- over- year. And then, of course, from a growth perspective, others are retreating specifically on the PPO side. We expect to further optimize. We are optimizing SG&A. Now that we are growing and we will grow, we believe, for the next number of years into the foreseeable future, we have more leverage as far as negotiations with both providers, PBM, etc. So there'll be more leverage there also just from a rate perspective.
Then, of course, we will also have leverage from a volume perspective. Let's go to questions.
Great. There's a lot to dig in there. Super interesting model, super interesting results too when the industry is still going through a lot of upheaval, but it does seem like there's green shoots, I guess, from a macro perspective in 2026 and also in 2027 for most MA plans. Maybe if we can start, and I know you're a tech guy. You come from the tech industry. I cover healthcare technology. Why don't we start with the technology? Because I do think that is one of the bigger differentiations that you guys bring to the market. Really, that's via the Clover Assistant. That graph that shows that 700 basis improvement in your MCR, I think, is really impressive.
Does that improvement include your entire population, or is it just of your Clover Assistant population? And if it is, if it's inclusive of everyone, can you bifurcate out what the improvement is on the Clover Assistant versus the non-Clover Assistant?
Yeah, so it is both. It's a total population. We have not broken it out. So you can, of course, assume, given the dynamics and underlying math, that the impact for Clover Assistant itself, Clover members, is higher than that.
Yeah, yeah. That makes sense. And what percent of, roughly speaking, what percent of your members after year one are being fully treated or fully with physicians on the Clover Assistant?
Yeah, so we've given two metrics. So total population, roughly two-thirds up to like 70% of our total membership base receives care under the Clover Assistant technology.
We've also said that for the large group of new members joining us this year, that over half by the end of September already are under Clover Assistant technology care.
Okay, so it's happening more rapidly now where physicians are onboarding with Clover Assistant than historically.
Directionally, yes. But I think it's like for us, the way we look at it, like once we have new members, we want to get them earlier on the Clover Assistant care for all the benefits, not only financially, but also from a quality of care perspective, of course.
Yeah, yeah. Makes sense. And it does seem like you're continuously improving the Clover Assistant. I saw that you recently added AI scribing capabilities, which is, I think, a big area investment within just the health tech industry at large. How are you differentiated in your scribing, your AI scribing?
And how are you using other AI tools to further enhance Clover Assistant?
Yeah, so scribing our scribing capability is fully integrated into Clover Assistant in our platform. What I would say differentiates there is the integration helps, of course, but it also helps them with the administrative loads and even further reduces the time spent on admin for PCP so that the physician can focus essentially on clinical activities.
Yeah. And looking forward, are there any other kind of AI-based tools that you are poking around, looking at adding to Clover Assistant?
Yeah, I would say that the strength of our Clover Assistant technology is really the proprietary machine learning and AI models. So where there might be assisting models, of course, we use the cloud, etc., but the core technology is developed and protected by IP.
Yeah, yeah.
I guess to that point, as I look at the industry more broadly, the managed care industry more broadly, I'm sure everyone's aware of what you're doing and they're seeing your results. What's to prevent some of these very large, cash-rich managed care plans from coming in and doing what you're doing?
Yeah, I would say there's a couple of aspects there, right? I think one is really the vision and approach and culture. We've taken a quaternary approach to really focus on best care, clinical care at the point of care, at the time of care, empowering physicians. That's a different mindset, right? I think you need different teams and backgrounds to even start there. That's a big cultural change. From a technology perspective, I would say that we've developed this close to over the last decade, this technology at large scale.
But it will require time as well. Then I would say we have a defensive mode from an IP perspective also in a lot of these areas that you can think about as far as earlier diagnoses, earlier treatments. So it's an exceptional model with a defensive mode. And then also, of course, our technology is available for third parties. So if there are other players, we have good interest, very strong interest in momentum, we can also partner, right? We are focusing, of course, our go-to-market strategies, we focus on our markets that we're in, right? So that is, of course, New Jersey and Georgia. We're also in Texas and South Carolina. But outside of those four states, of course, we offer the software also from a very effective.
So if you're not going to offer within those, you're not going to compete against yourself in those states or?
We haven't so far. Correct. Okay. Yes.
The other interesting aspect of your model that's a bit different than others in this space is the PPO. Most folks, especially now with costs trending higher than initially anticipated over the past couple of years, we've seen more plans move to the HMO versus the PPO. What gives you confidence in that PPO model versus moving towards an HMO like most folks in the industry have done? And is this just a strategy that can succeed in your mature markets, or as you potentially branch out to newer markets, do you think the PPO model also works in newer markets?
Yeah. So I think a couple of questions there, right? So HMO, of course, is easier to manage because you have a kind of a more narrow network.
We believe, though, that members need to have freedom of choice, like where to get the care, to get the quality care, if you will. Others are retreating from the PPO model because it's difficult if you focus on the back office technology where the health, the upfront health of a member is managed really with a delay. So that makes it more difficult for larger players to play and offer PPO plans.
Okay.
And our technology works really well there, right? But again, we focus, of course, on areas for PPO geographically where we have a membership base, where we have physicians using our technology, and where we also have home care. So that makes it really powerful.
Yeah, yeah. Let's pivot to the financial picture because that has been an issue not just with Clover Health, but with the entire industry in thinking through a difficult couple of years.
Now it seems like 2026 is looking good from a macro perspective and 2027 as well. For 2026, we'll stick with 2026. I don't want to get too ahead of our skis here. That was a good slide I thought you had up there. I think there was the move to a four-star rating, maturing member cohorts, leverage you're getting out of SG&A. As we think about further improving profitability, further improving cash flow, can you perhaps quantify, maybe break down in a little bit more detail those specific drivers and their financial impact?
Yeah, absolutely. If you look at the Part C Final Rate Notice, if you click down on that, it's roughly, I think, a 5.5% increase for the cost trend. There's a lot of factors in there as well.
Depending on where you are as an insurance plan in Medicare Advantage, you're going to give probably some of that back in benefits or not. So that won't be like a full fall-through financially. The Part D D irect Subsidy is close to 40% year- over= year. We don't believe that inflation necessarily on the pharma side will be that high. We are looking at improving our Part D program and our collaboration and partnership with the PBM as well. But that is not because there's risk corridors as well on Part D. So that's not a full fall-through to the bottom line as well. Our Star Rating increases to four-star next year. That is almost a 5% increase to the top line. Again, that won't be a full fall-through to the bottom line either, right? So there's a lot of the quantifications there.
Then from an SG&A perspective, we expect to have really two improvements. One is on just the rates that we have for external vendors, and then we also will, of course, have volume leverage.
Yeah. Yeah.
And then we'll continue to have additional impact for more technology features and capabilities in Clover Assistant, as well as more coverage. So there's a lot there from a tailwind perspective. Of course, we'll have new members, right, so new members will be loss-making next year, but also the returning group of members will be much larger as well, so we're managing it from that perspective.
What headwinds do you see? There's a lot of tailwinds, but what headwinds are still out there for next year that kind of keeps you up at night?
Yeah, of course, we're closely watching, of course, the cost trend, right?
So we disclosed that our cost trend normalized just on the current basis for this year. Year to date, it's 4%. If you look at some of the larger MCOs, they're roughly running at 7.5%-8%, while not growing membership, but we are growing membership. So we're watching cost trends, of course, and utilization. I think we have pretty good visibility there, but that could be a headwind.
Yeah. Well, what about Part D? I know you mentioned that the indirect subsidy is increasing, so that should help offset some of these pressures. But there has been so much uncertainty around Part D costs with the change in benefit design and just utilization being higher than expected. How are you thinking about, and you kind of referenced some changes you're making on the PBM side or the Part D side?
How are you evolving on the Part D side to help manage some of those pressures?
Yeah. So maybe we can start kind of where we are today on Part D. So I would say first delineate between standalone Part D plans and us because Part D is part of our total offering. We've said before that just on a gross profit or gross margin basis, in absolute dollars, we are actually profitable on Part D. So that is probably a differentiator versus standalone Part D plans, right? Now, we are working on initiatives to improve the performance of Part D. We're working with our PBM as far as kind of where the value is and coverage and rebate, of course. We think there's improvement to be had there, especially because we are growing. We are growing again next year. We're growing the following year, etc.
So there's more to be had there. We're also hiring talent specifically to manage pharmacy and then more talent, right? And then also I would say we're integrating more of Part D now also into Clover Assistant.
Oh, that's interesting.
Where you can imagine, of course, at the point of care, at the time of care where the physician has choice, within Clover Assistant, of course, the best medication to be prescribed at the lowest total cost of care, of course, as well. That combination. So that's still to come. That's on the roadmap. So there's quite a bit of improvement to go. We believe we could be better even. We could have been better this year, right? And we will be better next year. So there's a lot of work and momentum that we see. So more to see there, right? So more progress to see.
Yeah.
Let's talk about the profitability improvement. And again, I love those slides that you show because it is so stark, the improvement that you do see on a PMPM basis for contribution from year one to year two and beyond. I think the slide was about $110 PMPM negative contribution for a new member going to $217 for recurring. And then each of those are a little higher for 2026.
Exactly.
How long does it take you to get from that $110 to the $217? And what are the biggest drivers or the biggest levers you have to pull there?
Yeah. So exactly. There's cohorts of vintage years in between here, between year one and then, of course, the returning member cohort on the right. That's the totality of the returning members. So that improves, I would say. There's some linearity in that, in the progression, if you will.
We have large enough cohorts now as well with multiple, multiple years of history to look at the performance there. What we, of course, look at here in the underlying performance on contribution profit is really type of plan, type of benefits. Of course, we can drive is, of course, Clover Assistant coverage, right? So we could, of course, we're driving initiatives to engage and have more PCPs and providers use the technologies, Clover Assistant technologies. It could be more just PCP practices. It could be more health system providers as well, of course. Underlying that, of course, is what are actually the rates that we pay to providers as well? So that could, of course, impact the gross profit, then, of course, also the CAC costs. So what have we spent on marketing, on broker commissions? Of course, we're optimizing that too.
And we can, of course, differentiate kind of by geographical area as well. And then variable SG&A that we pay vendors to help service our members. Of course, we're negotiating. We're negotiating rates on all major contracts as well, right? And we've got some volume leverage. So there are a lot of levers there. We're focusing on the main drivers. So we think they can improve year- over- year, even if you, of course, take out some of the macro drivers, of course, like the rate notice and the Part D direct subsidy.
Yeah. Yeah. So on that returning member, I don't know if you disclose this, is there an average year it takes to get to that $217 or any way to frame?
The older cohorts are higher than that, right? And the younger cohorts in that are lower than that. So this is the average.
Oh, so this is, again?
This is the average.
Yep. Average of years.
Right. So that's the ages, right? The history. Yeah.
Okay. Let's talk a little bit about growth too and how you're balancing growth and profitability. Like you said, very strong growth in 2025, 33-ish% year to date. Going to do the same next year, which I think is interesting because a lot of your competitors are retrenching a bit from the MA market. How do you think about growth, both in terms of new markets or existing markets, which it seems like you're really focused on, versus potentially entering newer markets? And how do you balance that growth with potential drag on profitability?
Yeah. So the way we look at our priority markets, so over 90% of our membership is in New Jersey. And then the second largest market for us is Georgia.
A number of specific counties or areas actually in Georgia, so not the totality of Georgia. For New Jersey, we're roughly at a 13%-14% market share in Medicare Advantage, while we're growing 30%+ . So there is a number of years of runway there to grow at these rates, if you will. And then the benefit, of course, is that in New Jersey, we do have a strong membership base already. We do have very strong Clover Assistant PCP coverage using our technology. And we also have a really strong and excellent home care coverage also. So much more growth to be had there. Again, also in New Jersey, we're very precise on where we want to grow in submarkets. Similar to Georgia, we're only a couple of percent of the market, like low single digit. Again, there, we're very precise on where we want to grow, right?
So we have, of course, tools to manage the growth where we want to grow from a marketing perspective, commission perspective, etc., right? So we use those tools, if you will. I would say for other markets, except for those two priority markets and in Texas and South Carolina, we offer the Counterpart software, right? So there's no need for us to set another way. There's no need for us to start up other markets today from a Medicare Advantage plan perspective or with our own plan.
Yeah. You can access via this more capital-light SaaS.
Exactly. High margin, yes.
What is the margin on that Counterpart?
At scale, it will be higher, right? Then, of course, the plan. We haven't disclosed what it is today. Yes.
Hopefully, it'll be higher than the plan. Good. But typical SaaS-like margins on that, would you say? Is that fair? Yeah.
I think it would probably be lower than kind of pure-play, like B2C SaaS margins, but substantially higher than the plan today.
Let's talk a little bit about 2027. I know there's not a lot you can say there, but there was kind of a downgrade from the four-star to three-and-a-half-star for the 2027 payment year, which I think you mentioned was largely due to pharmacy issues, which we already talked about. But beyond working with your PBM, what operational changes and investments are you making to ensure that you remediate these measures and regain a four-plus-star rating in 2020?
Yeah. There are a number of initiatives there. We are focusing more on stars just in general. We have a number of Medicare Advantage, sorry, Medicare adherence programs in place as well that we also coordinate with the PBM. So a lot of focus on that too.
Okay.
Yeah. Good. And I think we're running just up on time now, but I do want to close it out with kind of a bigger picture question for you. What is the single most important milestone that you think investors should be watching for over the next 12 months or so? And what metrics are you going to track? Are you going to stay on track to make sure that you achieve those long-term goals?
What I would say is our focus on how we manage the business and how we allocate capital and resources is really focused on the contribution profit model, right? Again, how we can drive profitability and growth. So that's our focus. And kind of the net-net end result is really the conviction in 2026 GAAP net income profitability. That's the proof point.
Well, we'll be watching closely.
Peter, thank you so much for joining and sharing your thoughts. Excellent. Thank you.
Great to be here.