Thank you, everybody, for being here today. Welcome to the 2024 RBC Capital Markets Global Healthcare Conference. I'm Ben Hendrix, RBC's Healthcare Services and Managed Care Analyst. We're pleased to host GoHealth this afternoon, a direct-to-consumer health insurance broker. With us this afternoon from management is Vijay Kotte, did I pronounce that right?
Yeah, that's great.
Chief Executive Officer. Then also in the crowd with us today, we have John Shave, Vice President, Investor Relations. Thanks for being with us today.
Thanks for having me, Ben. This is always great to be with you. You know so much about the industry. It's good to kind of have a nice conversation about where things are going.
I appreciate that. Let's start dive right in with kind of the strategic transformation we've seen across the industry. It's been a multi-year theme for you and your peers in the brokerage industry and with various strategies kind of starting to reach an inflection point, really. Maybe we can start with a discussion about GoHealth's transition from an enrollment company to an engagement company and where we are in that transition and where we're going.
Now, it's really something I'm super proud of for the company because when I first came in in June of 2022, now nearly two years ago, our focus was on stabilizing the organization. As you know, cash flow was something that just was nonexistent in the overall sector. And we quickly went from burning over $300 million of cash in 2021 to generating positive cash flow from operations in 2022 and have maintained that trend as we continue into this year. But when we think about the overall transformation, that's on a stability basis. The transformation to being an engagement company means going even further. It means really finding a way to not only allowing the enrollment to be the tipping point to engaging with the population to address their needs, but more importantly, help in those aligned motivations around what the health plan needs as well.
The consumer wants to get access to care. We have built our Encompass workflow around matching you with the right plan, making sure you're confident on that selection, and then helping you activate the benefits. In that activation engagement process, we're making sure that they know how to access the benefits that they are signing up for. More importantly, with a handful of health plans, we've already gone to the next phase of Encompass, which was engage, where we are helping facilitate getting the consumers to go and get the preventive healthcare, get aware of those types of tactics to manage the population more symbiotically in that process. As we've gone from stability to enrollment and being as efficient as possible there, we have underlined that with trust.
We've been building trust the entire time to ensure that they are willing to accept the feedback we give them as to how to allow the consumer to access the best care that they are really seeking. And so we are well down that path. As you know, we implemented our Plan Fit saves last year to, again, reinforce the concept that trust is at the core of engagement and activation that helps the consumer, as well as supporting what the health plans are going through that you know better than anybody else of dealing with medical cost issues. Now, medical cost issues are happening on the inpatient side, and it's too late if they're already in an acute event.
The key to addressing that, which some of the health plans have already engaged us to do, is to do it at the point of enrollment where you're engaging the consumer to access the benefits that support preventive care as opposed to episodic acute care.
And then one big piece of this that you've already mentioned was the Encompass platform. And also, you've introduced Encompass Express. Can you talk about kind of the extension of the Express platform? It sounds like a dual-purpose initiative to both enhance customer experience and efficiency and some financial upside down the road. Can you talk about that?
Yeah. No, so Encompass Express really helped to reinvigorate what we had started with Encompass overall. So Encompass was intended to make sure that you have a very fulsome assessment of your needs, match you with the right plan, reconfirm the trade-offs and the differences between the plans, and then help you access those benefits. With Encompass Express, we listened to our concerns. What we did was we took their feedback, and they said, "Well, these things work great for us in that process. Make us feel good. We'd like more of this, less of this." And we said, "Well, let's look at our overall process. Let's revisit the entire thing." And what we found was we could actually drive greater efficiency on handle time, better experience for the consumer, and still support activation.
So what we did was we revamped the scripting and utilized our technology to better match consumers with the right agent for them who can answer the questions in the most efficient way possible using our proprietary logic and technology tools we've built. And so that yields a shorter time that they end up having to spend on the phone with us while still being able to address their questions more efficiently. As you probably know, when a consumer enrolls in a Medicare Advantage plan, they get an Evidence of Coverage. It's about that thick, probably 300 pages long. They don't know the particulars of how to access the benefits. And our agents need to be able to explain them how to do that.
What Encompass Express is doing is utilizing our technology to be able to concisely and expeditiously get the consumer to the answer to their very specific question. By doing so, again, we're able to decrease handle times, increase consumer satisfaction, and then yield more time for that agent to get on another phone call. There you get not only CAC efficiency, but you also get more submission flexibility to get more volume through the funnel for us.
How is this tangential to some of the other investments and technology you've made? You've talked about a lot of digital-first type engagement. Can you discuss how that's going?
Yeah. So a lot of people have been trying digital self-service, right, within the Medicare Advantage space. Consumer comes in, does all their shopping, enrolls in a plan. We don't really believe the population is ready to do this on their own. We believe consumers in the Medicare space, from all of our experience, want somebody to confirm that what they're doing is not going to cause any harm, and it's going to support them. So what we've already begun testing in the marketplace is, well, let's enable. We know that in our segmentation analysis, there are segments of the Medicare population who do want to do research on their own. They want to start with some data. They want to start with access to some of our tools that can help them refine their choices. But then they want to speak to somebody.
And so we're facilitating, enabling them that access to empower them with that data so that then they can confirm those choices with our own internal resources. So we've been testing that, actually, in OEP in a very limited way, more substantively in SEP, and looking to see what it does with the overall population in AEP. Again, more importantly, just to bring in new categories of population, especially given what we expect to come in AEP. And I know we can talk about that a little bit in the general market landscape, but specifically within the supplement population, the premiums are going up nearly 20%-25% is what we're seeing right now. So that's going to put more shoppers who may want to have that access to information available to them through the digital marketplace.
We're trying to really customize our messaging towards that ability to access our tools that way, but ultimately still finish with our very skilled agents that we have on our phones.
Gotcha. And that might be a good foray into kind of marketing strategies across the space. So your peers have made significant changes to marketing strategies the last couple of years. The entire industry is becoming more strategic in how it targets consumers, kind of getting away, it seems like, from the unbranded television ads and more towards higher visibility channels. Maybe you could talk about the differentiation in your marketing strategy. I think you've touched on it a little bit already, but how GoHealth can drive growth in the targeted markets.
No, I like the way you asked that at the end, the targeted markets, because we are hearing a bunch of noise from the health plans that some are having real financial pressures, but not everywhere, right? I think they've also said there are places that they'd like to maintain, some places they'd like to grow, and other places they're comfortable shrinking. That level of specificity is what we enable for our partners, is that there are specific geographies where they want to grow with certain products. There are certain places where they are the best plan available. We're able to customize our messaging to be very personalized via our digital platforms, our mail platforms, and all the other different ways that we get our leads and support our marketing efforts. So if you were to really encapsulate our approach, it's not a one-size-fits-all.
We know different segments respond to different messages, and different products are better for different consumers in different geographies. We are very nuanced in that personalization. We can turn it on, turn it off. The most important piece of that related to our cost of acquisition and our efficiency overall is we're able to match that almost real-time with our capacity. As many in the industry will say, they burn a lot of leads, right? They get more than they need at any point. They can't match it up. We have a very tight matching logic so that we don't waste those conversations. A consumer comes in, we prioritize it. We have a lead scoring logic, again, by geography, saying that if you're in this geography, this is your demographic profile, here's the agent who's best suited for you.
Then we match up based upon the message, the profile to an agent who lives or is licensed in that geography and has expertise of those products so that you have the highest quality interaction. It really does start with that nuanced, personalized marketing approach that we put in place that says that this is the right message for this type of population with this type of product, which we've found to be one of the key differentiators for us. You're not going to just see one common theme of commercials because one size does not fit all of this. That's for general branding. We don't believe in the near term that there's an opportunity for general brand. That's inefficient dollar spend in our space. It's more about meeting the need and recognizing what the unique needs are of those populations by geography.
What percentage of your agent pool or life operators are targeted in a geography versus kind of just nationwide?
So I would say there are very few that are absolute one or the other. I'd say 100% of them are subsections of the country, and especially given the timing of when you can actually take phone calls and speak to agents moving east to west, which you tend to have is more of the west on the west and the east on the east and the midwest and the midwest. We have agents all the way across the country. So we tend to match up that way. But even within a state, if you have a special needs population, there are some of our more seasoned agents who are able to explain the nuanced benefit differentiations within a dual special needs product or a chronic special needs product.
So even within appointments, you have different agents with different experience levels that will better suit the needs of that consumer and will match them up that way as well because that is another big differentiator that I think is valuable in how we deploy this and why the general market has about, call it, 24% special needs Medicare Advantage members. Last year alone, we did over 40% special needs population because of the fact that we have specialized trainings and tools for our agents who are being matched up to those consumers who have those demographics.
Well, this platform is going to see a significant test, it sounds like, coming up in this AEP. You alluded to it earlier. We have carriers who are going to be scaling down plan benefits, supplemental benefits especially. Maybe even those reaching total benefit cost thresholds may have to pull a plan and reintroduce new ones. It sounds like that could be an opportunity, especially for carrier-dedicated platforms. Is that the right way to think about it? Maybe you can kind of give us more information on specific steps your platform has taken for this AEP in particular.
No, it's a great place to start. It is what everybody's talking about for good reason. It is the first time we're seeing this dynamic in the recent history, right, of this amount of disruption that's happening generally in the negative direction. Historically, it was who was investing more. Now it's who's taking away the least. As we think about it, there will be winners and losers in this. That's going to be strategic in the way they approach it. As we think about it, it actually takes we have to go back a couple of years as to how we've been preparing for this. As you know, we've been moving towards what we call more of the non-agency platform, where ultimately we're not on an LTV basis in that revenue structure.
So when we saw benefits increasing significantly, we knew that there was likely a point at which there would be disruption. So when you shift more to that non-renewal-based compensation model, which is non-agency, we've de-risked that. That's not in our backbook. We got priced that revenue was solid, and it was cash revenue at the time. And as we go into this new world, that is where now we can be very opportunistic in serving all of those who have major disruptions and their plan is an exit. So we don't have to be worried about the fact that that plan exit is going to impact our backbook so significantly because the majority of our business in the last two quarters, specifically in the last two AEPs, was going through that non-agency channel. But more specifically, we can support all those who have exits.
We can help those who have major disruptions shop to new benefits. And again, it's going to be geography by geography. We can customize those messages based upon what's actually happening in that geography. And then we can also go to those who are new shoppers, who were never shoppers before. Like I said before, supplement consumers should be shoppers of Medicare Advantage. Major disruption in the market of consumers who had said, "I'm going to set it and forget it," five years ago, right? They joined a plan, and they didn't want to change anything. Now this is the first time that it's a major disruption. They're going to get an annual notification of change in August that's going to tell them that major benefits changed or their plan doesn't exist. So they want to find somebody new to work with that they haven't shopped with for years.
So we're really looking at these specific cohorts and then trying to anticipate, based upon all of the breadcrumbs the health plans have provided us already, where are the most disruptions going to take place, and how do we prepare ahead of time to be ready for that? So we think it's actually a very interesting dynamic for us because as we provided qualitative comments on our expectations for the years, within that, we assume no major disruptions in that until we see it for sure. We hear it. Until we see it for sure, we don't want to assume anything. But if the disruptions are as significant as we're describing, that would increase our overall efficiency, meaning less plan saves, more new enrollments. It would decrease our CAC because that conversion rate decreases CAC directly. And then finally, as you know, we invest in the plan saves.
Even if their benefits have degraded, it still might be the best product for them to stay on. And we are already testing or in the process of launching those tests with carriers where we're compensated to do those saves. So when you think about the dynamism of this coming market, in almost every interaction we'll have with a consumer, it's not that there's going to be lost opportunity for revenue while delivering a service. We're going to have more of those interactions that will be revenue-generating for us.
Yeah, maybe we could touch on that a little bit more because I know in 4Q, we did have a situation where you did a lot of plan saves, it sounds like, and that went really well, executed on that strategy. But we did see our volume fall short of what we had modeled, and perhaps we mismodeled. But I just wanted to see how you're thinking about that balance going forward. And just in order to are you rethinking about how guidance could play out in the future, or how do we strike that balance?
Yeah. So I think this is why I'm being very thoughtful, and we as a team are, on how we feel about the full year. We identified our five key factors can drive our performance on the year. The first two are known. Those are the plan rate, final notice on rate, and final marketing rules for the year. But the biggest one still is the amount of market disruption. And last year, though there were a little bit of inklings, at the bid time, we didn't really know health plans were feeling pressure. I don't think anybody expected there to be so little invested year-over-year in the non-SNP products. And specifically, it was down almost 90% from the previous year. MACVAT values from Milliman showed that in 2022, going into 2023, the average non-SNP plan had about a $30 PMPM investment into product.
In 2023, going into 2024, that investment was only $3 PMPM, right? So per member, per month. So it was significantly down year-over-year. We didn't anticipate that. We knew we were going to incentivize our agents and make sure that we were going to do the right thing and not jam those sales through. We absolutely delivered on that commitment. But in reality, there was just a lot more of a push in many geographies. And so we confirmed for the consumer they'd be in the right plan. As we think about how we prepare for our outlook on this year, we're assuming a lot of the same things were there as last year until we're confirmed otherwise.
And that's why I say that if the disruptions, that third lever of my list of five, comes in and shows that there is massive market disruption, then that will yield more of a positive move for us on overall expectations versus where we were last year, where there was less product differentiation investment or, frankly, even negative moves. It was more of a push. So I think as we think about our overall expectations on a year-over-year basis, as I referred to, I think, on our Q4 call, there's two things that can happen. Somebody's trying to grab share and invest high. Somebody's trying to just stop the bleeding a little bit and hold firm. Or they're going to disrupt majorly because they can't actually refine back the volume of the consumers.
Last year was in the middle, which is generally the worst thing for the way our historical economic model worked because there's no justified reason to change plans. In either one of those other tail option scenarios I described where people are planning to grab share or they're trying to exit share, those are great markets for us. We would believe that if everything that's being said in the marketplace is true about disruptions, we'll be in that latter scenario where there's significant shifting and reasons for not only changing plans, which is where you get on the high end, but new shoppers that don't typically shop coming in. It could be a very interesting marketplace for us.
If that weren't enough, that we're seeing a potential extreme disruption in the market. We have CMS putting through final policy and technical changes for Medicare Advantage 2025. I just want to get your take on that. It doesn't sound like it's going to be too much of a headwind for you or your peers, but just wanted to figure out who it does impact and what your mode is to protect your business?
I think first and foremost, our strategy has been there's always going to be this unknown about what CMS is doing, right? They're always coming in with new regulations. Every year, they're looking at this. It's important, right, because there's a lot of bad actors out there. They need to do their work, and I appreciate them doing that work. We need to make sure we control all the things we can at all times. That means focusing on a compliant approach, a thorough, high-quality, consumer-centric process, but doing that at the lowest cost per acquisition as efficient as possible. We're driving efficiency. We are the lowest CAC within the industry today, according to all records that we see.
We're continuing to drive that down with Encompass Express and all the other things we do and deploying our machine learning and AI tools to be able to make that more efficient. As it relates to the CMS rules, yes, the final, final hasn't been published, as you know. It doesn't come in maybe till July or something like that. So clarifications, FAQs, are likely still coming out from CMS. But nobody expects anything to be significantly different than what we've been interpreting, where it doesn't apply to us in our model because our agents don't have variable compensation in the same way that a true independent agent might. We're being categorized more in the TPMO world of where you have salaried agents who are more on an hourly or a salary basis.
But what I believe is over time, we need to be prepared that there could continue to be and I will say this is the way we're preparing as our business, that you can't predict what health plan economics are going to look like. So we look at the health plan economics right now. You've got to prepare that there could be pressures in the future. And the only way you can plan for that on the revenue side, either via regulation or market dynamics for health plans, you need to be as efficient as possible. And you need to be able to generate more volume with lower cost and be able to flex up and down accordingly. And most importantly, you need to be able to deliver a high-quality experience that keeps people shopping with you versus the market.
So if we can't be a strategic partner for health plans when they have challenges like they do now, right, which we're leaning into, and/or be prepared for changes that are coming from CMS, well, then that's somewhat delusional. So you cannot let your cost per acquisition go up. You need to keep driving it down and continue to never assume that revenue is a static thing. You need to assume that there will likely be pressure on that over time. And that's what our plans assume, is that that will be there. So we don't assume the best and hope for something different hope for that to happen. We assume middle to negative and allow ourselves to be a little bit more pleasantly surprised but prepare with efficiency and investment in technology and team.
Makes sense. I want to step back and kind of think about the broader competitive environment. Looking at the long tail of this industry, we saw 2021, the persistency headwinds caused a lot of turnover and consolidation in the industry. Yesterday, we had one of your peers talk a lot about that changing industry dynamic. Want to see if maybe kind of how you view the competitive environment, its evolution, and what it could look like coming out of this next AEP?
No, it's a great question. As you know better than anybody, you've been on our calls in Q4 and in Q1, we did not make any changes. We did not increase our lifetime values of policies that are written in the traditional model. I think most of the industry did sequentially have increases in Q4 and Q1. That's not because we're seeing different data. The reason is because I can't explain my peers. I think they have great models for how they look at it. What I put on our team and in our responsibility, from my perspective, is management discretion on anticipating what's coming and the way you think about lifetime values of policies. First and foremost, we wrote a definitive portion of our business in the non-agency model where it doesn't impact the revenue that we were booking.
But on LTVs, in that world, we do see major disruption coming, policies in exit, major benefit degradation that should lead to lower tenures, a little bit more churn on what was written over the last couple of years. And so when you're writing new business, knowing that benefit degradation is coming, we decided even though the data would support potentially making positive adjustments to current booked LTVs, I look at the future and say that there's major disruption coming, so we're not going to impact or increase our LTVs at this time, knowing that. And so that's in addition to our constraint being held where we had it. We've had it over the last couple of years. We are also not increasing LTVs in anticipation of the amount of churn that's likely coming on the policies written over the last couple of years.
Great. In the last couple of minutes, maybe we can just kind of touch on capital structure measures and kind of how you're thinking about capitalization and capital needs going forward.
Yeah. I mean, look, when I started, we had $625 million of the debt, and the revolver was kind of drawn at that point. We have zero drawn on our revolver, and we've paid down nearly $200 million of our debt without we did a PIPE for $50 million back in the end of 2022. But the rest of that has been through our normal operations, being able to support that paydown. We have a lot of options of different things that we're going to reconsider as the interest rates have continued to go up, to look at refis and to look at a lot of different options that are out there as to tactics and tools that can decrease our cost of capital, right? Right now, we're paying between 12%-13%. That's a very expensive draw on our cash.
We'd love to be able to redeploy that cash into other things. We're excited about that process. As we said on the last call over the next few months, we're continuing to run through that process to see the best alternatives there, to reset our debt structure such that we can have a lower cost of capital. I will say that under all scenarios we've been looking at thus far, the outcome will be a lower interest burn than the 13% we've effectively got now. I'm excited about that, but more so that we're just trying to find a way to deal with the residual amount of $400-ish that's out there right now while we continue to invest in the business. It's not a mission-critical item for us, but it's something that we see as an opportunity to deploy our cash in different ways.
Well, excellent. I think that brings us right to time. I really appreciate you guys being here, John and Vijay. It's been great.
No, I appreciate the time and appreciate everybody's attention.