Good afternoon. My name is Regina, I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's 2022 fourth quarter and full year earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question during this time, simply press star then the one on your telephone keypad. To withdraw your question, press star one again. 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, Regina, good evening, everyone. Thank you for joining us for our fourth quarter and year-end 2022 earnings call, where we'll discuss our execution against our annual plan, our expectations around InsuranceCo profitability, and our path to total Co-profitability. Mario Schlosser, Oscar's Co-Founder and Chief Executive Officer, and Sid Sankaran, 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. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our quarterly report on Form 10-Q for the quarterly period ended September 30th, 2022, filed with the SEC and our other filings with the SEC, including our annual report on Form 10-K to be filed 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 the fourth quarter 2022 press release, which is available on the company's IR website. With that, I would like to turn the call over to our CEO, Mario Schlosser.
Thank you, Cornelia. Good evening, everyone, and thank you for joining the call today. Before we get to fourth quarter and full year 2022 results, I would like to provide some context on our story to date. For the past five years, we have seen a 75% compound annual growth rate for Direct and Assumed Policy Premiums. We have improved the medical loss ratio by approximately 12 points since 2017. Our net promoter score has increased more than 20 points over the same time periods. Our members were the first to get access to free virtual urgent care. Our $3 drug list has made medications more affordable for them, and our $0 virtual primary care medical group has been helping more of our members get important preventative care. Fast-forward to today, the fourth quarter capped off a transformative year for the company.
We have talked about how we have talked a lot about how 2022 was a year of monumental growth for the business. We nearly doubled membership and crossed the 1 million member milestone. While that is impressive, what's more impressive for us is how we managed that growth. We knew that heading into 2022, the step change in membership required us to put all of our focus on operating at scale and that our technology, our operations, and our people would be under pressure to deliver our targeted MLR and expense ratios. To meet these challenges, we organized the company around three key objectives: medical cost management, sculpting the portfolio, and admin cost management.
As our year-end results show, we were able to execute against the plan we set out for the business in these areas, and we applied our learnings gathered throughout the year to position the company for profitability. Let's first take a look at medical cost management. Despite doubling in size and welcoming a large number of new members that we knew little about, we reduced the Medical Loss Ratio by 360 basis points, hitting 85% for 2022. We applied the best of our technology to our efforts, and we also spent the year implementing and scaling the traditional managed care processes in Medical Loss Ratio management. We realigned operations against a more localized operating model to respond to regional trends more quickly, and we developed targeted medical cost mitigation strategies.
We were able to drive higher utilization of less invasive, more cost-effective procedures and reduce hospital readmission rates, supported by changes to medical policies and by thoughtful case management. We also applied our member engagements to medical cost management. Utilizing our Campaign Builder's capabilities, the team developed campaigns and strategies to ensure our members seek the highest quality, lowest cost options for site of care and for drugs. We believe that our member engagement model allowed us to make further progress in bringing down medical costs in 2022. We're very excited here for what else we will deploy in the course of 2023. With regards to the second of our levers, portfolio sculpting. Heading into 2023, we prioritized margin over growth in our IFP strategy. We took high single-digit rate increases on average across the book.
Our localized operating model has also enabled us to restructure our networks in certain markets, reduce unit costs, and drive improved quality with our provider partners. We continue to sculpt our portfolio, both in terms of plan designs and markets, to ensure we allocate our capital in places we view as most attractive and most sustainable. As the third lever, we tackled the challenges of bringing down our administrative costs. Throughout 2022, we took a disciplined approach to expense management, which improved our insurance company admin ratio by 125 basis points year-over-year. This work, which included leveraging our technology to find fixed admin cost efficiencies across our customer service operations as well as increasing automation throughout our clinical operations has set us up very well for 2023.
As part of this app and efficiency work, we also moderated the acquisition costs of our 2023 IFP book, and we took other decisive cost actions that positioned us to enter the year with a lower cost base. Overall, coming into 2023, on the cost and margin side, we have already completed much of the work needed to achieve our 2023 targets. With a greater portion of our book consisting of returning members than ever before in our history, we have better line of sights into our member population and the related cost structure. In summary, we proved our technology can scale, and there continue to be opportunities for efficiency going forwards. We also did all of this while delivering an all-time high net promoter score of now 47.
In 2023, we expect the majority of our tech resources will be focused on impacting insurance company operating results. Near term, that means less focus on growing +Oscar platform revenue. That being said, we have continued to develop our first +Oscar standalone module, Campaign Builder. During this quarter, we signed our first Campaign Builder deal with a South Florida-based MSO, which is leveraging the tool to power their value-based care operations, drive primary care utilization, and manage medical spends. We intend to grow Campaign Builder at a thoughtful pace with a modular pace in 2023 as we build our execution muscles here and ensure a successful deployment with our initial clients.
As we think about +Oscar longer term, we believe that focusing our tech on increasing efficiency and profitability in our insurance business will translate to even better capabilities we can bring to the markets. Before I hand it over to Sid, I want to talk about we like to call internally the Oscar magic, our member engagements. This part of our company continued to be a differentiator for us in 2022. We maintained high levels of digital engagements. As our membership has grown and changed from a demographics perspective, we have added channels to increase engagement with members who have historically been harder to reach. Give you one example here, an SMS campaign we launched to drive active renewals and auto pay enablements.
That campaign saw about a 33% response rate compared to about a 2% rate you would get for a similar email campaign targeting similarly non-digitally engaged members. 78% of those members that responded yes to keeping their plan ultimately renewed into that same plan, and nearly 10% activated auto pay. We made some exciting strides towards leveraging this member engagement engine with our provider partners as well. We told you that here we are investing to bring our tools to bear for providers, and we've begun to use our real-time data more and more to deepen our provider relationships on the grounds. With the most closely aligned provider partners we have, we are co-creating campaigns to improve outcomes and to lower total cost of care.
For example, we spent 2022 piloting campaigns focused on annual wellness visits, closing HEDIS gaps, and other care quality campaigns. In fact, you can see a demo of this technology on our IR site, ir.hioscar.com, I think, Lilia, right? Yes, go there and click. We are excited to scale these campaigns and build new ones throughout 2023 as well. There's a lot of successes we think in 2022 that gives us a strong momentum into 2023 across the business. Here we believe we are better positioned than ever before to hit profitability based on disciplined execution in 2022. We've got a very clear roadmap for the organization to achieve our goals for the year, which is profitability in insurance business in 2023 and total company profitability in 2024.
We believe we have enough cash to get us there. Sid will walk you through the plan for this in his part of the prepared remarks. Fundamentally, Oscar is a growth company, and we are positioned well in any environment where the consumer has increasingly greater choice and buying power. The ACA continues to be the fastest-growing health insurance segment, projected to hit 20 million enrollees in the near term. We see shifts toward programs like individual coverage, HRAs, as another signal that the marketplace offers unique value for individuals and increasingly also employers. With these market tailwinds, we're excited to return to top-line growth in 2024. Now, with that, let me get Sid on here, and he will walk you through the numbers in more detail.
Thanks, Mario. Good evening, everyone. It's great to be back. I've enjoyed reconnecting with all of you again. Our full year 2022 results were largely consistent with our expectations and guidance range. We believe last year's performance offers a solid baseline for our 2023 targets, which I'll discuss in greater detail in a few moments. Turning to the results, we ended the year with nearly 1.2 million members, reflecting growth of 93% year-over-year. A robust membership growth also drove our Direct and Assumed Policy Premiums significantly higher. Full year Direct and Assumed Policy Premiums increased 99% to $6.8 billion, driven by membership, mix shifts to higher premium plans, rate increases, as well as improved lapse rates and higher SEP growth rates in the second half of 2022.
Even with our sizable membership growth, our 2022 medical loss ratio improved 360 basis points year-on-year to 85.3%, primarily driven by lower COVID costs, mix in pricing, as well as execution on our total cost of care program. Excluding negative prior year development of $28 million in the calendar year, the MLR would have been 84.8%. Our fourth quarter MLR of 91.6% improved 630 basis points year-on-year, largely driven by the same factors as the annual MLR. The quarter includes $13 million of favorable intra-year development driven by favorable reserving trends relative to our pricing assumptions, partially offset by a more cautious view on 2022 risk adjustment given our growth.
Overall claims trends have been favorable in total, with inpatient and professional utilization coming in better than expected, offset in part by higher RX spend than projected. Switching to our admin costs, our InsuranceCo administrative expense ratio improved 125 basis points year-on-year to 20.6%, driven by operating leverage benefits and admin efficiencies from our enhanced scale, partially offset by higher distribution expenses. As we'll discuss in guidance, we see 2022 as the high-water mark of distribution expenses. Our fourth quarter InsuranceCo admin ratio of 22.3% improved 220 basis points year-on-year due to the items I just mentioned.
Our overall combined ratio, the sum of our MLR and admin ratio, was 105.8% for the full year of 2022, an improvement of 490 basis points year-on-year, driven by the aforementioned improvements in each of the individual metrics. We believe our nearly five points of margin improvement, coupled with our top-line growth, demonstrates the power and sustainability of Oscar's model through disciplined execution of our business plan. Our Adjusted admin expense ratio, which includes expenses in our holding company, was 24.6% in 2022, an improvement of 440 basis points year-on-year, primarily due to operating leverage and scale efficiencies. For the fourth quarter, our Adjusted admin expense ratio was 26%, an improvement of 840 basis points year-on-year.
Moving to our overall company profitability, our Adjusted EBITDA loss was $462 million for the full year of 2022, which was in line with our initial guidance range for the full year. This was better than our most recent expectation due to higher than expected net investment income in the fourth quarter, as well as admin savings to right-size our cost as we tightly manage head count ahead of 2023. The full year Adjusted EBITDA loss reflects a seven-point year-over-year improvement as a percentage of premiums before quota share reinsurance. Our fourth quarter Adjusted EBITDA loss was $190 million, an increase of $26 million year-on-year, which was largely driven by higher premiums. The fourth quarter Adjusted EBITDA reflects a nine-point year-on-year improvement as a percentage of premiums before ceded reinsurance.
Turning to the balance sheet, we ended the year with $3.2 billion of total cash and investments, including $340 million of cash and investments at the parent company. Our subsidiaries ended the year with approximately $700 million of capital and surplus, which exceeded our internal targets by $170 million. Note, we also set our internal capital targets at a higher threshold than regulatory minimums in order to ensure we maintain a strong balance sheet. As we look to 2023, we intend to continue to be disciplined and are already executing on our plan to improve core margins and profitability. This is reflected in our 2023 guidance, which we'll discuss today.
Our outlook for the year reflects largely stable premiums year-on-year, with continued meaningful combined ratio and Adjusted EBITDA improvements driven by targeted actions the company has taken and will continue to implement to reach profitability. Specifically, we expect our Direct and Assumed Policy Premiums will be in the range of $6.4 billion-$6.6 billion. This is consistent with our prior commentary that our membership will be largely flat between 2022 and 2023. As a reminder, we proactively worked with regulators to pause accepting new members in Florida, and therefore, we do not expect new enrollments in that state in the first half of the year. We expect to begin receiving Medicaid redetermination members in the rest of our states beginning early in the second quarter. Overall, we're projecting lower SEP members as a portion of the overall book this year.
This should be favorable to our MLR. It will be a net headwind to premiums. Our expected medical loss ratio range of 82%-84% reflects over 200 basis points of improvement at the midpoint versus last year, driven by our rate increases, mix shifts, and total cost of care management programs. We are renegotiating our PBM contract, which will result in meaningful savings beginning in 2023 and is an example of one of our cost of care initiatives. We do expect our MLR seasonality will look similar to last year, albeit with a more modest slope. Switching to admin, we expect our InsurCo admin ratio will be 17%-18%, reflecting an improvement of 300 basis points year-over-year at the midpoint, primarily due to the identified cost savings that we have discussed previously.
These savings largely consist of lower distribution expenses and vendor savings achieved by our increased scale. Importantly, the majority of these savings have already been achieved, and as a result, we are turning our attention to generating further efficiencies for 2023 and beyond. We expect our admin seasonality will be different from last year, with the first quarter highest and decline gradually throughout the year, with 3Q and 4Q ratios fairly similar. We would call out that for 2023 we are targeting a combined ratio at or less than 100%. We are entirely focused on execution here, as this remains the primary metric we use to assess core business margins and profitability.
In order to better allow investors to understand the profitability dynamics of our statutory insurance subsidiaries and their underlying capital profile, we're introducing a new metric, our InsuranceCo Adjusted EBITDA, which includes the combined ratio, investment income, and the cost of our quota share reinsurance. We believe this metric will allow investors to better understand the capital and cash flow relationship between our insurance subsidiaries and our parent company. Unlike our competitors, given our startup nature, Oscar has historically not had meaningful investment yields on our portfolio relative to market competitors who had longer duration portfolios yielding 3% or more. With the return to a more normal interest rate environment, investment income is expected to have a significantly positive impact on the InsuranceCo profitability in 2023. We ended 2022 with $2.9 billion of cash and investments at our subsidiaries.
For 2023, we are estimating our cash and investment portfolio will yield 3.5%, with the range of 3%-4% for the year, depending on Fed actions in the shape of the yield curve. With respect to our quota share reinsurance agreements, we have restructured our quota share contracts to maintain a similar ceding percentage year-on-year while lowering the cost. I'd also note that our new quota share contracts required deposit accounting upon their January 1 effective date, you'll see a de minimis amount reflected in reinsurance premiums ceded going forward. Incorporating all these items, we're projecting solid earnings and capital positions for our insurance company. For 2023, we project our insurance company Adjusted EBITDA will be $20 million-$120 million, resulting in profitability across the entities.
Switching to our Total Co, we project an adjusted admin expense ratio range of 20.5%-21.5%. An improvement of 360 basis points year-over-year at the midpoint, largely due to cost savings previously outlined. In 2022, admin services revenue was $61 million, and we generated a modest bottom line margin. For 2023, we agreed to terminate the Health First arrangement and will receive no further fee income while incurring a modest amount of transition-related costs. For our ongoing +Oscar arrangements, we expect fees of approximately $20 million-$25 million, generating a positive contribution to our results in 2023.
Our projected Adjusted EBITDA loss range of $175 million-$75 million reflects an improvement of $335 million year-on-year at the midpoint, largely driven by improvement in our core underwriting margins, as well as meaningfully higher investment income with rising interest rates. The midpoint of guidance reflects approximately 5 points improvement in the Adjusted EBITDA loss as percentage of premiums before ceded reinsurance year-on-year. We enter the year with a very strong balance sheet, including $340 million of parent cash and investments. In our base case, we believe we have sufficient cash and liquidity to fund the company to total company profitability, which is expected next year.
Specifically, we expect limited capital contributions to the insurance subsidiaries in 2023, with potential upside in our free cash flow driven by our InsuranceCo Adjusted EBITDA profitability. This is a substantial improvement from 2022, where we infused $420 million into our subsidiaries due to growth and net losses. As a reminder, as our insurance subsidiaries become profitable, there will upstream tax sharing payments from the subsidiaries to our holding company. We do not expect to be a cash taxpayer at the holding company for the foreseeable future, given our sizable deferred tax asset. Given our substantial progress on insurance company profitability, our holding company costs net of revenue are now the primary use of funds for the company. As we've said previously, we are targeting Total Co profitability in 2024.
With that, let me turn it back to Mario for his closing remarks.
On microphone. Good. There sits lots of hard data. I will close out with some very simple thoughts. The risk equation for our company has changed dramatically towards the positive. We are projecting full company profitability next year. We expect we will have enough cash to get us there. We've done the work to bring down our medical loss ratio in line with other industry incumbents. Our admin costs are coming down in line with our plan. We took on membership this year at sustainable margins that set us up for the future. We have a differentiated product in the fastest-growing insurance markets in the country. It remains attractive to brokers and members alike. Having our own infrastructure that has proven scalable and being clearly advantaged in our ability to engage with members, those are massive differentiators.
We are builders. I find it personally very exciting to continue to build on top of this infrastructure. There is ample runway to get even more automated and efficient. That is where we will continue to focus in the coming year. The 2023 plan is straightforward. We know what needs to be done. We simply need to continue on the path that we are on. Before I close, I'd like to thank the Oscar employees who've been so committed to building on the momentum of the past few years. We have great ambition and an even greater team. With that, let's turn over to the operator for the Q&A portion of the call.
At this time, I'd like to remind everyone, in order to ask a question, simply press star then the number one on your telephone keypad. Our first question will come from the line of Michael Ha with Morgan Stanley. Please go ahead.
Hi, thank you. I understand this year you're targeting lower distribution expenses and vendor savings from increased scale. I think Sid mentioned majority of these savings were already achieved, and now you're focused on further efficiencies. I was wondering if you could talk about what these efficiencies are, how that could yield additional savings, and whether that presents opportunities for upside to earnings. Also on Health First, I think you mentioned incurring a modest amount of transition-related costs. How should we think about the magnitude of those stranded costs?
Yeah, Michael, let me take the first question, and then Sid, you can talk about the second part of the question. You know, I would point you back to the three levers we tackled in 2022, across admin, medical cost management, and portfolio sculpting. In all three of these, we have more, I think, way more room to go. Start with the admin side. We negotiate things like chart collection vendor, contracts. Pretty much every medical management vendor, we have contracts there, PBM vendor, things like that. Where the additional savings lie in the future is, in my view, a lot in further automation, really across our claims operation, across eligibility and billing operation, across our clinic operation.
These are now nicely scaled, and I think we know what we're doing in these now, both from point of view of, you know, whether any errors occur or, any other issues happen there, but also from the point of view of how sort of front-footed we can be on these. Across the board there, we can still do more as we scale in the future and high membership growth. This is automating more of these types of conversations. As example, last year on the customer service side, we're sending a lot more conversations through its automated systems that can ping directly into our real-time systems, whether it's about eligibility, claim status, things like that, both in the provider service and customer service sides. Sid, maybe on the second question, transition costs?
Great. Yeah, sure. Thanks, Michael. Appreciate the question. Really with respect to the run-off expenses, you know, there's some modest expenses performing run-off services in 2023. We wouldn't expect them to recur in 2024. We really wouldn't comment beyond that.
Got it. Thank you. If I could squeeze one more in. If I'm not mistaken, I think Florida is one of the most capital-intensive states. I think the statutory cap requirements are something like 25% for the first five years, but I believe Oscar first entered Florida back in 2019, so presumably you'd be nearing the end of that, so you might get a decent chunk of cash back. I was wondering, is that true, and, if so, what would the timeline be on receiving that cash, and, would your statutory capital requirements drop to 10% or 15% thereafter? Thank you.
Well, Michael, again, you know, thank you for that. It's a great question. Yes, your read of the statutory regulations is consistent with ours, and those startup seasoning requirements, you know, would effectively run through the end of this year. Beyond that, I mean, we think, as Mario said, we have a lot of potential for the company, growing organically, becoming more capital efficient in some of our structures. We'd of course evaluate that, but I think you're absolutely right to call out that we would see that as an upside potentially.
Our next question will come from the line of Jonathan Yong with Credit Suisse. Please go ahead.
Hey, thanks for taking my question. I just want to hit on redeterminations and how you're thinking about the risk pool of the members that you may end up recapturing. Do you have an assumption of how many members you think that you will actually gain from redeterminations, and kind of how are you thinking about their MLR coming onto your books later in the year? Thanks.
Yeah, Jonathan, maybe I'll take the first part. Sid, if you want to add anything, feel free. Two levers there, of course. One is premium growth, the other one is medical costs. Overall, on both of these, we have made assumptions around redeterminations in the estimates, in pricing and also in the guidance for 2023. I would not call the material to either premiums, neither premiums nor medical loss ratio. Generally, I would say in anything that increases the ACA market size is a great thing, will have side effects in making the market even more stable and attractive and so on. I think long term, this is clearly a great thing. When it comes to growth, we expect, like everybody else, obviously, these to start in April.
It is still not quite clear over what timeframe they will come in. The states have not given clear guidance. Some states will go population-based, others time-based. When we look at when those members roll into the Medicaid rolls, actually quite linear, I would say, over each month of the year. You won't see potentially any kind of bulk coming at any particular month there. Texas has said they think it's gonna happen in six-nine months, and Florida said it's gonna happen in 12 months. Quite different there in terms of what we could expect in different states there. In Florida, as Sid said, we don't expect to participate in this in the first six months of the year because the membership limitation remains in place until then.
When we then participate on the medical loss ratio side, we share what others have seemed to pick up on in the market, which is that the acuity of these numbers will likely be higher than the risk that's already in the ACA. Clearly, members who come in special enrollments, as we know, have the headwind of partially risk adjustments that they come with as well. As we talked about in the past, and we've reaffirmed this again throughout the 2020 results, members who get in special enrollments, who come with that sort of MLR penalty, then do look like pretty much everybody else in the year after that. Again, long term, great for the markets. Short term, with the MLR headwinds.
I'll close out by saying, both on the growth sides and on the MLR sides, quite likely quite immaterial to the projections for 2023 for us.
Okay, great. Just on some of the automation that you were talking about in order to improve your operating efficiency, would that require any further investments on that would be needed for 2023 or, you know, does your current capital planning account for all that and there's no need for extra investments? Thanks.
No extra investments. Really, our current capital planning is based on us essentially following the plan we laid out. Everything Sid talked about in terms of base case, cash plan, InsuranceCo profitability 2023, total profitability 2024, is all very consistent with that. We really expect in fact to be at the tail end of a whole bunch of multi-year investments. For example, the claim system we've been building internally is really kind of in the last sort of component still being fine-tuned, essentially at the end of the investment cycle there. That to us is very exciting because that system is the one that's already answering, you know, real-time questions on eligibility and claims and stuff like that, and various provider-facing and member-facing service lines.
A lot more automation I think we can get in all of these aspects.
Thanks.
Your next question comes from the line of Gary Taylor with Cowen. Please go ahead.
Hi, good evening. Couple questions. First one I just wanted to start with, if you could tell us, I mean, where do you see enrollment landing at 1Q and year-end? I didn't see any enrollment guidance in the release.
Yeah. Sid.
Yeah. I think, you know, we obviously haven't explicitly called that out in the guidance. I think with respect to membership, I think we have highlighted that we expect membership to be roughly stable year-over-year. We are importantly to point you to this, we are projecting lower overall SEP members as a portion of the overall book. You know, as a reminder, that will result in lower member months year-over-year, but as a positive tailwind to the MLR. I think Mario commented nicely on Medicaid redetermination. You know, the net-net of all of that as it flows through to premiums is, you know, we'll have slightly different member months dynamics than we've seen, and that's what's really driving the Direct and Assumed Policy Premiums down modestly year-over-year.
Should we be thinking that, you know, the business has some normal attrition from the first quarter through the year, would redetermination sort of backfill that and enrollment's more stable? Does that make sense?
Yeah. I mean, if you think of the business there is some normal course churn in the book, which is effectively lapses offset by initiations. One of the key points we're just calling out here is we'd expect new initiations in year to be lower than they would've been historically because SEP will be a smaller proportion of the book this year.
Yeah. We generally see that whatever market share trends, we have an open enrollments flow through this special enrollment as well. That's how we set up the guides.
My second one was just going to risk adjustment. I agree. I think, to be honest, you know, doubling your enrollment and premium year over year and bringing MLR down 300 basis points is actually really great performance to be proud of for sure. If when we do that, you know, final settlement of the risk adjustment next June, you know, what you've accrued there, you know, proves to be sound, and I know you had suggested just a little more conservatism in the figure you've booked in the 4 Qs. Just wanted to give you a chance just to address where you think you're at for year-end and how that will settle up in June.
Yeah. Well, I mean, I think, Gary, you're highlighting a key point. Obviously, you know, the final date will be out in June, and we'll be able to, you know, make final judgments at that point. I think given the dynamics in the marketplace, we just thought it would be prudent to be cautious. I think in particular in the second half of the year, you saw certain carrier exits in certain markets, including in Florida. Given that, you know, we thought it would be prudent to overlay some judgment to be a little more cautious on risk adjustment than we might have been in years prior. We always are open in flagging that that's a risk. We think we've been thoughtful about it.
One more quick one if I could. What was 2022 InsuranceCo EBIT, under the definition you're using going forward?
Yeah. I think at this point, just for accounting purposes, we haven't disclosed that. You know, as we think about financial disclosures going forward, I think, you know, we'll think about what could be helpful to analysts and investors there and come back to you. You know, I think you have a good line of sight into the holding company. What I would tell you is if you're trying to come up with that estimation, think of what the holding company costs are, and you're effectively reverse engineering that out.
Yep. All right. Thank you.
Your next question comes from the line of Kevin Fischbeck with Bank of America. Please go ahead.
Great. Thanks. I just wanted to make sure I understood what you were trying to say about investment income. It sounds like that's a bigger tailwind than you thought it was going to be. Are you saying that that's part of how you're getting to breakeven this year? Or like even excluding that, you would've been comfortable with the breakeven dynamic? Or is that always part of the calculus? It's just something you think the Street didn't catch on to?
I think I'd reiterate two points. You know, as we think about our core underwriting profit, we're targeting combined ratio less than 100. At the core, that's what we really want to use as the metric to measure the business. We were making a second subtle point is obviously, externally, analyst investors try and do pure comparisons of, you know, ultimately gross margins, net margins, and how that compares to peers. Our investment income over the years, given our being a startup, has been effectively been de minimis, while our competitors have effectively had 3% investment yield. Now that interest rates have in some ways normalized, you're now gonna be able to include investment income in your model for Oscar, similar to what you would use at other competitors.
We've given you a little bit of an indication. We think that'll be about 3.5% this year in our base case, anywhere from 3%-4%. So that's obviously structurally with the ability to extend duration and look more like other what I would call normal insurance companies. I think that is, you know, great, a great kind of normalizer for us now when you look at our results versus other people in this guidance.
All right. Great. I guess, you guys mentioned the $20 million size for the exchanges over time. That's a still pretty big growth rate, from where we are this year. You know, this year, membership is flat when the industry grew quite well because of all the actions you mentioned earlier. Are we done with those actions? Should we start to think about you guys growing in line or faster than the industry? To make that, you know, transition to the final profitability, are there still things we should think about that say, yeah, you know, you won't grow quite as fast as the industry, for another year or two?
Yeah, Kevin, a few thoughts there. One is we have a long-term goal for growth, and we're not moving away from that. I mean, I think that there is a lot of growth power stored up in the company, that would have even come through more in last of enrollment had we not taken some of the actions we talked about. I think, the overall market will have the tailwinds we talked about as well. I really do think that that's our long-term growth target would mean we would outgrow the markets, that'll continue to be our goal. We are already in the process of thinking through and actually working through, things like service area expansions for next year.
We're back in the playbook essentially of figuring out where we can best grow with the best unit costs, with, you know, the best responsible, sustainable, margin profile. Because we're not gonna go back to prior years of margin profiles we can sustain. That's for sure. As Sid talked about, we also still have a good amount of regulatory reserve capital against which we can grow in the various places we're in. That certainly feels like something we wanna tackle for next year. On top of that, in terms of the other thing I'd mention is that I would not exclude continuing to work on portfolio sculpting.
If there are areas we are in where it's not working, where we don't see ourselves building sustainable business, then we will continue to look at those, give those a hard look, and see if we want to continue to be in those. Of course, that's a, you know, high bar because generally, I think we've now really built some very good local model of growth, happy members, happy brokers, and providers who work with us closely.
Our next question will come from the line of Josh Raskin with Nephron Research. Please go ahead.
Hi. Thanks. Good evening. Appreciate you taking the question. Midpoint of MLR guidance of 83%, you know, call it down 230-ish basis points year-over-year, how much of that is reflective of pricing actions that you took, and how much of that is medical management, techniques, you know, to improve relative to overall trend? I kind of ask that question in light of, you know, needing to sort of turn off or cap the membership in Florida, you know, just to make sure there's no sort of mismatch there.
Yeah. Yeah. I think, Josh, nice to hear from you. I'll take that one. I don't think there's any mismatch there, to use your words. I mean, obviously, I think Mario highlighted, you know, rate increases in the high single digits, which we view in excess of trend. You know, very disciplined, I would say, pricing across our markets, was certainly a key element of the business plan. You know, we were trading off, frankly, profitability for growth this year, which was the biggest consideration. Secondly, I think there's real dollars embedded in the MLR savings, such as the PBM contract I mentioned. We're renegotiating along with that rate increase above trend that is really pushing us to where we wanna be on the MLR side.
Gotcha. Gotcha. Then it looks like guidance implies about $195 million of corporate costs or, you know, sort of parent level overhead. What was that number in 2022, and how should we be thinking about that, you know, sort of after 2023?
I think, you know, the first point, this answer won't surprise you, is down, you know, materially as we look at that. I think that we're very focused on expense management when you begin to start decomposing us versus peers. I think if you look at Oscar now relative to competitors, I think folks have to acknowledge the really meaningful progress we've made on MLR, and that's why I appreciate some of the comments and questions today. Clearly, what you've heard from Mario and myself and certainly the rest of the management team with Scott and Alessa, we are absolutely focused on that cost line, and I think you should expect us to continue to get better operating leverage out of our cost base, you know, as you model the company forward.
Yeah. I can't believe we made it to this, probably towards the end of the call without a utilization question on the existing quarter. MLR came in a little bit better than we were looking for. I don't know if there were any. I heard the development prior, period reserve development, relating to the current year. Anything other, anything else you would point out in terms of MLR trends for the quarter?
No-nothing in particular for the quarter. I think, you know, as we look at the year, that the inpatient professional utilization, as I mentioned, came in better than expected. You know, RX savings came in for the year higher than we had, we had anticipated and priced for. There's been a lot of focus on our total cost of care around PBM and drug spend, which is why, you know, we've highlighted this other element of our renegotiating PBM contract, which we think is, you know, a nice tailwind for our results as we go forward.
Our next question will come from the line of Nathan Rich with Goldman Sachs. Please go ahead.
Great. Thanks for the questions. Maybe first, just building on the MLR comments from the last question, I'd just be curious to get your view longer term, where you think MLR needs to be to kind of reach the profitability path that you laid out for the business? I guess as you look to potentially return to growth, would you kind of expect to keep MLR either in the range that it's in or continue to improve it, while also, you know, growing membership?
Yeah. I think, as we sit here today, first off, I think we're proud of all the progress that, you know, we've made, with respect to MLR. As we look forward, we would wanna be targeting in the low eighties. What are the implications for the business? Certainly, that means as we look at 2024, there's still more work to do on pricing for some margin expansion. Our total cost of care savings program, I think, has generated real benefits as we work with our actuaries. A big chunk of the resources and kind of human capital of the company is really focused there on all the components of better medical cost management. Sometimes that bit may sound unsexy to you, but it's the meat and potatoes blocking and tackling of running a managed care company.
I think, you know, the team is entirely focused on that, and that's why we're confident we think we can get there.
Yeah. I think that it's just, you know, we've been in this market now for the longest really of almost anybody else in this market. It's quite clear that purely leading with price when you don't have the unit cost, so you don't have the management and so on, does not work. We're not gonna go back to those days, certainly from a pricing perspective, and don't think the market will either, by the way. For us, this is a matter of in which markets can we build networks and providers who will over time share risk with us. We can build a moat around longer retention, longer tenure members who will wanna be with those providers. In those markets, I think we have a huge amount of growth potential still.
Therefore, MLR-wise, low 80s and not going back to the previous days of trying to somehow win on the price side there.
Great. I just wanted to ask a quick follow-up if I could. I think following up on Gary's questions on the risk adjustment payable. I guess, you know, with the slower growth that in the business this year, I guess, would you expect to be in a receivable position for the current year? I guess, you know, when do you kinda feel like you get better visibility on that?
We wouldn't anticipate being in a receivable position, but we would assume that, you know, the payable would be coming down modestly as we look forward.
Right.
You know, risk adjustment is a pretty big focus area for us, you know, given the nature of our membership and demographics are pretty similar. I mean, to point you to an important comment that, you know, may have been lost in our prepared remarks, which is this is really the first time that Oscar, you know, has had this level of stability in its membership. We know the membership population. We have strong data on that population, and so, we actually think that's beneficial from the perspective of reducing volatility.
Yeah. And maybe as another piece of data there, our silver mix is largely consistent. As Sid mentioned, it's sort of in the 60s, right? That's by itself likely means that we're just not gonna be a receiver from the pool, but a payer into the pool because it's still a little bit different than other market participants there. We've been moving it to the right direction. We've priced some great, I think, plans in other metal tiers as well that work well. That means we likely have lower claims flow than others, but higher RA payouts and are comfortable with that, as long as you manage the RA well, in which I think we at this point do.
Thank you.
Our final question will come from the line of Stephen Baxter with Wells Fargo. Please go ahead.
Hey, thanks. I had a couple of questions about the broader exchange market I was hoping to get some insight into. Obviously you guys are not, you know, growing your membership this year, a very intentional decision. The market as a whole, especially, you know, key states like Florida are seeing, you know, really significant strong growth again in 2023. I guess first, I'd like to get a sense of, you know, how you guys think about, you know, potential changes or maybe improvement to the risk pool, and whether anything like that has been considered in the MLR outlook you provided today. Secondly, let's just get your perspective on, you know, maybe Florida as a whole.
Like, it looks like the growth there has gotten to the point that I think around 13% or 14% of the state's population has signed up for the exchanges. At the national level, I think that's more like a 4% or 5% number. Just like to get a sense of what you think is happening in Florida, and whether that potentially, you know, could be more like what other states look like over time. Thanks.
Yeah. Steve, a great question. The on the growth side, generally, I think, we... Let me start with actually the Florida side of things. Florida is a very simple answer. It is that the population in the state, I think, is conducive to being in the ACA, right? We have at this point, I think about 40% of our welcome kits that go out, go out in Spanish. You know, it's a fair bit of immigration population and so on that wanna go into the ACA. Even the bigger driver is it's a very, very active broker base. Florida is almost unique in that regard.
I mean, some of the same brokers and general agents we have been working with very closely for the past couple of years have now made their way to Georgia and other states as well. Those brokers have been incredibly effective at finding folks who should get coverage. I think the latest statistics are that's something like... Actually, I'm going to butcher this now, but some large percentage of uninsured people in the US could get effectively still free healthcare in the ACA. That I think is a population that you have not seen sign up in other states where they haven't been told that by a broker that they could get that, and those folks are in the markets in Florida. I think that that's what's happening in the state there.
Going forwards, you know, in all of the ways you point out, there's still plenty of growth. I mentioned this briefly before. We continue to see interesting dynamics in the individual coverage HRA space. It's again kind of some of the Florida brokers and general agents who are saying, "Hey, I'm able to turn companies over into defined contribution type health plans," which is individualizing them, the ACA. To us that could be a whole another growth wave that we're very excited about, going forward.
Thanks. Could you just touch on, you know, maybe how you guys are thinking about the, you know, the risk pool dynamics as the market continues to grow in 2023?
Yeah.
Kind of putting the redeterminations piece aside.
Yeah, sorry, forgot about that one. Generally what you, what you see in the ACA is that if you've had more growth, it tended to bring down the average risk score. There is clearly risk score trends in the markets, meaning every year, all insurance companies tend to get better at collecting risk scores and recapture rates and things like that, right? You sort of always have been that's, in that race of making sure you don't fall behind there, and we're very aware of that. Generally the risk pool has comes down if when the, when the pool expands. I would think that that's what again, has happened coming into this year. We did not make big assumptions around this. Partly because, you know, we didn't wanna be too, again, exposed in terms of whatever happens in SEP.
I could see a situation where SEP members coming in drive the pool up, but then the more recent growth has driven it down. That's kind of our overall about the same. As I mentioned before, and I'll just briefly say it again, from a metal mix perspective and also from an average age perspective actually, we have about the same population as before. To us, that generally means there isn't anything there that we would be somehow too concerned with getting the risk pool wrong, us versus the overall markets. Obviously, these are all the things we're watching, and there's the famed weekly report coming out, so we're always sitting there and, you know, cheering when it comes in the way we expect. I'm looking forward to the next time that will happen.
Okay, thanks. Just, one super quick follow-up, hopefully. Just on the PBM contract, like it sounded like you are renegotiating or it already has been done. I just am trying to clarify whether we should think about, you know, there's an impact beyond 2023 that we should be considering, or is the impact fully captured in the 2023 guidance you provided? Thanks.
Yeah, no, thank you, Steve. It's a great question, and it's, you know, I think we've always talked about this, about the benefits of the increased scale. Yes, we are in the final steps of renegotiating that PBM contract, and it's structured in a fashion that will provide us benefits in 2023 and beyond. Think of it as multi-year.
Yeah. I think for us this was a good example of, we've reached a certain level of scale now that enables us to take these kind of steps that maybe at lower scale wouldn't have been the case. That's something we intend to also press on going forward.
We have no further questions at this time. Ladies and gentlemen, that will conclude today's meeting. Thank you all for joining. You may now disconnect.