UBS Global Healthcare Conference - CLOVER HEALTH INVESTMENTS CORP

Thanks for joining us, everyone. With us today, we have Clover Health and Clay Thornton, the newly appointed CFO, moved from the interim role. So happy to have you here with us. I guess let's just start with you reported third quarter earnings. Let's provide a recap for everyone who may not be as familiar with Clover. Yeah, absolutely. So I view the third quarter really as a continuation of the momentum of the first two. So on a year-to-date basis, we've now delivered $97 million of adjusted EBITDA, $62 million of net income. We're doing this while driving membership growth at roughly 50%. So I think that's really important that we're finding a way this year to expand earnings while growing at a market-leading rate. And that really kind of just continued through the third quarter, strong momentum, now setting us up for a really exciting 2027. Yep. No, that's great. I guess let's start with talking about medical trend. And kind of where is medical trend right now within your book of business? And is it easing relative to your expectations and any areas to watch for from your perspective? Relative to our expectations at the beginning of the year, we're certainly trending favorable to that. There's a couple areas that I would point to. One being inpatient, where utilization has been trending very favorable throughout the year across each of our cohorts, particularly our new member cohort that's trending at a utilization rate lower than last year's year one cohorts. That's very encouraging for us. Second piece is on Part D. So we've seen Part D trends come in lighter than we expected at the beginning of the year. That's largely been concentrated in the non-low income population, which certainly had very high trends in 2025, the first year of the IRA impact on MA. Those trends have eased a little bit in 26 relative to our expectations at the beginning of the year. On the flip side, though, with lower inpatient utilization can come higher utilization in the outpatient setting. So, we are seeing that in categories like outpatient surgery, observation visits, ER stays. So that's playing out a little bit in the inpatient. Great. The company talked about significant growth for next year, 2027. I'm curious if you foresee this more as a gaining share from those exiting the market or more of that your general product is more competitive and you're taking share. Any way to frame the benefit that you're seeing this year from that dynamic? It's definitely both. So for the past two years, we've really prided ourselves on our product positioning and our competitive advantage there. That's continuing again into 2027. There are some new dynamics playing out in 2027, though. Most notably, there's a large plan exit in our core market of New Jersey. We have a plan exit that has membership in the range of about 40,000 MA members that will be looking for a new home in 2027. So that's a bit of a unique dynamic inside of this AEP, but our competitive positioning remains a significant strength, Jonathan. Every year, we kind of look at our benefits relative to the competition and try to size that difference. we're really at the same level, if not a little bit ahead, in 27 relative to where we were in 27. So when you think about your pricing for 27, you said that you're not that much different from your large national peers. I'm curious if in that construct, you also assumed a higher level of enrollment growth, or how did you kind of think about that within your trend assumptions? Yeah, so first I want to clarify what we mean when we say pricing. Pricing meaning what trends were we assuming within our bids. So when we're assuming trends in our bides, we're looking at normal unit costs, normal utilization metrics, and how we expect those to play out. But we're applying those trends across each cohort individually. So with Clover, who's been growing incredibly fast over the past two years and expecting another strong year of growth in 27, it's important to look at those cohorts kind of independent of each other and apply those trend assumptions uniformly to the different cohorts. When you aggregate all of that up, Jonathan, what often happens is our aggregated trend assumption might be a little lighter than some of the national peers because we're bringing in new members. We have a higher membership weighting in that first, second, third-year cohort than others do, and those cohorts generally run lower on a medical cost. So in the aggregate, you'll likely see a lower trend, but at the individual kind of factor level, we're generally making similar. Okay, great. And for switchers that come into your book, are they operating at better margins compared to a typical year one member, or does their utilization pattern look a bit hotter than the typical member? So when you think about new members, we always bucket in three different categories. Did they come to Clover from another Medicare Advantage plan? Did they age into Medicare? Or did they come to us from Medicare fee-for-service? The members that are switching from another Medicare Advantage plan always run significantly better MLRs than the other two buckets. So we always look at those separately. Coming out of the 2026 AEP, about 85% of our new members were in fact switchers from other Medicare Advvantage plans. So heading into 27 with the disruption that I mentioned with the plan exit, we would expect that percentage to be the same or possibly even actually a little bit higher in 2027 ADP. And we have really good data from the last several years to understand when we enroll new members from other plans, how do they perform within Clover in the first year, and then what happens in the second year. When a new member joins us, we're able to tell where they came from, who their previous plan was. So as we're anticipating this growth in 2026, we're spending a lot of time focused on, well, which plans are these members going to come from, what was our historical experience when those members joined our plan, and what does that mean for 27 overall? We've got really good data there and feel good about where that's headed. Okay, great. When you think about your overall book of business, where do you think you could broadly be doing better from a cost management standpoint on trend? Is there any specific areas to kind of call out? Yeah, I'd say there's two areas. The first relates to continuing to double down on Clover Assistant, driving more coverage in Clover Assistant is going to drive more impact on the medical savings. We've released a number of clinical white papers that show the impact of Clover Assistance on medical cost management, particularly in the lens of clinical impact. So as we drive more coverage in CloVER Assistant, we'll expect to see more impact from on the clinical side. The second piece I would say is around provider payment integrity and continuing to focus there to drive more efficiency and provider payment-integrity operations. As rev cycle operations continue to pick up and provider billing intensity picks up in the market, we need to make sure that our operations are set up in a way that we can meet that increasing billing intensity with stricter, stricter, more informed clinical review of those. Okay, great. D-SNPs and I guess now C-SNPS have been a focus point for the larger national plans recently and less so for Clover. What's your perspective on this and does C- SNP or D-SNP make sense for CloVER at any time and any reasons of why or why not? I'll split those two out separately. So when you think about D- SNPs, of dual eligible SNP plans. The market had been moving more into a fully integrated stance in recent years. So certain states are what's called fighty states. So they're fully integrated dual eligible states. And in those states, you must be the Medicaid MCO in order to be the Medicare MCO for decent. So in the near term, we don't have any plans to become a Medicaid MCo. So it didn't really make sense for us to pursue DSNP in those fully integrated states, New Jersey being one of those, by the way. On the CSNP front, we've not entered that market yet, but we've spent a lot of time looking at it, and I think it certainly could be an interesting product type for us to enter in the future. A couple reasons. First, to enroll in a CSNIP, you definitionally must have chronic disease and clover assistant is built around early identification detection and management of chronic disease so those two really do work pretty hand-in-hand together so as we look at different types of products for 2028 and beyond CSNP is certainly something we're looking at the company has good growth largely focused in New Jersey and small pockets where you decide to participate but when we've seen plans go into outside of their primaries there is a propensity to run into some issues adjusting to another state or just having some growing pains kind of how do you perceive this and going beyond new jersey in a big way what's the company's approach when thinking about a new state and potentially trying to grow big there yep so we're spending a lot of time focused on this right now and it starts with really understanding at an incredibly at an incredible granular level why you've been successful in the markets that you've been successful, and how can you replicate those factors in new markets? So, if you think about the state of New Jersey, what has made us so effective inside of the state of New jersey? It all starts with Clover Assistant coverage and the amount of members within the state that are being seen by clinicians using Clover Assist. And there's really two main prongs through which we deploy Clover Assistance. One is through our in-network physicians, and then two is our employed clinicians through CloverCare Services. The Clover Care Services model can certainly travel to any state, and we've actually done that in Georgia, and we've seen a lot of success doing that. The network engagement itself is a little bit more interesting and requires a lot more thought in terms of what the market dynamics are in a given geography and whether they support high Clover Assistant coverage. So there's a lot of analytics that go into that that may inform us that, say, market X is more beneficial for an entry versus market Y. And then the other piece that we're really excited about is through counterpart health and the engagement that they've had with primary care groups, but as well as other MA plans, is giving us sort of some boots on the ground access to understand where can we engage clinicians to scale coverage and how effective is our technology in markets where we don't operate MA plans today. So that market intel will kind of drive decisions on where it may make sense to enter in the future because you're not going to see us show up in South Florida anytime soon, Jonathan. It's a heavily capitated market that's very different than the business model we operate. We operate in a way that allows kind of traditional non-value-based players to drive value-based level results. So in doing that, we spend a lot of time focused on markets where we think we can bring that capability to bear. So if we're to enter a new market, we're going to try to replicate the things that have given us success in our current market. Okay, great. I guess going to the AEP, can you talk about what you're seeing so far in AEP? This year was a lot more switchers than is typical. Are you seeing the same dynamic for 27? What are members focused on, retention, things like that? Yeah, so similar to what we talked about earlier, the plan exit is certainly playing a big factor in AEP. We have daily information coming in on how new sales are progressing, and we're seeing that plan exit certainly play a role. The second piece is just the general competitive landscape. We've seen, for really the third year in a row, a retreat from $0 PPO by the national MCOs. That's playing out in our market. So on the PPO book of business itself, our market advantage from a product standpoint has grown as competitors have tried to shift back into the traditional playbook of HMO, HMO growth, HMO driving value-based contracting, things like that. We're seeing a continued retreat from PPO, and that's playing a big role in the strong growth we're seeing so far. Great. Company secured a five-star rating in the largest contract. Star ratings, as we all kind of know, have been pretty volatile in recent years. Is the company giving any consideration to potentially diversifying the contracts, particularly when entering new states? And any reason not to give in the concentration risk and any thought towards doing that? We don't see any reason to diversify age contracts today within our existing markets. So we've built a really strong engine within our consisting markets that we think is now showing up in our star ratings performance. So there's no reason for us to disrupt that today. If we enter new markets or enter new products, like the CSNIP conversation that we had earlier, that could dictate a diversification into new age contracts. So if we're entering territory where we have less familiarity with how those members may impact the star rating, we may want to diversify our risk a little bit and make that move on a different age contract so that we can ensure we sustain the performance that we know we have today in our existing age contracts and our existing markets. Okay. And then on the five-star contract, you can market all year. I'm curious how you're thinking this will make a difference in growth versus what you may have been thinking previously. Yeah, I think the important thing to remember there, yes, you can market year-round, but you can also enroll members year-around. So there's an annual special election period that's afforded to Medicare Advantage members if they want to enroll in a five-star plan. Where that would really take effect most notably would be kind of in the April to December timeframe. We're seeing the five- star rating have sort of a sentinel effect inside of AEP where it's serving as a signal to members, And we're seeing incremental enrollments into the plan through what we call direct channels, CMS.gov or Silver's own website. We're seeing those enrollments pick up this year. I think the five-star rating is playing a role in that. As you kind of transition out of the annual enrollment period into the OEP period, which runs January through March, members still have a one-time choice to change plans. So we don't really see much impact there. It's really in that April to December timeframe where we would actually have this opened up special election period, which could drive incremental growth inside of the year. We're not going to speak too much about what we think that may be until we really kind of get out of the AEP. We issue guidance for 2027, because a lot of what we decide to do inside of that SEP period will be dictated by where AEP ultimately shakes out and where we want membership to land. Yeah, that makes sense. You recently made a switch to OptumRx from Caremark. I guess, can you talk about the reasoning for that transition, and does this provide potentially better economics for the plan? Yep. So, we've taken a much more active role in management of Part D, both from the cost side, as well as the star side. It really started in 2025, when the IRA took effect and Part D became a much bigger piece of the overall MLR equation. we started to take a more active role in managing that cost. So with that, we kind of looked across the whole spectrum of how you manage Part D and ended up running an RFP for PBMs that we completed in advance of our 2027 business. Ultimately, what we were looking for was the best partner who was going to work with us to manage both cost and STARS performance within the Part D side. And at the end of the RFP process, Optum was the clear partner for us to move forward with into 2020. Okay, that makes sense. Kind of along the drug side, there are changes to some pharmacy measures coming in STARS. As you think about the transition to Optum, but also considering the measurement period for STARS, do you expect to have a bit more focus on ensuring those measures are performing adequately, given the potential change that are coming? I wouldn't say a bit More. I would say the same. So like I just mentioned, starting in 2025, we started to take a much more active role in managing those things in-house and working a lot closer with our PBM to do so. And you're seeing that play out both in the medication adherence STARS ratings that were released recently, as well as some of the favorability that we've seen in Part D trend this year. So I would say it's the same focus because we're spending a lot of time focused on that today, Jonathan, and we'll continue to do that into 27. Okay. I know the company is positioned to do well regardless of whatever the star's outcome may be, but it does make a pretty big difference in profit and competitiveness. So what are the lever differentials that you can pull to ensure success while remaining competitive if there was a star's headwind? uh so number one it always comes back to our technology clover assistant coverage clover assistant performance drives cohort maturation heading into 2027 we'll have two large cohorts progressing through our cohort materation curve and that's going to create a significant tailwind to earnings expansion in 27 if you kind of fast forward into 2028 we could be headed toward a year where we have three large cohorts maturing at the same time assuming another year of strong growth in 27. So our model really comes down to that cohort maturation powered by Clover Assistant and that's the number one lever to offset any pressure that may come. The last piece I'll say on the stars front we're incredibly pleased to be paid on four and a half stars in 2027. We'll also have the same payment economics trending into 2028. So what that really allows us to do is it allows us to maintain the competitive plan designs that we have that drive growth, but probably more importantly, drive retention, because retention is incredibly critical to our cohort maturation story. So as long as we are able to maintain high retention because we're able to maintain competitive plan designs, that cohort maturation story is going to drive earnings and ultimately offset any other headwinds. Okay. You know, peers large and small have suggested that without the STARS benefit, it's difficult to be a sustainable growth-oriented plan in MA. Kind of where do you think the differences are that they might see this as a difficult task versus yourself? I think that's true on a relative basis. So on a relative basis, if payer X has a quality bonus payment and payer Y does not, you've effectively created a roughly 5% pricing disadvantage. In a world where no payer has that advantage, it all becomes relative and it all becomes part of how are you pricing your plan relative to your competition. So if everyone is kind of created equal on that quality bonus payment, things will just normalize through plan design over time, and I don't think it's required to be a growing plan within the space so long as there's not differentiation there. Okay. Yeah. And then the large plans always talk about kind of this 2% to 4%, 3% to 5% type of margin for the MA business. It's kind of from your lens, where do you kind of see it ultimately landing? A similar zone, especially given the technology back? We haven't set a long-term margin target yet. And frankly, I don't think it makes sense to do that right now while we're in this period of growth. So we grew significantly last year. We're growing significantly this year. We've got another strong year of growth coming in 2027. them. So we have a dynamic within our book of business that's quite different than what the others have, where their growth rates on a percentage basis just simply aren't the same as ours. So until such time that our growth rate kind of stabilizes and is very consistent on a year-to-year basis, it doesn't make sense for us to set a long-term margin target at this time. But we feel like, like I said, with cohort maturation, as we continue to turn more cohorts, large cohorts through the early part of that curve, we'll have substantial margin expansion from that. Yep. Okay. Turning to Clover Assistant, you've obviously talked about being one of the major components that makes the company successful. And I see it working well in areas where you've been for a while, like New Jersey. But in newer geographies, it does seem like there would be a larger ramp, or at least some time before you're at a point where it pays dividends, I guess. How do you perceive this, and would this be somewhat of a constraint in growth ex-New Jersey? So this gets back to what we discussed a little bit earlier in understanding the two components of how we deploy Clover. assistance. So we deploy it, one, through our in-network physicians, but two, through our Clover Care Services team, which is our set of employed clinicians. That model can travel to any market and can scale with membership in any market. So, we feel really comfortable that we can bring that model to a market and drive Clover assistant coverage through our employed clinicians, the network physicians are where you really need a little bit more density in a given geography to get that engagement. Because what we're asking physicians to do when they engage with Clover Assistant is we are asking them to change their workflow. We're asking them the change their work flow for Clover patients. And we've seen providers very willing to do that when the scale exists to do it. So we generally look at this and we say well what percentage of this provider's patient panel is a Clover MA member? If we make up a higher percentage of a provider'spatient panel, they're much more inclined to change their workflow to leverage the Clover Assistant technology during a visit. So, I think where your question's going really is, well, if you enter a new market and you have very limited patient panel density, is it going to be hard to scale? I think in the near term, the answer to that question is yes. on the surface. But this is where I think we're getting a lot of really good insight from Counterpart Health and the new markets that they've gone into with other health plan partners where we're being able to see how quickly can that Clover Assistant coverage scale? What are the reasons that different providers in different markets are engaging with the technology? So using that kind of anecdotal information that's less quantifiable on a spreadsheet gives us a lot of insight into which markets we could go into, build the density quickly, and then drive Clover Assistant coverage through those network physicians. Very interesting. When you think about putting investments into CA, what other areas of improvement do you foresee a need for, and any updated statistics broadly on CA? Yeah, I think there's a lotof exciting things going on within Clover assistant it's it's been built and it's been optimized as a point-of-care tool for clinicians so we've seen incredible results happen when primary care clinicians are using it at the point of care when our own employed clinicians are using the the technology at the point of care or starting to look at now is extending that reach beyond the beyond the room itself and beyond the visit so if during a visit a a provider services a next best action for the patient say it's a referral to a specialist or to fill a medication we want to make sure that the clover system technology and kind of what surrounds it can follow that next best next best best action through to fruition to make sure that it actually occurs okay on risk adjustment there has been talked about potential changes to risk adjustment looking ahead, and we obviously don't know where it's heading at this point, but when you look back at the impact V28 had on the industry and your own business, do you kind of think a change to risk adjustment would be problematic at this time or something that the company could work through better than kind of how everything shaped out with V28? I think V28 is actually a fantastic case study in how Clover and Clover Assistant in particular is able to react to changes like this. So if you just look at the period of time in which V28 impacted the industry, it was phased in over three years. It was phazed in a third in 2024, a third and 25, a 3rd and 26. What happened in the industry during that time period is payers largely reacted to that change through plan design. They exited unprofitable markets, they increased cost sharing they reduced supplemental benefits at that same period of time clover was able to improve benefits and grow while expanding margins so during that 24 to 26 time period we've effectively doubled our membership we've increased earnings and improved it improves our plan we've been able to do that in large part due to the effect that we were nimble enough to be able to react to v28 and if you think about where where the clover assistant technology comes into play there about two-thirds of our members in any given year are seeing a clinician that's using the clove assistant technology so when changes like this occur in the industry we're able to react we're to tune our technology and tune the the platform that clinicians are using when they see our patients to react in a very very fast others don't have that same reach where two-thirds of their members are seeing clinicians that are using their technology. Okay, interesting. Turning to counterpart health, it has been a little bit quieter in recent quarters on that front, but can you provide some color on how it's been in the trajectory of the business or pipeline so far, any stats, et cetera? Yep, so we've been saying for a few quarters now that the near-term goal of counterpart was to manage as many third-party lives on the counterpart platform as Clover Assistant does within our own Medicare management. That is a near-term goal, and we're progressing very well toward that goal. So, happy with the progress that we're seeing on counterpart. The focus there is much more on engagement right now, so scaling lives under management, proving that the technology works in new markets with other taxpayers, other providers. And as we do those two things, the economics will come later. So we're pleased with how counterparts are progressing so far, and we're tracking well toward the goals that we set out at the beginning of the year. Okay. You are selling the product of health plans. Just given the prevalence of AI, has this made the selling process more difficult, as I think more plans may be looking to perform these functions on their own and bring it back in-house or just do it internally altogether? No, I wouldn't say that. I think what we have that others don't have is results. Because the Clover Assistant technology, branded counterpart assistant for third parties, was incubated within our own Medicare Advantage plan, we have several years of data that prove out the results of the technology. We've been number one in the country for HEDIS for the third year in a row for PPO plans. So other payers really react to that in a meaningful way. And then, of course, we have our cohort maturation data that's powered by Clover Systems. So where another payer may be trying to incubate technology in-house or other vendors are coming, There's very few out there that can actually put real data behind the platform that they're offering. We have real data that's publicly visible, verifiable, that payers understand, and that's been really helpful in driving this conversation. Okay. Just keeping on with AI, you've done a lot of cost-cutting on your end. Is AI providing further opportunities on the administrative side to reduce costs? And, you know, similarly, what about development on CA with the use of AI? Yeah, I think there's probably a few areas that I would point to as it relates to SG&A efficiency. First is we still carry a fairly sizable fixed cost base within our business today. We're roughly 160,000 MA lives today. So relative to a lot of our competitors, you would say we're subscale. As we continue to grow membership and grow revenue, we expect to spread our fixed costs across the much larger base into 27, 28, and beyond. So I know that's a little bit aside from the question you asked, but there's significant opportunity on that front. On the AI front specifically, there's a lot of low-hanging fruit within health plan operations. The majority of our systems and systems within the industry were built in a pre-AI world, so there's opportunity to iterate on those and drive down costs within a lot of the functions where there's repeatable tasks done by human labor that are easy to document and easy to repeat. So as we kind of think through those areas within member service operations, certain provider payment integrity functions, claims adjudication, there's all these different areas of opportunity to drive efficiency within health plan operations. Okay. Given the strong growth you've had this year, I was curious how you think about capital needs that you'll need to put up in February, any sizing you can provide or anything to consider there? Not going to provide any sizing there. I'll just reiterate what I had said on earnings last week, which is we feel like our balance sheet is in a really strong position. We have north of $500 million in total cash investments and securities with no debt. We've delivered north of$200 million in operating cash flow inside of 2026. So we feel our balance sheet is strong today, and we're well-positioned to fund regulatory capital needs, continue to grow membership, and actually invest in the business further. Okay. If you have another strong year of growth, how do you think about the balance between easing on growth versus ensuring the balance sheet and cohort economics are progressing as expected? Yeah. So within that frame, we keep a very close eye on what growth is going to do to our overall margins, our overall cash flow generation, and what our regulatory capital needs are. So coming out of AEP, we'll take a fresh look at where our membership sits, what that means to cash flow for 2027, and then ultimately what that will mean for regulatory capital needs. And that'll kind of dictate what level of investment we choose to make in the remainder of 2027. Jonathan, that investment could take the form of continued investment and in Clover Assistant, AI-driven health plan capabilities, or it could mean more growth. That could be an investment that we choose to make inside of 2027. Okay. And then kind of as you think about 2027 from this juncture, where do you think the biggest risks and opportunities outside of utilization are in achieving your goals? For 2027, the thing that we look at most closely right now is Clover assistant coverage. I mentioned this on earnings last week, it's really the number one leading indicator that we use for cohort maturation. And we're currently tracking ahead of where we were at the same point in time last year. So that gives us a really good signal that inside of 2026, we're doing what we need to cover our members with Clover Assistant visits, such that when we get to 27, they're set up for success the piece that I would call out for 27 specifically is scaling scaling our clinical operations when you when you bring on a significantly large new member cohort it's important for us to scale our clinical operations in a way that allows over-assistant coverage to scale with it remains to be seen where membership actually shakes out for this AEP but But what gives us a lot of confidence there is this is our third go-round. We grew significantly from 2024 to 2025. We grew significant from 2025 to 2026. We're seeing strong growth again from 2026 to 2027. So we've now built the engine for how to manage growth from year to year, how to staff up our clinical operations in a way that meets these members where they are and allows us to manage calls. Great. Well, with that, we'll end it there. Thanks, Clay, for joining us, and enjoy the rest of that conference. Thanks, Adil.