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Oscar Health, Inc. (OSCR 2.29%)
Q1 2022 Earnings Call
May 10, 2022, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon. My name is Christian, and I will be your conference operator for today's call. At this time, I would like to welcome everyone to Oscar Health's 2022 first-quarter conference call. At this time, all participants are in listen-only mode.

After the speaker presentation, there will be a question-and-answer session. [Operator instructions] 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.

Cornelia Miller -- Vice President of Corporate Development and Investor Relations

Thank you, Christian, and good afternoon, everyone. Thank you for joining us for our first-quarter 2022 earnings call, where we will share the results about the trajectory of the company and the results of the first quarter. 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.

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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 first-quarter 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.

Mario Schlosser -- Co-Founder and Chief Executive Officer

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 first quarter 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 toward more consumerization, toward increased risk sharing and technology adoption.

We believe we have built a business that is well-positioned to capitalize on this shift. 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 1 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.

First quarter 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 differentiated product offering we have. And so importantly, at the same time, we are expecting meaningful year-over-year improvements in the medical loss ratio into the range of 84% to 86% for the year. We saw 80-plus percent 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 engagement members are 6 percentage points more likely to renew. And our Net Promoter Score continues to climb, ending the first quarter 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-cost, high-quality care options is even more critical, particularly given that our book has been shifting toward a higher proportion of Silver members, a cohort with higher mobility where engagement is even more important and impactful. We see in the first quarter 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 eight states. Membership nearly doubled between the fourth quarter of 2021 and the first quarter of 2022, with monthly membership increases across all of our markets. This growth is driven largely by our strong product market fit, 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 of 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 a 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 market 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 our membership.

And 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 planned year '23 pricing strategy contemplates market dynamics, exogenous trends and our drive for market expansion. In addition, the team is focused on driving toward 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 an impact member experience. Additionally, we're looking at ways to expand our self-service tools to members as we know that about 70% of those who call their Care Guides also have digital accounts. And heading into 2023, we expect to achieve additional operating leverage through continued top-line growth and then 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 will continue to focus on payment integrity on our ex familiar management and 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 screening compared to a control group. Members who see one of the Oscar virtual primary care providers are seeing primary medication adherence at roughly 85%, also by our $0 generic drug offering on these virtual plans.

And 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 and total cost of care. Our ability to achieve above-market growth attention even when we were not the lowest price plan in the last normal period 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 performance trend into this year.

And those give us confidence and, of course, the opportunity to focus on markets where we can win. As such, we are focused on modifying our portfolio mix by market and by products. This quarter, we made the decision to withdraw from the Arkansas and Colorado marketplaces for the planned year 2023. These are relatively small markets for us, and we intend to make this excess 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 clients live served. And we expect these clients will generate $65 million to $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 their 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 dashboard, a 48% member engagement rates. And with the launch of a 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 nontechnical teams to be a one-stop shop for engagements, driving clinical outcomes and improving efficiency. Clients can build programs or campaigns that can be heavily tested. They can deliver interventions with multiple touchpoints 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 in mix of both a risk-bearing insurer and a technology company. And 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. And finally, in +Oscar, we're continuing to take steps toward 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%-plus 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 conscious care guides are now driven by an aggregate score of all underlying tasks for a particular member. And that let us make sure that we drive outreach to the highest priority individuals and tasks. And because we're built on a tightly lined 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 important provider rosters continuously rather than a batch process.

And as a result of these updates, data stableness for provider data went down from hours to minutes and led to the 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 first-quarter results as a positive step on the path toward these objectives. And with that, I'd like to bring in Scott.

Scott Blackley -- Chief Financial Officer

Thank you, Mario, and good evening, everyone. Tonight, I'm going to walk through our first-quarter 2022 results. But 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 first quarter results were largely in line with our expectations, and we are focused on execution in 2022 as a stepping stone to insurance company profitability in 2023. And 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 first quarter 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%. First-quarter direct and assumed policy premiums increased 104% year over year to $1.7 billion, driven by higher membership and business mix shifts toward 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 agreements as of the beginning of 2022. This is increasing our total quota share coverage rate from 34% in 2021 to 46% in the first quarter of 2022. For our existing reinsurance contracts that we had as of last year, in our accounting, we reduced premiums and medical claims for the reinsurers proportional interest. For our new quota share reinsurance treaties, the terms required 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 first quarter '22 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 first-quarter 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 fourth quarter.

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 toward 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 year-over-year -- excuse me, 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 first quarter. Our overall combined ratio, which is the sum of our medical loss ratio and the insurance company and administrative expense ratio, was 97.2% in the quarter, an increase of 300 basis points year over year, primarily driven by the MLR.

Our first quarter '22 adjusted EBITDA loss of $37 million was $9 million higher year over year. But 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 first quarter, the primary use of parent cash was to fund the insurance subsidiaries required capital related to the open enrollment premium growth. Pulling up, our first quarter 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. And 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.

Mario Schlosser -- Co-Founder and Chief Executive Officer

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 toward 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. And 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, and 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.

Questions & Answers:


Operator

[Operator instructions] Your first question is from Ricky Goldwasser from Morgan Stanley. Your line is open.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Yes. Hi, Marion and Scott. Good evening, and thank you for all the details. A couple of questions here on MLR.

You broke it by Silver in prior-period development. Can you give us some more context on what is the MLR 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?

Scott Blackley -- Chief Financial Officer

Yes. So with regards to the MLR, the first comment I would make is with our SEP membership that came over two observations. One, we saw very high levels of retention of that group of SEP members that we added last year coming over and joining us in 2022. Then on the side of MLR, 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.

And again, this is kind of what we were expecting and gives us confidence about the rest of the year trajectory with those members.

Ricky Goldwasser -- Morgan Stanley -- Analyst

And then 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 toward the new members?

Scott Blackley -- Chief Financial Officer

Yes. Again, I think that what I would say is that the SEP members that we added are -- I would anticipate that their MLR is going to be literally the same as the members that came in that we had -- previously had in our OE. So that's going to be the same.

Ricky Goldwasser -- Morgan Stanley -- Analyst

OK, great. Thank you. And then, Mario, I just have to ask about +Oscar. Recently, you've taken a more active role in sort of leading the +Oscar effort.

So 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?

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes. It's fantastic for me to be out on the road, dinners, conversations, hearing what potential clients want and so on. What we're seeing is there's clearly recognition that continues to be the case coming out of the pandemic shift toward value and thinking about how do you rebuild old and aging systems, how do you get close to the member, who's going to occupy this hot center of ember engagements. 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. And 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. And we talked about this a little bit at the Investor Day that that was the plan that we will be moving toward that. And 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. And there, our first offering is now the campaign builder and we're out there selling that tool to a larger portfolio of clients than even before, including risk and physician practices and other folks like that. So the trend is very much alive. I think what's happening is we're hitting a real nerve they are 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. But in the meantime, pushing on the modularization and fulfilling clients' needs there. So stay tuned for that. But everything I think and how we've been describing what's going on out there is very much alive and feels very much like what people are looking for.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

Your next question is from Stephen Baxter from Wells Fargo. Your line is open.

Stephen Baxter -- Well Fargo Securities -- Analyst

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. I was hoping you could give us an update on your exposure to membership with these expanded subsidies.

And then, I guess, just further as we think about this in the balance of the year, how should we think about the relative 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 I would like to get your perspective on that.

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes. So let me take the first part of this and maybe, Scott, you can talk a bit more about the membership risk there as well. 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, a 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 increase. The reduced now uninsured rates.

That deal came through a couple of days ago. Those are all the societal things and good for the healthcare system overall. So 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.

And my starting point would be to think that there will be found away -- a way will be found to extend them, whether it's in the lane, that session where 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 and clearly works for the healthcare system overall, providers and members and so on.

And so that's my starting point. Now if they were to go away, it's probably about a range of 10% to 20% decrease in membership purely from the subsidies. However, that isn't the net. And I'd remind you there that to look at the net change in membership, you have to include Medicaid redetermination, the fixing of family, maybe other things that could happen before next year, like Medicaid gaps still out there as well.

All of those things push very much in the other direction. And so that is why we're not sitting there at the moment, saying how do all these things net out? We're mostly saying, hey, we've got a great product. And they are a big membership base to go after and, therefore, that's the plan. Impact on the MLR of the new membership is -- as Scott said, I'll echo him there.

Between the three cohorts, members that we lose, members who came last year, members that renewed. We don't see a lot of difference at the moment in MLR. And they all have slightly different characteristics, but there's not a lot of difference in how that all nets out. That's where things we wish that will work.

So in other words, as the ECQ population came in last year and had this RA overhang against them. When that goes away, you've 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 we talked about the ECQ population.

We observed that they have slightly higher -- 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. So that suggests it was sort of like really an early catching up. The ER utilization is slightly higher, not enough to throw off the MLR on the book or on that cohort.

But it just suggests that there is still more managements that we can do, and we're certainly on that. Anything else, Scott, do you want to add?

Scott Blackley -- Chief Financial Officer

No, I think you covered it.

Mario Schlosser -- Co-Founder and Chief Executive Officer

All right.

Stephen Baxter -- Well Fargo Securities -- Analyst

OK. And then just one secondary question here. It looks like the SG&A progression might be a little bit different than this year than you've seen in the past. I think you're starting out closer to the midpoint.

And then in previous years, you've seen much more of a ramp kind of throughout the year. Just remind us 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.

Scott Blackley -- Chief Financial Officer

Yes. Thanks for the question, Steve. So with respect to the InsureCo admin ratio, a couple of things that I would call out there. On the one hand, in the quarter, we had more membership that came into our book via brokers, and that drove higher distribution expenses.

And then on the other hand, we saw really variable cost efficiencies and operating leverage from scale. And net-net, those two things kind of offset each other. And that was really the driver of why we saw flat year-over-year results in terms of first quarter. Then kind of to your specific question on seasonality.

What I would say there is that I'm expecting based on kind of just the business that we've got now that including the broker expenses that I just talked about, we're going to see probably modestly less amount of seasonality. And specifically there, I would say that I would expect that we're going to see pretty flat levels of the admin expense ratio for most of the year with a slight notch up in Q4. So I do think that we should see lower seasonality in that book.

Operator

Your next question is from Jonathan Yong from Credit Suisse. Your line is open. Jonathan Yong, your line is open.

Jonathan Yong -- Credit Suisse -- Analyst

Hi. Can you hear me?

Mario Schlosser -- Co-Founder and Chief Executive Officer

We can.

Jonathan Yong -- Credit Suisse -- Analyst

Hello. Can you hear me? OK, 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.

But 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 InsureCo profitability in 2023?

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes. I mean let me start. 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 clear things that push in the other direction. So we're not too worried there. The second thing is we remain totally committed, as we said, to InsureCo's profitability next year. So we need to do there.

Now in terms of the kind of leverage, I'll have Scott perhaps answer that. 

Scott Blackley -- Chief Financial Officer

Look, I think that what I would say is depending on how all of these regulatory shifts might play out, you're going to have a couple of different factors. To the extent that we see subsidized members, in fact, those subsidies are going away and we're not able to pick up those members. Certainly, we've already capitalized our insurance entities. So 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 for purposes of scale. We would be going backwards a little bit on our fixed scale that we picked up. So that would be certainly a bad guy. I think on the side of variable costs, we would be able to pull out a significant amount of variable costs.

Roughly half of our costs in the insurance company administrative ratio are within our control and variable. So we would be able to make adjustments to those for the size of the book. And then I would just comment on the other side of the ledger. We were able to see an increase in membership in going into '23, whether it was redetermination or the family glitch or any of these things there.

I think the fact that going into '23, where we're able to price for the risk that comes along with that membership group, I think that has the potential being a real tailwind for us, certainly, if we saw Medicaid redetermination come in in '22. And depending on the pacing, it's so difficult to exactly predict when the healthcare emergency might end. But depending on the pacing of that, we could see that be a headwind to '22, but that would certainly be a tailwind to 23% as we would expect those members to have high retention into the following year.

Mario Schlosser -- Co-Founder and Chief Executive Officer

Final thing I'd maybe add is that from a regulatory point of view, this is obviously on regulator's mind as well. And so there's some there's a lot of work with the regulators in the pricing process to figure out what exactly we have in terms of timelines that we could use there.

Jonathan Yong -- Credit Suisse -- Analyst

OK, great. And then I guess 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 thought of members possibly overutilizing their benefits heading into the end of the year, given the knowledge that they may not have insurance in 2023? I guess is there any thought to that? Thanks.

Mario Schlosser -- Co-Founder and Chief Executive Officer

I would argue a little bit with historical experience here, and this would sort of be similar to what happened in 2016 and 2017 and the kind of shift toward Silver loading and so on. I mean the takeaway there was that members do not necessarily read the CMS guideline publications every single month in the way that you do, Jonathan, surely, which is fantastic than I do. So we did not see a big impact back in those days. So my starting point there would be it's not a huge concern.

But I think now we're behind a whole bunch of hypotheticals. So you have to multiply it together. So not really something we're too concerned about right now.

Jonathan Yong -- Credit Suisse -- Analyst

OK, appreciate it. Thanks.

Operator

Our next question is from Gary Taylor from Cowen. Your line is open.

Gary Taylor -- Cowen and Company -- Analyst

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 Q in a few days here. But just since you had mentioned it, I was curious, I think that was a positive $5 million in the 1Q of '21.

Scott Blackley -- Chief Financial Officer

Yes. 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. And remind what was the second part of your question?

Gary Taylor -- Cowen and Company -- Analyst

That was it. My second numbers question was the other expense in the quarter, I think, $3.055 that's getting added back to EBITDA. What does that represent?

Scott Blackley -- Chief Financial Officer

That one, I'm going to send Cornelia back to you later after the call to give you the answer because I honestly don't know off the top of my head what that is.

Gary Taylor -- Cowen and Company -- Analyst

OK. And then, Mario, just while we're sort of talking about potential changes to ACA marketplace. How are you thinking about the finalized rules where you have to offer a standardized ACA plan at every metal level and every rating area where you offer a nonstandardized plan. I think you guys have had a lot of success with some of the innovation in your plan offering.

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 dynamic in the market at all?

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes. The good thing is that the ability of having other plans in the marketplace doesn't go away. So 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. It's better to have more smart regulation obviously in there but more ability for defining better benefit designs, and that the creativity flow there really in a good way. So glad that 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 going to 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 more quickly and you beat their 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.

So that part I like. I think it will be interesting to see what it means that there will probably be more Gold platform plans back in the marketplace. And those are things we're going to have to see what that means. And 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 about before. So we had some time already paid for it. And therefore, I think we're in the middle of pricing season and it's all systems go on working through the pricing committees there every week.

Gary Taylor -- Cowen and Company -- Analyst

But from this distance, it's not like a clear additional material administrative costs just to offer and maintain many more plans in each trading area. Is that fair?

Mario Schlosser -- Co-Founder and Chief Executive Officer

No, that's definitely fair. I mean we have more administrative burden from being in states we are subscaled, which is one of the reasons why we said we're leaving two states I tackled in the prepared remarks. But when it comes to running benefits network side by side, and that's one of the reasons we build out on systems where we have a lot of flexibility.

Gary Taylor -- Cowen and Company -- Analyst

Got it. Thank you.

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes.

Operator

Your next question is from Josh Raskin from Nephron Research. Your line is open.

Josh Raskin -- Nephron Research -- Analyst

Hi, thanks. Just first one, just a quick clarification on the change in ceded premiums. I understand the shift to deposit accounting for the new book. So did I hear it now that it's 46% of premiums this year being ceded.

And I assume the accounting has no impact on EBITDA, and I assume certainly nothing on cash flow, right.

Scott Blackley -- Chief Financial Officer

Yes. So you're right. It is overall what we're going to call the reinsured coverage rate, which is kind of the effective amount of reinsurance is 46% for the first quarter. 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. And you're right, there is really no impact on the treatment in adjusted EBITDA. So it's just a presentation thing. It's not -- it doesn't affect the bottom line.

Josh Raskin -- Nephron Research -- Analyst

Yes. And then 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 as you grow membership, will the providers think about Oscar in totality differently? And then 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?

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes. So on the provider side and the shift toward 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. And we have several health system contracts right now with long-standing partners.

We're shifting one more toward risk. And those are in negotiations, so I wouldn't want to go through the risk 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 of value-based care deals do 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 often times, but those are all things that are working within what we do. We do a variety of running campaigns to close line partners.

I mentioned a campaign about PCP attribution earlier today in the prepared remarks. That was a campaign we actually ran with one of them. In that case, a health system that has risk with us and we will help them get PCP attribution. And that campaign builder is really one of the places where we can get a little truth out right now from driving the area.

And then lots of small things that I think we want to 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 will go to your attribute provider in an easy way now. Where if you go into the K router and you search for new PCP, your provider will magically flow to the top there and things like that. So 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 win more there. We call this internally networks delivering value in DV and a lot of falls under that kind of general rubric from better PCP attribution. You see more member engagement for that, better data sharing, better pushing of data into the point of care as well and all those kind of things.

Josh Raskin -- Nephron Research -- Analyst

And 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 help you with your cost management?

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes. If you take everything we're doing on even just a little bit of upside whatever, I mean, there are percentages of value-based care are pretty large. But yes, when I say value-based care, really, I mean the upside-downside. Like the contracts I meant today that we're negotiating this year with health systems to really do risk.

That's upside-downside.

Operator

All right. And 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.

Nathan Rich -- Goldman Sachs -- Analyst

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? And is it -- are those two markets material from an EBITDA standpoint? I understand you hadn't gotten scale there, so not material from a premium standpoint. And then 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 decisions to exit additional markets in the future?

Scott Blackley -- Chief Financial Officer

Let me just jump in on from the financial side of exiting those markets, Nathan. They have -- they're really small. So from a P&L perspective, they don't have 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 on where we have the right to win and where we really want to put our energies toward.

Mario Schlosser -- Co-Founder and Chief Executive Officer

Yes. In terms of decision to exit there, so you're exactly right. These were in the remedial 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, where 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 another comment on the regulatory changes they are, right, like I don't certainly 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 in those markets.

Nathan Rich -- Goldman Sachs -- Analyst

OK, that makes sense. And just a quick follow-up. Scott, you mentioned the membership profile this year being in line with your expectations. I know the risk adjustments created some uncertainty on MLR just in the exchange market.

I just -- can you maybe just talk about how you feel like you've been kind of executing on this. And when we should expect kind of better visibility on what the impact should be for the full year?

Scott Blackley -- Chief Financial Officer

Yes. So obviously, the first quarter is really the starting point for getting information and we're just starting to see claims data coming through. As you go into the second quarter, that's when you start to see your first kind of report out in terms of performance. So really, I would expect we 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 or risk adjustment.

We'll see that in the second half, right at the end of the second quarter so June of '22.

Nathan Rich -- Goldman Sachs -- Analyst

OK, great. Thank you.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Cornelia Miller -- Vice President of Corporate Development and Investor Relations

Mario Schlosser -- Co-Founder and Chief Executive Officer

Scott Blackley -- Chief Financial Officer

Ricky Goldwasser -- Morgan Stanley -- Analyst

Stephen Baxter -- Well Fargo Securities -- Analyst

Jonathan Yong -- Credit Suisse -- Analyst

Gary Taylor -- Cowen and Company -- Analyst

Josh Raskin -- Nephron Research -- Analyst

Nathan Rich -- Goldman Sachs -- Analyst

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