Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin shortly. Please continue to stand by, and thank you for your patience. Again, ladies and gentlemen, this is the operator. Today's conference is scheduled to begin shortly. Please continue to stand by, and thank you for your patience. Good afternoon. My name is Christian, and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to Oscar Health's 2022 Q1 conference call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. 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.
Thank you, Christian, and good afternoon, everyone. Thank you for joining us for our Q1 2022 earnings call, where we'll share the results about the trajectory of the company and the results of the Q1 . 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 annual report on Form 10-K for the annual period ended December 31, 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. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our Q1 2022 press release, which is available on the company's investor relations website at ir.hioscar.com.
With that, I'd like to turn the call over to our CEO, Mario Schlosser.
Good afternoon, everybody, and thank you for joining us. Thanks, Cornelia. Great intro as usual. We will provide you today with a look into our financial results for the Q1 of 2022. Before we get into that, I want to remind you of why we think Oscar is well positioned in the evolving U.S. healthcare system, and I want to build on the themes you heard from us about last month at our Investor Day. The past few years have seen the U.S. healthcare system shift more and more towards more consumerization, towards increased risk sharing, and technology adoption. We believe we have built a business that is well positioned to capitalize on these shifts, and we are confident in our ability to deliver on our vision of making healthcare more accessible and more affordable for all.
Oscar now serves roughly 1.1 million members across this platform, including approximately one in every 13 ACA lives, or roughly 7.5% of the overall markets. In the regions where we offer coverage, our market share is roughly 16% this year. Q1 membership and premiums are up approximately 100% year-over-year, and that's driven primarily by growth and by retention in the individual and small group markets. That's the kind of growth that we view as a clear indicator that consumers see the value in the differential product offering we have. Importantly, at the same time, we are expecting meaningful year-over-year improvements in the medical loss ratio into the range of 84%-86% for the year.
We saw 80+% of our individual members stay with Oscar, and 85% of our C+O members who are up for renewal after their full year contract period stay with us. Digitally engaged members are 6 percentage points more likely to renew, and our net promoter score continues to climb, ending the Q1 at an all-time high of 43. As we see inflation and the cost of goods rising, our ability to direct our members to low costs, high-quality care options is even more critical, particularly given that our book has been shifting towards a higher proportion of Silver members, a cohort with higher mobility, where engagement is even more important and impactful.
We see in the Q1 that our silver members are 15 percentage points more likely to use our Care Router to find care compared to other Oscar members. For our small group products, we continue to see strong growth as well. We ended the quarter with more than 36,000 C+O members across 8 states. Membership nearly doubled between the Q4 of 2021 and the Q1 of 2022, with monthly membership increases across all of our markets. This growth is driven largely by our strong product market fits, including the expansion of our dual network strategy and the ability for our chassis to meet the needs of small employers. As I mentioned earlier, we are seeing high retention rates with our C+O members and attribute this in part to our high levels of digital engagements.
Looking ahead at overall market dynamics, we think the individual market is becoming a more dominant force in U.S. healthcare. Pending some regulatory changes, including Medicaid redeterminations and the elimination of the family glitch, have the potential of pushing the ACA market up to 20 million members next year. Medicare Advantage, for comparison, has approximately 29.6 million members now, and that would mean that it took the MA market nearly 20 years to get north of 20 million, compared to just 10 years for the ACA market to reach a similar stage of maturity. As a company, we know how to thrive in such a consumer-driven, cost-competitive markets where affordability and experience matter, and we think that's a quiet revolution in U.S. healthcare that will continue to change the game. For the rest of this year, we continue to focus on execution.
Turning to our strategic priorities for our insurance business. First, we are targeting profitability for Oscar insurance in 2023. Second, we expect to improve our margins by harnessing the power of our technology to drive down the total cost of care in a membership. Finally, we aim to drive long-term above-market growth and retention. Let me give you a few examples for each of these. Starting with, as you know, we are emphasizing profitability over growth this year. One lever is pricing, and our plan year 2023 pricing strategy contemplates market dynamics, exogenous trends, and our drive for market expansion. In addition, the team is focused on driving towards greater variable cost efficiency using our technology to reduce manual processes, as well as leveraging our scale to obtain better unit costs.
For example, today we automate about 5% of our responses to inbound messages from our members, and we think we have meaningful opportunities to increase this automation of inbound messaging to at least 20% without impacting member experience. Additionally, we're looking at ways to expand our self-service tools for members, as we know that about 70% of those who call our care guides also have a digital account. Heading into 2023, we expect to achieve additional operating leverage through continued top-line growth and limited fixed cost growth. In terms of driving down total cost of care, we are executing on several key areas for medical cost savings. For utilization management, we are extending our automated utilization management decisioning and program communications for providers, thereby reducing the need for manual intervention and allowing our clinicians to focus on more complex care management issues.
We also continue to focus on payment integrity, on our ex-formulary management, on population health campaigns, and on closing care gaps. For example, members using our virtual primary care platform were 40% more likely to get their diabetic eye screenings compared to a control group. Members who see one of the Oscar Care virtual primary care providers are seeing primary medication adherence at roughly 85%, also by our $0 generic drug offering on these virtual plans. Finally, looking at growth and retention, we are focused on balancing this with profitability. For example, we are expanding our virtual primary care plan offering to new states and markets, given the influence on total cost of care.
Our ability to achieve above-market growth and retention, even when we were not the lowest price plan in the last open enrollment periods, is the result of multiple tactics coming together and the leveraging of the most differentiated parts of the Oscar product offering. Now we've had tremendous growth, and we've had some good MLR performance trend into this year, and those give us confidence and afford us the opportunity to focus on markets where we can win. As such, we are focused on modifying our portfolio mix by markets and by products. This quarter, we made the decision to withdraw from the Arkansas and Colorado marketplaces for the plan year 2023. These are relatively small markets for us, and we intend to make these exits as seamless as possible while continuing to provide service to the existing membership in these states throughout the year.
Turning now to +Oscar. Despite being in the market less than a year, we have approximately 100,000 client lives served. We expect these clients will generate $65 million-$70 million in capital efficient fee-based revenue, within this year. We have three strategic priorities for +Oscar. The first is to serve our existing clients well, leveraging the ongoing learnings we are gaining from the first full book migration we implemented with Health First Health Plans. These full book migrations are complex and challenging, and we continue to optimize our implementation strategy in partnership with Health First. We look forward to supporting Health First Health Plans and the expansion efforts for 2023. Second, we are adding modularized offerings, and the news here is that we are already in the market selling our first externalized software-as-a-service solution, our Campaign Builder tool.
As we have talked about, one of our secrets to success as a highly engaging insurer is our ability to spin up new campaigns and new workflows very quickly. For our own membership base, we run hundreds of campaigns concurrently with, right now, when I look at the dashboards, a 48% member engagement rate. With the launch of our Campaign Builder tool to the external world, we are now offering our toolkits and contents to other regional health plans and risk-bearing providers. This solution enables scalable, personalized interventions, and it automates workflows to drive growth and manage risk. The tool is a self-service solution designed for non-technical teams to be a one-stop shop for engagements, driving clinical outcomes, and improving efficiency. Clients can build programs or campaigns that can be A/B tested.
They can deliver interventions with multiple touch points over time to drive behavior change, and these campaigns deliver, moreover, meaningful business results. We by now have amassed a large knowledge base of powerful and road-tested campaigns because we are this differentiated mix of both a risk-bearing insurer and a technology company. For example, one campaign to increase annual wellness visits appointment bookings resulted in a roughly 15% increase in visits scheduled and a 20% reduction in no-shows. Finally, in +Oscar, we're continuing to take steps towards offering our full platform as a software-as-a-service solution, besides it as a business process as a service solution in order to increase our TAM and to expand the margins. Our prospective clients are saying that they like our tooling, and a SaaS solution will allow for an easier integration onto our platform.
Moreover, SaaS deals are largely software solutions, so we'd expect them to have 40%+ margins. We've had some exciting tech launches this quarter as well, and I always want to also mention those, to share just a few examples. Outbound interactions from concierge care guides are now driven by an aggregate score of all underlying tasks for a particular member. That lets us make sure that we drive outreach to the highest priority individuals and tasks. Because we're built on a tightly aligned tech stack, a change like this in one place flows through everywhere, helping us prioritize campaigns better. Deep in our core admin systems, we launched a product update that merges imported provider rosters continuously rather than in a batch process.
As a result of this update, data staleness for provider data went down from hours to minutes and it leads to elimination of the need for manual engineering interventions for updates of provider rosters and provider data. That in turn, another change, made it easier for us to improve how we rank facilities in our Care Router by efficiency, not just physicians, but facilities. These are just a few examples for ongoing improvements in our infrastructure, and we have a lot more coming this quarter as well. We remain steadfast in our commitments to our strategic priorities of positioning the insurance company for near-term profitability, of continuing to increase our penetration across the U.S. insurance markets, and of accelerating growth for +Oscar. We view the Q1 results as a positive step on the path towards these objectives. With that, I'd like to bring in Scott.
Thank you, Mario, and good evening, everyone. Tonight, I'm going to walk through our Q1 2022 results. Before I jump into the numbers, I'll call out a few key takeaways. We continue to see meaningful top-line momentum and increased scale. Our Q1 results were largely in line with our expectations, and we're focused on execution in 2022 as a stepping stone to insurance company profitability in 2023. Finally, with over 1 million members, our scale enables us to optimize our 2023 pricing for margin first and growth second. Turning to the results. We ended the Q1 with approximately 1.1 million members, an increase of 98% year-over-year, driven by growth predominantly in our individual and C+O books of business.
In the quarter, membership growth modestly exceeded our expectations, driven by a higher effectuation rate and a retention rate of 80%. Q1 direct and assumed policy premiums increased 104% year-over-year to $1.7 billion, driven by higher membership and business mix shifts towards higher premium Silver plans. Specifically, Silver members now represent 65% of our overall mix, up from 50% last year. Premiums earned increased 159% year-over-year to $955 million. Note that we entered into an additional reinsurance agreement as of the beginning of 2022. This is increasing our total quota share coverage rate from 34% in 2021 to 46% in the Q1 of 2022.
For our existing reinsurance contracts that we had as of last year, in our accounting, we reduce premiums and medical claims for the reinsurer's proportional interest. For our new quota share reinsurance treaties, the terms require different accounting, where the net economic impact of the arrangement is included in our other insurance cost line item. Our 10-Q will have more details about the accounting for these arrangements. Our Q1 2022 insurance company administrative expense ratio was 19.8%, which was roughly flat year-over-year as operating leverage and variable efficiencies were offset by higher distribution costs. Scale benefits drove 220 basis points of improvement in our Q1 adjusted administrative expense ratio, which was 23.8% in the quarter. We expect the admin ratios will be flatter throughout the year, with a modest uptick in the Q4 .
Turning to medical costs. Our medical loss ratio was 77.4% in the quarter, an increase of 300 basis points year-over-year, which was largely in line with our expectations. The mix shift towards more Silver members drove around 75% of the increase. These members have richer benefit designs with lower deductibles, resulting in flatter MLR seasonality. Therefore, we expect our overall seasonality to be less dramatic throughout the year than it has been historically. In addition, Silver members generally have higher morbidity versus Bronze members, and the increase in Silver members results in a lower risk adjustment transfer offset by higher claims. While this is neutral to the bottom line, it increases the MLR due to the impact on the numerator and the denominator.
The remaining MLR variance was attributable to adverse prior period development relative to favorable prior period development last year, which was more than offset by favorable year-over-year net impacts of COVID. Let me spend a moment on COVID and utilization trends. Net COVID costs on a per member basis are lower year-over-year, driven by lower severity of the Omicron variant, resulting in fewer claims for COVID-related treatment. In periods with high COVID infection rates, we have seen some level of offset from lower non-COVID utilization, and we saw that trend continue in the Q1 .
Our overall combined ratio, which is the sum of our medical loss ratio and the insurance company administrative expense ratio, was 97.2% in the quarter, an increase of 300 basis points year-over-year, primarily driven by the MLR. Our Q1 2022 adjusted EBITDA loss of $37 million was $9 million higher year-over-year. As a percent of premiums, it improved to just 2.8%, down from 4.6% last year. Turning to the balance sheet, we ended the quarter with over $3.4 billion in total company cash and investments, including roughly $735 million of cash and investments at the parent, and another $2.7 billion of cash and investments at our insurance subsidiaries.
In the Q1 , the primary use of parent cash was to fund the insurance subsidiaries required capital related to the open enrollment premium growth. Pulling up, our Q1 results were in line with our expectations, and we are making no changes to our 2022 outlook. After a quarter with our larger membership book, we're seeing a membership profile that is as we expected. It's a slightly higher morbidity population associated with higher silver members. Compared with prior years, this should result in less seasonality in our quarterly results. Finally, as a reminder, our guidance excludes any effects from regulatory changes, including the resumption of Medicaid redeterminations. With that, let me turn it back to Mario.
Thank you, Scott. Also, always great. These are complex times, and it is a complex market out there, certainly. For us, on the back of our record-breaking growth, we're trying to keep things very simple, serve members well, serve clients well, and continue to move towards insurance profitability in 2023. We are doing that against the backdrop of a healthcare system that is moving further into the direction that we've long described. It's more individualized, more digital, more about value. Moreover, we believe that the move away from point solutions in healthcare is solidifying our strategy and positioning. We chose all those years ago to become an insurance company and to build our own technology stack, and that sets us apart in the markets. We're quite far along in that journey now, and we're leveraging our tech to serve members and clients.
To do so profitably is a milestone we cannot wait to hit. I want to thank all of the Oscar team members. We're a company that is powered by people, and their tireless work serving members is what makes Oscar a special place for me and for them. Now with that, we'll turn over to the operator for the Q&A portion of the call.
Ladies and gentlemen, if you have a question at this time, please press star and then the number one key on your touchtone telephone. Again, that is star one on your touchtone telephone. Your first question is from Ricky Goldwasser from Morgan Stanley. Your line is open.
Yeah. Hi, Mario and Scott. Good evening, and thank you for all the details. Couple of questions here on MLR. You know, you broke it by silver and prior period development. But can you give us some more context on what is the MLR that you're seeing for the new members that you onboarded, given that there's so many of them this year, versus MLR of existing members?
Yeah. With regards to the MLR, the first comment I would make is with our SEP membership that came over, you know, two observations. One, we saw, you know, very high levels of retention of that group of SEP members that we added last year coming over, and joining us in 2022. On the side of MLR, you know, again, those members performed as we expected, which was really very closely aligned to the same as what we would have been seeing with the rest of the membership that came on. Again, this is kind of what we were expecting and gives us confidence about the rest of the year trajectory with those members.
As we think about sort of those new members that you onboarded this year, do you kind of like have a sense of the MLR that's associated with them? Just given that the mix now seems to be skewed more towards the new members.
Yeah. Again, I think that what I would say is that the SEP members that we added.
Mm-hmm
You know, I would anticipate that their MLR is going to be literally the same as the
Okay
the members that came in that we had, you know, previously had in our OE. You know, that's gonna be the same.
Okay, great. Thank you. Mario, just have to ask about +Oscar. You know, recently you've taken a more active role in sort of leading the +Oscar effort. Maybe you can discuss kind of like what are kind of like you most focused on and what are you seeing in terms of the pipeline?
Yeah. It's fantastic for me to be out on the roads, dinners, conversations, hearing what potential clients want and so on. What we're seeing is, this clearly a recognition that continues to be the case coming out of the pandemic, shift towards value, thinking about how do you rebuild old and aging systems, how do you get close to the member, who's gonna occupy this hot center of member engagement. That is really on everybody's minds. Lots of interest in our core admin systems, lots of interest in our member experience, lots of interest in our Campaign Builder. Of all of those, the thing we're now most proud of is that we were able to already essentially start selling our first SaaS module.
We talked about this a little bit at the Investor Day, that that was the plan, that we would be moving towards that. Again, the plan is continue to sell BPaaS, make the full platform available over time as a SaaS solution, but then also start modularizing smaller modules we can land and expand and have a shorter sales cycle. There, our first offering is now the Campaign Builder, and we're out there selling that, really to a larger portfolio of clients than even before, including risk-bearing physician practices and other folks like that. The trend's very much alive. I think we're hitting a real nerve there in terms of the pipeline.
On the BPaaS side, as I said in the Investor Day, those are just longer sales cycles, and we're in the market there for 2024 for various opportunities still. In the meantime, pushing on the modularization and fulfilling clients' needs there. Stay tuned for that. Everything I think in how we've just been describing what's going on out there is very much alive and feels very much like what people are looking for.
Great. Thank you.
Your next question is from Stephen Baxter from Wells Fargo. Your line is open.
Hi. Thanks. I just wanted to ask first, I guess on the ACA expanded subsidies. Obviously, it's been fits and starts trying to get these subsidies extended. Was hoping you could give us an update on your exposure to membership with these expanded subsidies. I guess just further, as we think about this in the balance of the year, you know, how should we think about the relative, you know, risk profile or profitability of this membership versus your overall book? I mean, it seems to stand to reason that they'd be good risk, but would like to get your perspective on that.
Yeah. Steve, let me take the first part of this, and maybe, Scott, you can talk a bit more about the membership risk there as well. You know, let me draw a bit of a bigger picture there. We're now at record ACA enrollments, right? I think 14.5 million, historical high, 21% increase from 2021. I think a lot of signs out there that the ACA market is working. You saw the really low cost trends over the last couple of years, they reduced now uninsured rates. That data came through a couple of days ago. Those are all good societal things and good for the healthcare system overall.
That means, I think it would take a lot of irrationality in the political process, particularly given the states that those subsidies have been really important for, Florida, Texas, for example. It would take a lot of political irrationality to undo those subsidies. My starting point would be to think that a way will be found to extend them. Whether it's in the lame duck session or before the end of the year, I think we shall see, but that is my best guess currently. It's just kind of what always happened in the last couple of years in the ACA. It's an entitlement that works for a lot of people, that is now seen as good, clearly works for the healthcare system overall, providers, and members and so on. That's my starting point.
Now, if they were to go away, probably about a range of a 10%-20% decrease in membership, purely from the subsidies. However, that isn't the net. I'd remind you there that to look at the net change in membership, you'd have to include Medicaid redetermination, the fixing of the family glitch, maybe other things like that happen before next year, like, you know, Medicaid gap is still out there as well. All of those things push very much in the other direction. That is why we're not sitting there at the moment saying, "How do these, all these things net out?" We're mostly saying, "Hey, we've got a great product, and, there'll be a big membership base to go after," and therefore, that's the plan.
Impact on the MLR of the new membership is, you know, as Scott said, I'll echo him there. Between the three cohorts, members who were new, members who came last year, members who we signed up, we don't see a lot of difference at the moment in MLR. They all have slightly different characteristics, but there's not a lot of difference in how that all nets out. That's where things like risk-adjusted work. So in other words, this ACP population that came in last year had this RA overhang against them. When that goes away, you know, you got them basically at the same MLR as everybody else. That seems to be coming true.
I'd say one small thing, which is that last time we talked about the ACP population, we observed that they have somewhat higher preventative utilization when they come in, and they have somewhat higher ER utilization when they come in. The preventive utilization is now back to where it used to be for that population. That suggests it was sort of like really an early catching up. The ER utilization is still slightly higher, not enough to throw off the MLR on that book or on that cohort, but it just suggests that there are still more managements that we can do, and we're certainly on that. Anything else, Scott, you wanna add?
No. I think you covered it.
All right.
Okay. Just one, you know, secondary question here. You know, it looks like the SG&A progression might be a little bit different than, you know, this year than you've seen in the past. You know, I think you're starting out closer to the midpoint, and then in previous years, you know, you've seen, you know, much more of a ramp kinda throughout the year. Just remind us, you know, how you guys are thinking about SG&A seasonality for the balance of the year and what some of the moving parts are for that. Thank you.
Yep. Thanks for the question, Stephen. You know, with respect to the Insurco admin ratio, you know, a couple things that I would call out there. On the one hand, in the quarter, we had more membership that came, you know, into our book via brokers, and that drove higher distribution expenses. Then on the other hand, we saw really variable cost efficiencies and operating leverage from scale. You know, net-net, those two things, you know, kind of offset each other. That was really the driver of why we saw flat year-over-year results, in terms of Q1 .
Kind of to your specific question on seasonality, what I would say there is that I'm expecting, based on, you know, the business that we've got now that, including, you know, the broker expenses that I just talked about, we're gonna see probably modestly less amounts of seasonality. Specifically there, I would say that I would expect that we're going to see, you know, pretty flat levels of, you know, the admin expense ratio for most of the year with a slight notch up in Q4. I do think that we should see lower seasonality in that book.
Your next question is from Jonathan Yong from Credit Suisse. Your line is open. Jonathan Yong, your line is open.
Hi. Can you hear me?
We can.
Hello? Can you hear me? Okay, there we go. Sorry about that. I guess just as you think about the enhanced subsidies, it sounds like you guys are heading into the pricing, assuming that the enhanced subsidies will be there. I guess if it wasn't extended, how much of a lift would it be to reorient the overall G&A load to maintain the goal of Insurco profitability in 2023?
Yeah. I mean, I'd start by saying that, again, if we net out all the changes, it's not clear to me that the market would get smaller even without the subsidies, right? Medicaid redetermination, family glitch, and all these things, these are clearly things that push in the other direction. We're not too worried there. The second thing is we remain totally committed, as we said, to insurance company profitability next year. We need to do there. Now in terms of, the kind of levers we have in the admin score, perhaps.
Yeah. You know, look, I think that what I would say is depending on how all of these regulatory shifts might play out, you're gonna have a couple different factors. To the extent that you know, we see subsidized members, if those subsidies are going away and we're not able to pick up those members, certainly we've already capitalized our insurance entities, so you know, that would be favorable with respect to kind of from a capital and cash flow perspective. On the other side of that, it also would then reduce you know, for purposes of scale, we would be going backwards a little bit on our fixed scale that we picked up, so that would be you know, certainly a bad guy.
I think on the side of variable costs, we would be able to pull out, you know, a significant amount of variable costs. Roughly half of our costs, you know, in the insurance company, administrative ratio are, you know, within our control and variable. We would be able to make adjustments to those for the size of the book. I would just comment on the other side of the ledger, you know, we were able to see an increase in membership into you know, going into 2023, whether it was, you know, redetermination or the family glitch or any of these things.
You know, I think the fact that, you know, going into 2023, where we're able to price for the risk that comes along with that membership group, you know, I think that has the potential of being a real tailwind for us. Certainly, if we saw Medicaid redetermination come in in 2022, and depending on the pacing, you know, it's so difficult to exactly predict when the healthcare emergency, you know, might end. Depending on the pacing of that, we could see that be a headwind to 2022, but that would certainly be a tailwind to 2023 as we would expect those members to, you know, have high retention into the following year.
Final thing I'd maybe add is that from a regulatory point of view, this is obviously on regulators' mind as well. There's a lot of work with the regulators in the pricing process to figure out what exactly, you know, we have in terms of timelines that we could use there.
Okay, great. I guess this is just kind of sticking with the enhanced subsidies. If it was not extended, and I guess for this year specifically, is there an expectation or a thought of members possibly over-utilizing their benefits heading into the end of the year given the knowledge that, you know, they may not have insurance in 2023? I guess, is there any thought to that? Thanks.
I would argue a little bit with historical experience here, and this would sort of be similar to what happened in 2016 and 2017. You know, the kind of shift towards silver loading and so on. I mean, the takeaway there was that members do not necessarily read the, you know, CMS guideline publications every single month the way that you do, Jonathan, surely, which is fantastic, you know, and I do. We did not see a big impact back in those days. My starting point there would be it's not a huge concern, but I think now we're behind a whole bunch of hypotheticals that you'd have to multiply together. You know, not really something we're too concerned about right now.
Okay. Appreciate it. Thanks.
Your next question is from Gary Taylor from Cowen. Your line is open.
Hi, good afternoon. I had two quick numbers questions for Scott, and then a question for Mario about marketplace. On numbers, could you quantify the adverse PYD in the quarter? I mean, we'll see it in the 10-Q in a few days here, but just since you had mentioned it, was curious. I think there was a positive $5 million in the 1Q of 2021.
Yeah. In terms of the total year-over-year in dollars on prior period development, it was unfavorable year-over-year by $17 million. $12 million of that related to unfavorability in the current year quarter. So that's the quantification of that. Remind me, what was the second part of your question?
Oh, that was it. My second number.
Okay.
The question was, the other expense in the quarter, I think $3.055, that's getting added back to EBITDA. What's that represent?
That one I'm gonna send Cornelia back to you later after the call to give you the answer, 'cause that I honestly don't know off the top of my head what that is.
Okay. Mario, just while we're sort of talking about, you know, potential changes to ACA Marketplace, how are you thinking about, you know, the finalized rules where, you know, you have to offer a standardized ACA plan at every metal level in every rating area where you offer a non-standardized plan? I think you guys have had a lot of success with some of the innovation in your plan offerings, so would this constitute an incremental administrative burden to be able to offer those or not material, and do you think it changes the competitive, you know, dynamic in the market at all?
Yeah. The good thing is that the ability of having other plans in the marketplace doesn't go away, yeah.
Right.
We still have a lot of flexibility and a lot of ability of putting more interesting designs out there, and I think that is really important. There are some states where there is more constraint already, and I personally don't think that is always a great thing. You know? It's better to have more smart regulation obviously in there, but more ability for defining better benefit designs and let the creativity flow there really in a good way. Glad that doesn't get taken away. It is an interesting change. I think it is. I would generally say I don't have a huge opinion as to whether it's gonna be great for the market or not, or whatever.
I think generally I would say any change as it relates to plan design is generally a good thing for us, because we can often act a bit more quickly and with our own systems. We don't have to go to a vendor and whatever, right, and configure these things more easily and more directly, and price out exactly what that will mean. That part I like. I think it'll be interesting to see what it means that there'll probably be more gold and platinum plans back in the marketplace, and those are things we're gonna have to see what that means and where you can bet that we're working through it.
Now, the latest CMS rule was not that much of a surprise related to what they had talked of before, so we had some time already to prepare for it. Therefore, I think it's, you know, we're in the middle of pricing season, and it's all systems go on working through the pricing committees there every week.
From this distance, it's not like a clear additional material administrative cost just to offer and maintain many more plans in each rating area? Is that fair?
No, that's definitely fair. I mean, we have more administrative burden from, you know, being in states where we are sub-scale, which is one of the reasons why we said, we're leaving two states we talked about in the prepared remarks. When it comes to running benefits network side by side, and that's one of the reasons why we built our own systems. There we have a lot of flexibility.
Got it. Thank you.
Yeah.
Your next question is from Josh Raskin from Nephron Research. Your line is open.
Hi. Thanks. Just the first one, just a quick clarification on the change in ceded premiums. I understand the shift to deposit accounting for the new book. Did I hear right, Scott, that it's 46% of premiums this year being ceded? I assume the accounting has no impact on EBITDA, and I assume certainly nothing on cash flow, right?
Yeah. You're right. It is overall what we're gonna call the reinsurance coverage rate, which is kind of the effective amount of reinsurance, is 46% for the Q1 . And then when you look at kind of how that translates through into the accounting, you'll see ceded premiums of around 28%, and the difference there basically is the new treaties that we'll be running through on one line item, as you said, using deposit accounting. You're right. There is, you know, really no impact on the treatment in adjusted EBITDA.
Yeah.
It's just a presentation thing. It doesn't affect, you know, the bottom line.
Yep. Just on the medical management side, I'm curious if you're starting to get any leverage or new conversations that are coming up with providers. I don't know if this weaves into +Oscar opportunities as well but, you know, as you grow membership, are the providers thinking about Oscar in totality differently? Maybe how are you working specifically? We've heard a lot about member engagement, but how are you working specifically with providers to better manage costs?
Yeah. On the provider side and the shift towards risk there, we are at a record level certainly this year in terms of dollars flowing to value-based care arrangements, that is both with physician groups and with health systems. We have several health system contracts right now, with long-standing partners who are shifting more and more towards risk, and those are negotiations. I wouldn't wanna go through who that is and everything, but that's happening as well. I think that's a nice vote in terms of confidence that we can run the MLR at a reasonable level, at a good level, and also in the fact that we have operations now, we can make sure that the data flows in a good way and things like that.
How we are managing risk with providers, it's a lot of bread and butter right now, I would say. One of the things we really brushed up on in the last six months, nine months or so, is to just have a lot more regimented management and orchestration provider or value-based care deals, to not have any kind of customized data flow going there, whatever, but an internal system that we can spin up very easily, new data sharing with providers and so on. That's the boring basics oftentimes, but those are all things that work from within what we do. We do a variety of running campaigns to close aligned partners. I mentioned a campaign about PCP attribution earlier today in the pre-remarks. That was a campaign we actually ran with one of the...
In that case, a health system that has risk with us, and we help them get PCP attribution. That Campaign Builder is really one of the places where we can get a lot of truths out right now from driving there. Lots of small things that I think we wanna maybe talk a bit more about in the next quarter or so as well in terms of how the product changes when you're in a risk attribution deal. For example, it's super small, but if you renew your prescription in the app, that'll go to your, you know, attributed provider in an easy way now. Or if you go into the Care Router and you search for new PCP, your provider will magically float to the top there and things like that. Very, very simple stuff.
It's a good testing ground for +Oscar provider clients if you take all this together. It's a big push and we're doing more there. We call this internally networks delivering value, NDV, and a lot falls under that kind of general rubric from better PCP attribution, user memorization for that, better data sharing, better pushing of data into the point of care as well, and all those kind of things.
Mario, when you talk about value-based care, are you talking about two-sided upside downside risk, or are you talking about incenting providers upside only type of stuff value to do, you know, to help you with your cost management?
Yeah. If you take everything we're doing on, you know, even just a little bit of upside or whatever, I mean, then our percentages of value-based care are pretty large, you know. Yeah, when I say value-based care, really, I mean the upside and downsides. Like, the contracts I mentioned today that we're negotiating this year with health systems to really do risk, that's upside and downsides. Yeah.
All right.
Exactly. Yeah.
All right. Ladies and gentlemen, this will be the last question for today's call, and it will come from Nathan Rich from Goldman Sachs. Your line is open.
Great. Thanks for the question. Mario, you highlighted the decision to exit two markets. I think you said Arkansas and Colorado. Could you maybe talk about just what went into the decision to exit those markets? Are those two markets material from an EBITDA standpoint? I understand, you know, you hadn't gotten scale there, so not material from a premium standpoint. You talked about looking at other remediate markets at the Analyst Day. Could you maybe just talk about where the company is in the process of evaluating those markets and potential to see a decision to exit additional markets in the future?
Let me just jump in on the financial side of exiting those markets, Nathan. You know, they’re really small. So from a P&L perspective, they don’t have, you know, a significant or even close to material effect. There is a benefit, though, from just reducing the amount of overhang that we have to do, whether that’s the compliance work we have to do or the statutory reporting that we have to do. So there is a small benefit. It really just reduces distraction and allows us to focus, you know, on where we have, you know, the right to win and where we really wanna put our energies towards.
Yeah. In terms of decision to exit there, you're exactly right. These were in the remediate buckets that we talked about in the Investor Day. There were a number of commercial factors really starting with the fact that we just did not get the scale there, and we didn't really see a great right to win for us that would, relatively speaking, be bigger than in the many other markets we are in, right? We have plenty of markets where we don't have scale yet, but we see a great path because we can work with a different provider partner, or we can launch different products and things like that. We didn't think that these markets just were at the top of that list.
There were also recent regulatory changes in both markets that made it a bit more of a sort of like a decision that made sense to do right now rather than leaning into those regulatory changes and doing the work of working those through our systems, leading therefore to the decision right now to withdraw. Although, you know, comment on the regulatory changes there, right? Like, don't sort of need to say anything bad about that, but it just makes sense for us to save us that work if we don't think we have a right to win those markets.
Okay. That makes sense. Just a quick follow-up. Scott, you mentioned the membership profile this year being in line with your expectations. You know, I know risk adjustments created some uncertainty on MLR just in the exchange market. Can you maybe just talk about how you feel like you've been kind of executing on this and, you know, when we should expect kind of, you know, kind of better visibility on what the impact should be for the full year?
Yeah. You know, obviously the Q1 is really the starting point for getting information and, you know, we're just starting to see claims data coming through. As you go into, you know, the Q2 , that's when you start to see your first kind of report outs in terms of performance. You know, really I would expect we're gonna get our first really good view in terms of the characteristics and what we should be anticipating. Any true ups that we need to make around our estimates for risk adjustment, we'll see that, you know, in the second half, you know, right at, honestly, at the end of the Q2 , so June of 2022.
Okay. Great. Thank you.
Ladies and gentlemen, this concludes Oscar Health's Q1 conference call. Thank you for participating. You may now disconnect.