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What changed in CLOVER HEALTH INVESTMENTS, CORP. /DE's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CLOVER HEALTH INVESTMENTS, CORP. /DE's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+791 added−609 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-01)

Top changes in CLOVER HEALTH INVESTMENTS, CORP. /DE's 2023 10-K

791 paragraphs added · 609 removed · 255 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

4 edited+473 added−231 removed0 unchanged
Biggest changeAt January 1, 2023, we operated our MA plans in eight states and 220 counties. In 2021, we expanded into our Non-Insurance segment when we made Clover Assistant available in Medicare fee-for-service through the Global and Professional Direct Contracting Model ("DC Model") of the Centers for Medicare & Medicaid Services ("CMS").
Biggest changeOn April 1, 2021, the Company's subsidiary, Clover Health Partners, LLC ("Health Partners"), began participating as a Direct Contracting Entity ("DCE") in the Global and Professional Direct Contracting Model ("DC Model") of the Centers for Medicare and Medicaid Services ("CMS"), an agency of the United States Department of Health and Human Services, through which the Company provides care to aligned Medicare fee-for-service ("FFS") beneficiaries (the "Non-Insurance Beneficiaries").
CMS redesigned the DC Model and renamed it the Accountable Care Organization ("ACO") Realizing Equity, Access, and Community Health ("REACH") ("ACO REACH Model" or "ACO REACH") Model effective January 1, 2023.
CMS redesigned the DC Model and renamed it the Accountable Care Organization ("ACO") Realizing Equity, Access, and Community Health ("REACH") ("ACO REACH") Model effective January 1, 2023.
We are heavily invested in helping provide care for those who are most in need. Clover Health was incorporated on October 18, 2019, as a special purpose acquisition company and a Cayman Islands exempted company under the name Social Capital Hedosophia Holdings Corp. III ("SCH"). On April 24, 2020, SCH completed its initial public offering.
For additional information related to the Company's Non-Insurance operations, see Note 20 (Non-Insurance) in these financial statements. The Company was originally incorporated as a Cayman Islands exempted company on October 18, 2019, as a special purpose acquisition company under the name Social Capital Hedosophia Holdings Corp. III ("SCH").
Most of our members are enrolled in plans that offer among the lowest average out-of-pocket costs for PCP co-pays, drug deductibles and drug costs in their markets while also providing wide network access and the same in- and out-of-network costs for primary care provider visits.
Clover focuses on minimizing members' out-of-pocket costs and offers many plans that allow members to pay the same co-pays for primary care provider visits regardless of whether their physician is in- or out-of-network.
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Item 1. Business. General At Clover Health, our vision is to empower Medicare physicians to identify and manage chronic diseases early. Our strategy is to improve the care of our Medicare beneficiaries, develop wide physician networks, and provide technology to help empower physicians.
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Item 1. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Clover Health Investments, Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Clover Health Investments, Corp.
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Our proprietary software platform, Clover Assistant, helps us execute this strategy by enabling physicians to detect, identify, and manage chronic diseases earlier than they otherwise could. This technology is a cloud-based software platform that provides physicians with access to data-driven and personalized insights for the patients they treat.
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(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss , changes in convertible preferred stock and stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).
Removed
This software is used in both our Insurance segment and our Non-Insurance segments. In our Insurance segment, we leverage Clover Assistant to provide America's Medicare-eligible seniors with Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") plans.
Added
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Removed
We aim to provide affordable, high-quality healthcare and we offer most of our members (referred to as "members") in our Medicare Advantage ("MA") plans among the lowest average out-of-pocket costs for primary care provider ("PCP") and specialist co-pays, as well as competitive drug deductibles and drug costs, in their respective markets and plan types.
Added
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ( 2013 framework), and our report dated March 14, 2024 expressed an unqualified opinion thereon .
Removed
We strongly believe in providing our members with provider choice and we consider our PPO plan to be our flagship insurance product. An important feature of our MA product is its wide physician network. We often offer the same cost-sharing (co-pays and deductibles) for visits with primary care providers who are in-network and out-of-network.
Added
Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
Removed
We manage care on our wide network by empowering providers with data-driven, personalized insights for their patients (our members) through the use of Clover Assistant. We believe this enables providers to make improved clinical decisions. We reach a broad array of consumers, including traditionally underserved markets.
Added
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB.
Removed
Through our Direct Contracting Entity ("DCE") under the DC Model, which launched on April 1, 2021, we enabled providers to use Clover Assistant when they are treating patients who are enrolled in Original Medicare, which is the largest segment of Medicare subscribers.
Added
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Removed
The majority of Original Medicare beneficiaries aligned to our DCE (the "DCE Beneficiaries" and, together with our members, the "beneficiaries" or "Lives under Clover Management"), were aligned to our DCE when CMS' attribution model attributes them to a provider with whom Clover contracted as a "DC Participant" provider.
Added
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Removed
Expanding into Original Medicare was a strategic milestone for Clover and it demonstrated the scalability of Clover Assistant into our Non-Insurance segment. We believe our technology-centric strategy enables us to quickly and cost effectively deploy software to providers nationwide, including in historically underserved markets.
Added
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.
Removed
At December 31, 2022, we had approximately 1,560 contracted participant providers who manage primary care for our Non-Insurance Beneficiaries in 21 states. Additionally, at December 31, 2022, we had approximately 1,675 preferred providers and preferred facilities in our DCE network.
Added
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 75 Valuation of incurred but not reported reserves Description of the Matter As of December 31, 2023, the Company’s unpaid claims was $138.6 million, a significant portion is incurred but not reported reserves.
Removed
In connection with the 2023 performance year, we strategically reduced the number of ACO REACH participant physicians, which resulted in a shift in our beneficiary alignment. At the beginning of January 2023, we had approximately 605 contracted participant providers who manage primary care for our Non-Insurance Beneficiaries in 13 states.
Added
As discussed in Notes 2 and 9 to the consolidated financial statements, the Company’s incurred but not reported (IBNR) liability is determined by using actuarial methods that include a number of factors and assumptions, including completion factors, which seek to measure the cumulative percentage of claims expense that have been paid as of the reporting date based on historical claim payment patterns, and assumed medical cost trend factors, which represent an estimate of claims expense based on recent claims expense levels and medical cost levels.
Removed
Additionally, at the beginning of January 2023, we had approximately 1,540 preferred providers and preferred facilities in our ACO REACH network. Effective January 1, 2023, after the redesign of the DC Model to the ACO REACH Model, DCE is now known as the ACO.
Added
There is significant uncertainty inherent in determining management’s best estimate of completion and trend factors, which are used to calculate actuarial estimates of IBNR. Auditing management’s best estimate of the IBNR was complex and required the involvement of our actuarial specialists due to the highly judgmental nature of completion and trend factor assumptions used in the valuation process.
Removed
We believe that offering providers multiple options within CMS' "Pathways to Success" will help us be more accessible to practices.
Added
These assumptions have a significant effect on the valuation of the IBNR liability. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s actuarial process for estimating the liability for incurred but not paid claims.
Removed
Beyond ACO REACH, we are exploring other additional plans such as MSSP-A ("Medicare Shared Savings Program BASIC level A") and Medicare Shared Savings Plan ENHANCED ("MSSP Enhanced"), which would diversify the portfolio, allow for potential growth in lives under management, and provide an opportunity for better balancing the overall risk profile of the business.
Added
These audit procedures included among others, testing management review controls over the application of the actuarial assumptions within the reserve models and the review and approval processes that management has in place for estimating the liability for incurred but not paid claims.
Removed
Provider use of Clover Assistant enables data-driven decision-making for our beneficiaries and drives rapid software iteration: the more that providers use Clover Assistant, the more it learns and furthers the precision of personalized data-driven recommendations.
Added
To test the Company’s liability for IBNR, our audit procedures included, among others, testing the completeness and accuracy of data used in the calculation by testing reconciliations of underlying claims and membership data recorded in source systems to the actuarial reserving calculations, and comparing a sample of claims to source documentation.
Removed
We combine our beneficiary data with provider-generated data and use this powerful closed feedback loop to continuously fine-tune our clinical rules and machine learning models, as well as to select and prioritize future software capabilities. We believe the use and continuous improvement of Clover Assistant has resulted in not only improved clinical decision-making but also enhanced MA plan performance.
Added
We involved actuarial specialists to assist with our audit procedures, which included, among others, evaluating the methodologies and assumptions applied by the Company in determining the IBNR and independently calculating a range of IBNR estimates for comparison to management’s actuarial best estimate of the IBNR.
Removed
The platform facilitates identifying and engaging with our most at-risk members for our clinical programs. These programs are designed to provide additional targeted care support and to further drive better plan performance.
Added
Additionally, we performed a review of the prior period IBNR liabilities to subsequent claims development. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. New York, New York March 14, 2024 76 CLOVER HEALTH INVESTMENTS, CORP.
Removed
We believe that this framework, through our participation in the ACO REACH Model, will allow us to bring improvements to care and costs across a larger patient population, especially as it empowers our contracted providers to drive improved clinical outcomes. 6 We complement our contracted healthcare providers and their patients with our in-home primary care program, Clover Home Care.
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CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts) December 31, 2023 2022 Assets Current assets Cash and cash equivalents $ 122,863 $ 103,791 Short-term investments 12,218 41,457 Investment securities, available-for-sale (Amortized cost: 2023: $101,412; 2022: $193,300) 100,702 189,498 Investment securities, held-to-maturity (Fair value: 2023: $6,778; 2022: $15) 6,902 15 Accrued retrospective premiums 22,076 20,387 Other receivables 16,666 23,596 Healthcare receivables 64,164 70,607 Non-Insurance receivable 10,926 52,955 Surety bonds and deposits 55,631 100,502 Prepaid expenses 14,418 18,146 Other assets, current 1,404 4,043 Total current assets 427,970 624,997 Investment securities, available-for-sale (Amortized cost: 2023: $121,868; 2022: $142,940) 120,208 137,368 Investment securities, held-to-maturity (Fair value: 2023: $692; 2022: $636) 793 742 Property and equipment, net 5,082 5,753 Operating lease right-of-use assets 3,382 4,025 Goodwill and other intangible assets 2,990 20,000 Other assets, non-current 10,246 15,735 Total assets $ 570,671 $ 808,620 The accompanying notes are an integral part of these consolidated financial statements. 77 CLOVER HEALTH INVESTMENTS, CORP.
Removed
This program covers the most medically complex patients, often with advanced comorbidities. We believe Clover Assistant makes home care for high-risk individuals more scalable than fixed-site-based care. It permits technology deployment to enhance care and outcomes directly where patients live because our value proposition is centered around software.
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CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts) December 31, 2023 2022 Liabilities and Stockholders' Equity Current liabilities Unpaid claims $ 138,593 $ 141,947 Due to related parties, net 1,363 1,566 Non-Insurance performance year obligation, current 15,568 73,844 Non-Insurance payable 41,565 148,191 Accounts payable and accrued expenses 37,184 32,445 Accrued salaries and benefits 21,061 23,962 Deferred revenue 3,099 — Operating lease liabilities 1,665 1,827 Premium deficiency reserve — 7,239 Other liabilities, current 1,017 486 Total current liabilities 261,115 431,507 Long-term operating lease liabilities 2,998 4,033 Other liabilities, non-current 20,164 16,193 Total liabilities 284,277 451,733 Commitments and Contingencies (Note 19) Stockholders' equity Class A Common Stock, $0.0001 par value; 2,500,000,000 shares authorized at December 31, 2023 and December 31, 2022; 401,183,882 and 383,998,718 issued and outstanding at December 31, 2023 and December 31, 2022, respectively 40 37 Class B Common Stock, $0.0001 par value; 500,000,000 shares authorized at December 31, 2023 and December 31, 2022; 87,867,732 and 94,394,852 issued and outstanding at December 31, 2023 and December 31, 2022, respectively 9 9 Additional paid-in capital 2,461,238 2,319,157 Accumulated other comprehensive loss (2,370) (9,374) Accumulated deficit (2,159,794) (1,946,433) Less: Treasury stock, at cost; 7,912,750 and 2,072,752 shares held at December 31, 2023 and December 31, 2022, respectively (12,729) (6,509) Total stockholders' equity 286,394 356,887 Total liabilities and stockholders' equity $ 570,671 $ 808,620 The accompanying notes are an integral part of these consolidated financial statements. 78 CLOVER HEALTH INVESTMENTS, CORP.
Removed
Clover Home Care seeks to preserve the PCP-to-patient relationship through collaboration, which aims to improve health outcomes and reduce medical expenses. We have made it a priority to work with Medicare beneficiaries in underserved markets.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Dollars in thousands, except per share and share amounts) Years ended December 31, 2023 2022 2021 Revenues: Premiums earned, net (Net of ceded premiums of $444, $470, and $489 for the years ended December 31, 2023 and 2022, and 2021 respectively) $ 1,235,769 $ 1,084,869 $ 799,414 Non-Insurance revenue 773,177 2,380,135 667,639 Other income 24,774 11,683 4,943 Total revenues 2,033,720 3,476,687 1,471,996 Operating expenses: Net medical claims incurred 1,776,388 3,453,952 1,551,178 Salaries and benefits 257,157 278,725 260,458 General and administrative expenses 187,571 207,917 185,287 Impairment of goodwill and other intangible assets 15,945 — — Premium deficiency reserve expense (benefit) (7,239) (93,517) 110,628 Depreciation and amortization 2,509 1,187 1,246 Restructuring costs 9,931 — — Other expense — 70 191 Total operating expenses 2,242,262 3,848,334 2,108,988 Loss from operations (208,542) (371,647) (636,992) Change in fair value of warrants 86 (900) (66,146) Interest expense 7 1,333 3,193 Amortization of notes and securities discounts — 30 13,717 Loss (gain) on investment 4,726 (9,217) — Gain on extinguishment of note payable $ — $ (23,326) $ — Net loss $ (213,361) $ (339,567) $ (587,756) Per share data: Net loss per share attributable to Class A and Class B common stockholders – basic and diluted (1) $ (0.44) $ (0.71) $ (1.42) Weighted average number of common shares outstanding Basic and diluted weighted average number of Class A and Class B common shares and common share equivalents outstanding (1) 482,176,127 476,244,262 412,922,424 Net unrealized gain (loss) on available-for-sale investments $ 7,004 $ (7,440) $ (1,944) Comprehensive loss $ (206,357) $ (347,007) $ (589,700) (1) Because the Company had a Net loss during the years ended December 31, 2023, 2022, and 2021, the Company's potentially dilutive securities, which include stock options, restricted stock units, preferred stock, and warrants to purchase shares of common stock and preferred stock, have been excluded from the computation of diluted net loss per share, as the effect would be anti-dilutive.
Removed
This includes Medicare Advantage members who self-report their race or ethnicity and identify as people of color, members diagnosed with at least two chronic diseases, and members living in communities that fall within the top five deciles of what the government defines as areas of socioeconomic deprivation.
Added
The accompanying notes are an integral part of these consolidated financial statements. 79 CLOVER HEALTH INVESTMENTS, CORP.
Removed
On January 7, 2021, SCH consummated a business combination with Clover Health Investments, Corp. and changed its name to Clover Health Investments, Corp. Our principal executive offices are located at 3401 Mallory Lane, Suite 210, Franklin, Tennessee 37067. Our telephone number is (201) 432-2133. Our website address is www.cloverhealth.com.
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CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (Dollars in thousands, except share amounts) Convertible Preferred Stock Class A Common Stock Class B Common Stock Treasury Stock Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Noncontrolling interest Total stockholders' equity (deficit) Shares Amount Shares Amount Shares Amount Shares Amount Balance, December 31, 2020 139,444,346 $ 447,747 — $ — 89,206,266 $ 9 — $ — $ 411,867 $ (1,028,982) $ 10 $ 3,903 $ (613,193) Stock issuance for exercise of stock options, net of early exercise liability — — 4,303,062 — — — — — 6,144 — — — 6,144 Stock-based compensation — — — — — — — — 163,723 — — — 163,723 Vested restricted stock units — — 541,076 — — — — — — — — — — Unrealized holdings gain on investment securities, available-for-sale — — — — — — — — — — (1,944) — (1,944) Preferred stock conversion (139,444,346) (447,747) — — 139,444,346 14 — — 447,733 — — — 447,747 Issuance of common stock related to exercises of legacy warrants — — — — 7,205,490 1 — — 97,781 — — — 97,782 Convertible debt conversion and other issuances — — — — 75,084,703 7 — — 16,052 — — — 16,059 Issuance of common stock in connection with 2021 Business Combination and PIPE offering — — 143,475,108 14 (49,975,104) (5) — — 666,232 — — — 666,241 Conversion from Class B Common Stock to Class A Common Stock — — 231,273,129 23 (231,273,129) (23) — — — — — — — Conversion from Class A Common Stock to Class B Common Stock — — (88,514,196) (9) 88,514,196 9 — — — — — — — Capital contribution for extinguishment of debt — — — — — — — — 126,795 — — — 126,795 Acquisition of Public and Private Placement Warrants — — — — — — — — (147,582) — — — (147,582) Issuance of common stock related to exercises of Public and Private Placement Warrants — — 9,408,264 1 — — — — 81,672 — — — 81,673 Issuance of common stock, net of stock issuance costs — — 52,173,913 5 — — — — 283,770 — — — 283,775 Treasury stock acquired — — (14,730) — — — 14,730 (147) — — — — (147) Net loss — — — — — — — — — (587,756) — — (587,756) Balance, December 31, 2021 — $ — 352,645,626 $ 34 118,206,768 $ 12 14,730 $ (147) $ 2,154,187 $ (1,616,738) $ (1,934) $ 3,903 $ 539,317 80 Convertible Preferred Stock Class A Common Stock Class B Common Stock Treasury Stock Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Noncontrolling interest Total stockholders' equity (deficit) Shares Amount Shares Amount Shares Amount Shares Amount Change in accounting policy — $ — — $ — — $ — — $ — $ — $ 723 $ — $ — $ 723 Adjusted balance, beginning of period — $ — 352,645,626 $ 34 118,206,768 $ 12 $ 15 $ (147) $ 2,154,187 $ (1,616,015) $ (1,934) $ 3,903 $ 540,040 Stock issuance for exercise of stock options, net of early exercise liability — — 4,367,985 — — — — — 1,400 — — — 1,400 Stock-based compensation — — — — — — — — 164,305 — — — 164,305 Vested restricted stock units — — 2,974,581 — 1,677,873 — — — — — — — — Vested performance stock units — — 8,951 — — — — — — — — — — Unrealized holdings gain on investment securities, available for sale — — — — — — — — — — (7,440) — (7,440) Conversion from Class B Common Stock to Class A Common Stock — — 25,489,789 3 (25,489,789) (3) — — — — — — — Treasury Stock — — (2,058,022) — — — 2,058,022 (6,362) — — — — (6,362) Issuance of Common Stock under Employee Stock Purchase Plan — — 569,808 — — — — — — — — — — Activities from Seek Dissolution — — — — — — — — (735) — — — (735) Derecognition of Non-controlling interest — — — — — — — — — — — (3,903) (3,903) Net loss — — — — — — — — — (339,567) — — (339,567) Balance, December 31, 2022 — $ — 383,998,718 $ 37 94,394,852 $ 9 2,072,752 $ (6,509) $ 2,319,157 $ (1,955,582) $ (9,374) $ — $ 347,738 Change in accounting policy — $ — — $ — — $ — — $ — $ — $ 9,149 $ — $ — $ 9,149 Adjusted balance, beginning of period — $ — 383,998,718 $ 37 94,394,852 $ 9 2,073 $ (6,509) $ 2,319,157 $ (1,946,433) $ (9,374) $ — $ 356,887 Stock issuance for exercise of stock options, net of early exercise liability — — 79,189 — — — — — 1,150 — — — 1,150 Stock-based compensation — — — — — — — — 140,931 — — — 140,931 Vested restricted stock units — — 14,117,561 2 1,773,104 — — — — — — — 2 Unrealized holdings gain on investment securities, available for sale — — — — — — — — — — 7,004 — 7,004 Conversion from Class B Common Stock to Class A Common Stock — — 8,300,224 1 (8,300,224) — — — — — — — 1 Treasury Stock — — (5,839,998) — — — 5,839,998 (6,220) — — — — (6,220) Issuance of Common Stock under Employee Stock Purchase Plan — — 528,188 — — — — — — — — — — Net loss — — — — — — — — — (213,361) — — (213,361) Balance, December 31, 2023 — $ — 401,183,882 $ 40 87,867,732 $ 9 7,912,750 $ (12,729) $ 2,461,238 $ (2,159,794) $ (2,370) $ — $ 286,394 The accompanying notes are an integral part of these consolidated financial statements. 81 CLOVER HEALTH INVESTMENTS, CORP.
Removed
The content contained on or accessible from any website referred to in this Form 10-K is not part of this Form 10-K and is not incorporated by reference in this Form 10-K. Our Opportunity We believe we have an opportunity to fundamentally change healthcare by providing easy access to care from providers across the country.
Added
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Years ended December 31, 2023 2022 2021 Cash flows from operating activities: Net loss $ (213,361) $ (339,567) $ (587,756) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 2,509 1,187 1,246 Amortization of notes and securities discounts and debt issuance costs — 30 13,717 Stock-based compensation expense 140,931 164,305 163,723 Change in fair value of warrants and amortization of warrants 86 (900) (66,146) Accretion, net of amortization (4,014) (1,503) 200 Net realized (gains) losses on investment securities (20) 267 53 Gain on extinguishment of note payable — (23,326) — Gain on investment 4,726 (9,217) — Impairment of goodwill and other intangible assets 15,945 — — Premium deficiency reserve (7,239) (93,517) 110,628 Changes in operating assets and liabilities: Accrued retrospective premiums (1,689) 14,536 (94) Other receivables 6,930 (8,988) (2,914) Reinsurance recoverable — — (96) Surety bonds and deposits 44,871 (89,846) (10,656) Prepaid expenses 3,728 (3,415) (6,863) Other assets 1,828 (1,204) (4,296) Healthcare receivables 6,443 (22,565) (9,297) Non-Insurance receivable 42,029 (40,785) (12,170) Operating lease right-of-use assets 643 1,984 3,591 Unpaid claims (3,557) 2,589 36,948 Accounts payable and accrued expenses 4,739 7,635 5,307 Accrued salaries and benefits (2,901) 8,784 11,169 Deferred revenue 3,099 — — Deferred rent — — 68 Other liabilities 4,502 2,468 979 Non-Insurance performance year obligation (58,276) 36,953 36,891 Non-Insurance payable (106,626) 110,418 37,773 Operating lease liabilities (1,197) (2,671) (4,331) Net cash used in operating activities (115,871) (286,348) (282,326) Cash flows from investing activities: Purchases of short-term investments, available-for-sale, and held-to-maturity securities (175,567) (369,396) (876,252) Proceeds from sales of short-term investments and available-for-sale securities 60,436 13,348 126,862 Proceeds from maturities of short-term investments, available-for-sale, and held-to-maturity securities 255,728 472,098 314,666 Acquisition of business, net of cash acquired — (16,200) — Purchases of property and equipment (584) (4,467) (723) Acquisition of Character Biosciences, Inc.
Removed
By leveraging our Clover Assistant platform, we believe we can raise the level of care provided by every provider and scale in ways that traditional managed care plans and risk-bearing provider groups cannot. We principally scale our model of care by deploying physician-enablement software to providers.
Added
Series A preferred shares — (250) — Net cash provided by (used in) investing activities 140,013 95,133 (435,447) Cash flows from financing activities: Payment of notes payable principal — — (30,925) Change in restricted cash related to surety bonds, deposits, and escrow accounts (28,791) 82,422 — Issuance of common stock, net of early exercise liability 1,150 1,400 6,144 Proceeds from reverse recapitalization, net of transaction costs — — 666,241 Proceeds received for the exercise of public and private warrants — — 390 Issuance of common stock, net of stock issuance costs — — 283,775 Payment for the redemptions of public warrants — — (85) Treasury stock acquired (6,220) (6,362) (147) Net cash (used in) provided by financing activities $ (33,861) $ 77,460 $ 925,393 82 Years ended December 31, 2023 2022 2021 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (9,719) $ (113,755) $ 207,620 Cash, cash equivalents, and restricted cash, beginning of period 186,213 299,968 92,348 Cash, cash equivalents, and restricted cash, end of period $ 176,494 $ 186,213 $ 299,968 Reconciliation of cash and cash equivalents and restricted cash Cash and cash equivalents $ 122,863 $ 103,791 $ 299,968 Restricted cash 53,631 82,422 — Total cash, cash equivalents, and restricted cash $ 176,494 $ 186,213 $ 299,968 Supplemental cash flow disclosures Cash paid during the period for interest $ — $ — $ 1,677 Supplemental disclosure of non-cash activities Conversion of preferred stock to common stock — — 447,747 Issuance of common stock related to convertible debt — — 16,059 Capital contribution for extinguishment of debt — — 126,795 Activities from Seek Dissolution — 735 — Issuance of common stock related to warrants exercised — — 97,782 Acquisition of public and private warrants — — 147,582 Issuance of common stock related to the exercise of public and private warrants — — 81,283 Right-of-use assets obtained in exchange for lease liabilities — 642 1,076 Recognition of equity method investments and preferred stock — 8,644 — Derecognition of noncontrolling interest — 3,903 — Conversion of Character Biosciences, Inc. convertible note to preferred stock — 250 — The accompanying notes are an integral part of these consolidated financial statements. 83 CLOVER HEALTH INVESTMENTS, CORP.
Removed
We do this primarily by entering into contracts with our providers in which they agree to use Clover Assistant in connection with their primary care office visits in exchange for a flat fee.
Added
Notes to Audited Consolidated Financial Statements 1. Organization and Operations Clover Health Investments, Corp. (collectively with its affiliates and subsidiaries, "Clover" or the "Company") is focused on empowering physicians to identify and manage chronic diseases early.
Removed
Our platform, which enables differentiated patient care, supports our expansion into virtually any market, including traditionally underserved markets that are generally not viable for others because those markets often lack providers willing or able to assume financial risk for the costs of patient care. Medicare is the focal point of our opportunity.
Added
Clover has centered its strategy on building and deploying technology through its flagship software platform, Clover Assistant, to help America's seniors receive better care at lower costs. Clover aims to provide affordable, high-quality Medicare Advantage plans, including Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") plans, through its regulated insurance subsidiaries.
Removed
Approximately 65 million people were enrolled in Medicare in 2022. That number is expected to rise, equating to over $1.5 trillion in total expenditures by 2030. Within Medicare, the MA market made up approximately $361 billion of annual spend in 2021 and is expected to grow to approximately $877 billion by 2030.
Added
The Company's regulated insurance subsidiaries consist of Clover Insurance Company and Clover HMO of New Jersey Inc., which operate the Company's PPO and HMO health plans, respectively.
Removed
Original Medicare is expected to grow from $416 billion to $659 billion over the same period. At January 1, 2023, in our Insurance segment we operated MA plans in eight states and 220 counties.
Added
On December 1, 2023, the Company notified CMS that it will no longer participate as a REACH ACO in the CMS ACO Reach Program, effective as of the end of the 2023 performance year.
Removed
Under the DC Model, which launched in April 2021 (and, as of January 1, 2023, was renamed the ACO REACH Model), we have had an opportunity in our Non-Insurance segment to engage in the "Original Medicare" fee-for-service market, in which Medicare beneficiaries enroll in Medicare directly with the federal government.
Added
The Company’s exit from the ACO REACH Program follows its November 2022 announcement of a strategic reduction in the number of ACO REACH participating physicians in 2023, and was made after the Company determined that it is in the Company's best interest to fully exit the ACO REACH Program.
Removed
This will enable us to develop relationships with new and existing providers in any geography by giving them the opportunity to use Clover Assistant with their Original Medicare patients. This allows them to benefit from higher compensation than that available under Original Medicare.
Added
Medical Service Professionals of NJ, LLC, houses Clover's employed physicians and the related support staff for Clover's in-home care program. Clover's administrative functions and insurance operations are primarily operated by its Clover Health, LLC and Clover Health Labs, LLC subsidiaries.
Removed
As part of the program, Clover contracts directly with providers to use Clover Assistant to help manage their Original Medicare patients.
Added
For any information following the aforementioned paragraph, the Company will refer to its participation in ACO REACH Model or the Company's participation in the predecessor DC Model as ACO REACH Model henceforth. Clover's approach is to combine technology, data analytics, and preventive care to lower costs and increase the quality of health and life of Medicare beneficiaries.
Removed
An Original Medicare patient becomes aligned to our ACO (formerly referred to as the DCE) when CMS' attribution model attributes them, based on claims data or a patient's designation, to a provider with whom Clover has contracted as a "Participant Provider".
Added
Clover's technology platform is designed to use machine learning-powered systems to deliver data and insights to physicians in order to improve outcomes for beneficiaries through the early identification and management of chronic disease and drive down costs.
Removed
We also contract with "Preferred Providers," which include specialists and ancillary facilities that agree to participate in the ACO REACH Model with Clover's ACO. In each of these scenarios, while Clover participates in the providers' risk arrangements, we do not act as an insurer.
Added
Clover's MA plans generally provide access to a wide network of primary care providers, specialists, and hospitals, enabling its members to see any doctor participating in Medicare willing to accept them.
Removed
Under our global risk arrangement, total medical costs borne by CMS for these aligned beneficiaries are calculated and compared to a risk-adjusted benchmark rate that is established by CMS. Our ACO will receive any savings, or bear any losses, generated, subject to several risk mitigation mechanisms.
Added
Through its Non-Insurance operations, the Company assumes full risk (i.e., 100.0% shared savings and shared losses) for the total cost of care of aligned Non-Insurance Beneficiaries, empowers providers with Clover Assistant, and offers a variety of programs aimed at reducing expenditures and preserving or enhancing the quality of care for Non-Insurance Beneficiaries.
Removed
We believe this program represents a significant economic and market opportunity for us to deploy our platform across a national footprint, including in markets where we do not have a presence in MA.
Added
On October 5, 2020, SCH entered into a Merger Agreement (the "Merger Agreement") with Clover Health Investments, Corp., a corporation originally incorporated on July 17, 2014, in the state of Delaware ("Legacy Clover").
Removed
Our Technology Platform: Clover Assistant Clover Assistant is a purpose-built technology platform that empowers providers to deliver data-driven, personalized care to help physicians detect, identify, and manage diseases earlier and better than they otherwise could.
Added
Pursuant to the Merger Agreement, on January 7, 2021, Asclepius Merger Sub Inc., a Delaware corporation and a newly formed, wholly-owned subsidiary of SCH ("Merger Sub"), merged with and into Legacy Clover.
Removed
This physician-enablement platform is designed to synthesize comprehensive, longitudinal sets of data to generate provider-focused machine learning, artificial intelligence, and rules-based insights, and drive action by surfacing the most relevant, personalized information about each patient to his or her provider.
Added
The separate corporate existence of Merger Sub ceased, Legacy Clover survived and merged with and into SCH, with SCH as the surviving corporation, and SCH was redomesticated as a Delaware corporation and renamed Clover Health Investments, Corp. (the "2021 Business Combination").
Removed
Through this democratization of data access for providers, we seek to reduce the variability in clinical decision-making, drive improved adherence to evidence-based protocols, and help providers deliver better care. 7 We believe the key features that differentiate our Clover Assistant technology platform from other platforms include the following: Enables data-driven, personalized and actionable insights Clover Assistant aggregates and structures millions of data points per day, derived from a variety of data sets, such as claims data, medical charts, medication data, diagnostic data, and data generated from electronic health records ("EHR"), across dozens of typically siloed and inconsistently formatted data feeds.
Added
The 2021 Business Combination was accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States ("GAAP").

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

141 edited+38 added−78 removed416 unchanged
Biggest changeFactors that may contribute to the variability of our operating results include: • the timing of the enrollment periods and related sales and marketing expenses; • the timing of risk adjustments; • the addition or loss of large hospital and healthcare systems in our provider network, including due to acquisitions or consolidations of such systems; • the timing of recognition of revenues, including possible delays in the recognition of revenues; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure; • our ability to effectively manage the size and composition of our in-house clinician program relative to the level of demand for services from our members; • the timing and success of introductions of new products and services by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, hospital and healthcare systems, or strategic partners; • the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; • the timing and/or delays in rolling out technology or platform updates; • technical difficulties or interruptions in Clover Assistant; • our ability to increase provider adoption of Clover Assistant; • our ability to attract new beneficiaries; • breaches of information security or privacy, and any associated fines or penalties or damage to our reputation; • our ability to hire and retain qualified personnel, including for our in-house clinician program; 31 • changes in the structure of healthcare provider and payment systems; • changes in the legislative or regulatory environment, including with respect to healthcare, telehealth, privacy, or data protection, or enforcement by government regulators, including fines, orders, sanctions, or consent decrees; • the cost and potential outcomes of ongoing or future regulatory audits, investigations, or litigation; • reinstitution of travel restrictions, shelter-in-place orders and other social distancing measures implemented to combat any health emergency or pandemic (including the COVID-19 pandemic), and their impact on economic, industry and market conditions, patient visits and our ability to conduct business; • political, economic and social instability, including terrorist activities, geopolitical events such as the Russia-Ukraine war and health epidemics, and any disruption these events may cause to any of our offices, to the healthcare system, or to the global economy; • changes in our and our competitors' pricing policies; and • changes in business or macroeconomic conditions.
Biggest changeFactors that may contribute to the variability of our operating results include: • the timing of the enrollment periods and related sales and marketing expenses; • the timing of risk adjustments; • the addition or loss of large hospital and healthcare systems in our provider network, including due to acquisitions or consolidations of such systems; • the timing of recognition of revenues, including possible delays in the recognition of revenues; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure; • our ability to effectively manage the size and composition of our in-house clinician program relative to the level of demand for services from our members; • the timing and success of introductions of new products and services by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, hospital and healthcare systems, or strategic partners; • the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; • the timing and/or delays in rolling out technology or platform updates; • technical difficulties or interruptions in Clover Assistant; • our ability to increase provider adoption of Clover Assistant; • breaches of information security or privacy, and any associated fines or penalties or damage to our reputation; • our ability to hire and retain qualified personnel, including for our in-house clinician program; • changes in the structure of healthcare provider and payment systems; • changes in the legislative or regulatory environment, including with respect to healthcare, telehealth, privacy, or data protection, or enforcement by government regulators, including fines, orders, sanctions, or consent decrees; • the cost and potential outcomes of ongoing or future regulatory audits, investigations, or litigation; • changes in our and our competitors' pricing policies; and • changes in business or macroeconomic conditions.
Two key factors in our ability to manage medical expenses are the adoption of Clover Assistant by the providers who treat our members and Non-Insurance Beneficiaries (collectively, the "Providers") and enrollment in our clinical care programs, including our in-home primary care program ("Clover Home Care"), by our most at-risk members and Non-Insurance Beneficiaries.
Two key factors in our ability to manage medical expenses are the adoption of Clover Assistant by the providers who treat our members and Non-Insurance Beneficiaries (collectively, the "Providers") and enrollment in our clinical care programs, including our in-home primary care program ("Clover Home Care"), by our most at-risk members.
The FCPA prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official to obtain or retain business or otherwise secure a business advantage; • with respect to the operations of our therapeutics affiliate, the extensive, complex, and evolving laws and regulations applicable to the operations of our therapeutics affiliate, primarily those of the U.S.
The FCPA prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official to obtain or retain business or otherwise secure a business advantage; and • with respect to the operations of our therapeutics affiliate, the extensive, complex, and evolving laws and regulations applicable to the operations of our therapeutics affiliate, primarily those of the U.S.
In addition, HIPAA mandates that the HHS conduct periodic compliance audits of HIPAA-covered entities or business associates for compliance with the HIPAA Privacy and Security Standards. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator.
In addition, HIPAA mandates that HHS conduct periodic compliance audits of HIPAA-covered entities or business associates for compliance with the HIPAA Privacy and Security Standards. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator.
Suits filed under the FCA, known as qui tam actions, can be brought by any individual on behalf of the government and such individuals, commonly known as "whistleblowers," may share in any amounts paid by the entity to the government in fines or settlement; • state insurance holding company laws and regulations pertaining to licensing and plan solvency requirements; • reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims payable by the Medicare or Medicaid programs; • similar state law provisions pertaining to anti-kickback, self-referral, and false claims issues, some of which may apply to items or services reimbursed by any third-party payer; • state laws that prohibit general business corporations, such as us, from engaging in the corporate practice of medicine, controlling physicians' medical decisions or engaging in some practices such as splitting fees with physicians; • the provision of the Affordable Care Act that requires MA plans to spend at least 85% of premium dollars on medical care; • federal and state laws that govern our relationships with pharmaceutical manufacturers, wholesalers, pharmacies, beneficiaries, and consumers; • federal and state legislative proposals and/or regulatory activity that could adversely affect pharmacy benefit industry practices, including the management and breadth of provider networks; the regulation of the development and use of drug formularies and/or maximum allowable cost list pricing; and regulations or regulatory activity increasing the regulation of prescription drug pricing, imposing additional rights to access to drugs for individuals enrolled in healthcare benefit plans or reducing the cost of such drugs to those individuals, imposing requirements relating to the 41 receipt or required disclosure of rebates from pharmaceutical manufacturers, and restricting the use of average wholesale prices; • laws that regulate debt collection practices; • a provision of the Social Security Act that imposes civil and criminal penalties on healthcare providers who fail to disclose or refund known overpayments; and federal and state laws that prohibit providers from billing and receiving payment from Medicare and Medicaid for services unless the services are medically necessary, adequately and accurately documented, and billed using codes that accurately reflect the type and level of services rendered; • federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation to enroll and participate in the Medicare and Medicaid programs, and to report certain changes in their operations to the agencies that administer these programs; • federal and state laws governing the ways in which we communicate with beneficiaries and market our services, including the Telephone Consumer Protection Act, the Controlling the Assault of Non-Solicited Pornography, and the Marketing Act; • with respect to our non-U.S. operations, we are subject to regulation in the jurisdictions in which those operations are organized or in which we conduct business as well as U.S. laws that regulate the conduct and activities of U.S. based businesses operating abroad, such as the export controls laws or the FCPA.
Suits filed under the FCA, known as qui tam actions, can be brought by any individual on behalf of the government and such individuals, commonly known as "whistleblowers," may share in any amounts paid by the entity to the government in fines or settlement; • state insurance holding company laws and regulations pertaining to licensing and plan solvency requirements; • reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims payable by the Medicare or Medicaid programs; • similar state law provisions pertaining to anti-kickback, self-referral, and false claims issues, some of which may apply to items or services reimbursed by any third-party payer; • state laws that prohibit general business corporations, such as us, from engaging in the corporate practice of medicine, controlling physicians' medical decisions or engaging in some practices such as splitting fees with physicians; • the provision of the Affordable Care Act that requires MA plans to spend at least 85% of premium dollars on medical care; • federal and state laws that govern our relationships with pharmaceutical manufacturers, wholesalers, pharmacies, beneficiaries, and consumers; • federal and state legislative proposals and/or regulatory activity that could adversely affect pharmacy benefit industry practices, including the management and breadth of provider networks; the regulation of the development and use of drug formularies and/or maximum allowable cost list pricing; and regulations or regulatory activity increasing the regulation of prescription drug pricing, imposing additional rights to access to drugs for individuals enrolled in healthcare benefit plans or reducing the cost of such drugs to those individuals, imposing requirements relating to the receipt or required disclosure of rebates from pharmaceutical manufacturers, and restricting the use of average wholesale prices; • laws that regulate debt collection practices; • a provision of the Social Security Act that imposes civil and criminal penalties on healthcare providers who fail to disclose or refund known overpayments; and federal and state laws that prohibit providers from billing and receiving payment from Medicare and Medicaid for services unless the services are medically necessary, adequately and accurately documented, and billed using codes that accurately reflect the type and level of services rendered; • federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation to enroll and participate in the Medicare and Medicaid programs, and to report certain changes in their operations to the agencies that administer these programs; • federal and state laws governing the ways in which we communicate with beneficiaries and market our services, including the Telephone Consumer Protection Act, the Controlling the Assault of Non-Solicited Pornography, and the Marketing Act; • with respect to our non-U.S. operations, we are subject to regulation in the jurisdictions in which those operations are organized or in which we conduct business as well as U.S. laws that regulate the conduct and activities of U.S. based businesses operating abroad, such as the export controls laws or the FCPA.
If cloud service providers increase pricing terms, terminate or seek to terminate our contractual relationship, or if we are unable to renew any agreement on commercially reasonable terms, establish more favorable relationships with our competitors, or change or interpret their 34 terms of service or policies in a manner that is unfavorable with respect to us, we may be required to transfer our servers and other infrastructure to a different service provider, and our business, results of operations, and financial condition could be harmed.
If cloud service providers increase pricing terms, terminate or seek to terminate our contractual relationship, establish more favorable relationships with our competitors, or change or interpret their terms of service or policies in a manner that is unfavorable with respect to us, or if we are unable to renew any agreement on commercially reasonable terms, we may be required to transfer our servers and other infrastructure to a different service provider, and our business, results of operations, and financial condition could be harmed.
If we do not 40 maintain or continue to improve our Star Ratings, if we fail to meet or exceed our competitors' ratings, or if quality-based bonus payments are reduced or eliminated, we may experience a negative impact on our revenues and the benefits that our plans can offer, which could materially and adversely affect the marketability of our plans, our number of members, results of operations, financial condition and cash flows.
If we do not maintain or continue to improve our Star Ratings, if we fail to meet or exceed our competitors' ratings, or if quality-based bonus payments are reduced or eliminated, we may experience a negative impact on our revenues and the benefits that our plans can offer, which could materially and adversely affect the marketability of our plans, our number of members, results of operations, financial condition and cash flows.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; • the federal FCA that imposes civil and criminal liability on individuals or entities for knowingly filing, or causing to be filed, a false claim to the federal government, or the knowing use of false statements to obtain payment from the federal government.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; 42 • the federal FCA that imposes civil and criminal liability on individuals or entities for knowingly filing, or causing to be filed, a false claim to the federal government, or the knowing use of false statements to obtain payment from the federal government.
Although we believe that our Clover Assistant 42 platform does not meet the definition of medical device and/or meet the criteria that the FDA has announced for its exercise of enforcement discretion to apply, there is a risk that the FDA could disagree with our determination or that the FDA could develop new guidance documents or revise current guidance documents that would subject our platform to active FDA oversight.
Although we believe that our Clover Assistant platform does not meet the definition of medical device and/or meet the criteria that the FDA has announced for its exercise of enforcement discretion to apply, there is a risk that the FDA could disagree with our determination or that the FDA could develop new guidance documents or revise current guidance documents that would subject our platform to active FDA oversight.
Business models for market participants involved in the financing and supply of pharmaceutical products rely on certain benchmarks and practices (e.g., pricing based on Average Wholesale Price, or the use of Maximum Allowable Cost lists). It is uncertain how these business models will evolve and whether other pricing benchmarks will be introduced and widely adopted.
Business models for market participants involved in the financing and supply of pharmaceutical products rely on certain benchmarks and 22 practices (e.g., pricing based on Average Wholesale Price, or the use of Maximum Allowable Cost lists). It is uncertain how these business models will evolve and whether other pricing benchmarks will be introduced and widely adopted.
Any such errors, failures, vulnerabilities, or bugs may not be found until after new features, integrations, or capabilities have been released. Furthermore, we will need to ensure that our platform can scale to meet the evolving needs of users, particularly as we expand our business and provider user base.
Any such errors, failures, vulnerabilities, or bugs may not be found until after new features, integrations, or capabilities have been released. 29 Furthermore, we will need to ensure that our platform can scale to meet the evolving needs of users, particularly as we expand our business and provider user base.
Although we maintain insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant to our 32 business, we cannot predict the outcomes of medical malpractice cases, or the effect that any claims of this nature, regardless of their ultimate outcome, could have on our business or reputation or on our ability to attract and retain members.
Although we maintain insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant to our business, we cannot predict the outcomes of medical malpractice cases, or the effect that any claims of this nature, regardless of their ultimate outcome, could have on our business or reputation or on our ability to attract and retain members.
If our trademarks are successfully challenged, we could be forced to rebrand our platform, which would result in loss of brand recognition and would require us to devote resources to advertising and marketing new brands. We could incur substantial costs as a result of any claim of infringement of another party's intellectual property rights.
If our trademarks are successfully challenged, we could be forced to rebrand our platform, which would result in loss of brand recognition and would require us to devote resources to advertising and marketing new brands. 47 We could incur substantial costs as a result of any claim of infringement of another party's intellectual property rights.
While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors, officers, or other employees in a venue other than in the federal district courts of the United States of 52 America.
While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors, officers, or other employees in a venue other than in the federal district courts of the United States of America.
If any such agreements were to terminate for any reason or one of our PBM services supplier's ability to perform their respective obligations under their agreements with us were impaired, we may not be able to find an alternative supplier in a timely manner or on acceptable financial terms.
Additionally, if any such agreements were to terminate for any reason or one of our PBM services supplier's ability to perform their respective obligations under their agreements with us were impaired, we may not be able to find an alternative supplier in a timely manner or on acceptable financial terms.
Additionally, new competitors may arise as consolidation may create providers that, in and of themselves, meet 27 network adequacy requirements for a market and, as a result, start their own MA plans in that market. In addition, our current or potential competitors may be acquired by third parties with greater available resources.
Additionally, new competitors may arise as consolidation may create providers that, in and of themselves, meet network adequacy requirements for a market and, as a result, start their own MA plans in that market. In addition, our current or potential competitors may be acquired by third parties with greater available resources.
We must maintain our health insurance licenses to continue marketing our plans and might have to secure additional 33 licenses if we expand in markets where we do not yet have licenses. In addition, each employee who participates in the sale of health insurance on our behalf must maintain a valid license in one or more states.
We must maintain our health insurance licenses to continue marketing our plans and might have to secure additional licenses if we expand in markets where we do not yet have licenses. In addition, each employee who participates in the sale of health insurance on our behalf must maintain a valid license in one or more states.
There 45 can also be no assurance that our pending or future U.S. or foreign trademark applications will be approved in a timely manner or at all, or that such registrations will effectively protect our brand names and trademarks. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks.
There can also be no assurance that our pending or future U.S. or foreign trademark applications will be approved in a timely manner or at all, or that such registrations will effectively protect our brand names and trademarks. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks.
These requirements may also inhibit our ability to acquire an insurance company should we wish to do so in the future. 51 Certain provisions in our corporate charter documents and under Delaware law may prevent or hinder attempts by our stockholders to change our management or to acquire a controlling interest in us.
These requirements may also inhibit our ability to acquire an insurance company should we wish to do so in the future. Certain provisions in our corporate charter documents and under Delaware law may prevent or hinder attempts by our stockholders to change our management or to acquire a controlling interest in us.
If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed. Current macroeconomic, industry and labor market conditions have exacerbated an already highly competitive market for hiring and retaining employees with relevant qualifications and experience.
If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed. 36 Current macroeconomic, industry and labor market conditions have exacerbated an already highly competitive market for hiring and retaining employees with relevant qualifications and experience.
If we do not comply with existing or new laws and regulations related to PHI, we could be subject to criminal or civil sanctions. Because of the extreme sensitivity of the personal information, including PHI, that we store and transmit, the security features of our technology platform are very important.
If we do not comply with existing or new laws and regulations related to PHI, we could be subject to criminal or civil sanctions. 45 Because of the extreme sensitivity of the personal information, including PHI, that we store and transmit, the security features of our technology platform are very important.
We depend on third parties for certain of our customer service operations. If we or our vendors fail to provide service that meets our beneficiaries' expectations, we may have difficulty retaining or growing our Lives under Clover Management, which could adversely affect our business, financial condition, and results of operations.
We depend on third parties for certain of our customer service operations. If we or our vendors fail to provide service that meets our beneficiaries' expectations, we may have difficulty retaining our Lives under Clover Management, which could adversely affect our business, financial condition, and results of operations.
Our competitors generally include large, national insurers, such as United Health, Aetna, Humana, Cigna, Centene, and Elevance Health that provide MA plans, as well as regional-based companies or health plans that provide MA plans, including Blue Cross Blue Shield affiliates, Bright Health, Alignment Health, Devoted Health, Oscar Health, hospital systems, and provider-based organizations.
Our competitors generally include large, national insurers, such as United Health, Aetna, Humana, Cigna, Centene, and Elevance Health that provide MA plans, as well as regional-based companies or health plans that provide MA plans, including Blue Cross Blue Shield affiliates, Alignment Health, Devoted Health, Oscar Health, hospital systems, and provider-based organizations.
Additionally, if a bug was discovered in Clover Assistant that made Clover Assistant vulnerable to malicious attacks or exposed our beneficiary data to third 30 parties, providers may cease to trust and use the platform. Among other things, this would affect our ability to collect data.
Additionally, if a bug was discovered in Clover Assistant that made Clover Assistant vulnerable to malicious attacks or exposed our beneficiary data to third parties, providers may cease to trust and use the platform. Among other things, this would affect our ability to collect data.
In recent years, the DOJ and the Department of Health and Human Services Office of Inspector General (the "OIG") have increased their scrutiny of healthcare payers and providers, and Medicare Advantage insurers, under the federal FCA, in 37 particular. There have been a number of investigations, prosecutions, convictions, and settlements in the healthcare industry.
In recent years, the DOJ and the Department of Health and Human Services Office of Inspector General (the "OIG") have increased their scrutiny of healthcare payers and providers, and Medicare Advantage insurers, under the federal FCA, in particular. There have been a number of investigations, prosecutions, convictions, and settlements in the healthcare industry.
If we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders' ownership would be diluted. If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
If we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders' ownership would be diluted. 37 If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
We have recorded a full valuation allowance against the deferred tax assets attributable to our NOLs. Restrictions on our ability to obtain funds from our regulated subsidiaries could materially and adversely affect our results of operations, financial condition and cash flows.
We have recorded a full valuation allowance against the deferred tax assets attributable to our NOLs. 52 Restrictions on our ability to obtain funds from our regulated subsidiaries could materially and adversely affect our results of operations, financial condition and cash flows.
Accordingly, these shares will be able to be freely sold in the public market upon issuance subject to applicable vesting requirements. We identified material weaknesses in our internal control over financial reporting for the year ended December 31, 2021.
Accordingly, these shares will be able to be freely sold in the public market upon issuance subject to applicable vesting requirements. 50 We identified material weaknesses in our internal control over financial reporting for the year ended December 31, 2021.
Our future financial performance will depend in part on our growth in this market and on our ability to adapt to emerging market demands, including adapting to the ways our beneficiaries access and use our MA plans, ACO, and clinical care programs, and the ways our providers use Clover Assistant.
Our future financial performance will depend in part on our growth in this market and on our ability to adapt to emerging market demands, including adapting to the ways our beneficiaries access and use our MA plans and clinical care programs, and the ways our providers use Clover Assistant.
In any case, our available funds could be materially reduced, which could harm our ability to implement our business strategies. Our use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations.
In any case, our available funds could be materially reduced, which could harm our ability to implement our business strategies. 44 Our use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations.
As a result, it is possible that one or more of the persons or entities holding our Class 49 B common stock could gain significant voting control as other holders of Class B common stock sell or otherwise convert their shares into Class A common stock.
As a result, it is possible that one or more of the persons or entities holding our Class B common stock could gain significant voting control as other holders of Class B common stock sell or otherwise convert their shares into Class A common stock.
Our ability to enhance the profitability of our Insurance and Non-Insurance businesses depends in significant part on our ability to 21 predict, price, and effectively manage medical costs, which are affected by utilization rates, the cost of service and the type of service rendered.
Our ability to enhance the profitability of our Insurance and Non-Insurance businesses depends in significant part on our ability to predict, price, and effectively manage medical costs, which are affected by utilization rates, the cost of service and the type of service rendered.
If the risk adjustment data incorrectly 22 overstates the health risk of our members, we might be required to return to CMS overpayments and/or be subject to penalties or sanctions; conversely, if the data incorrectly understates the health risk of our members, we might be underpaid for the care that we must provide to our members.
If the risk adjustment data incorrectly overstates the health risk of our members, we might be required to return to CMS overpayments and/or be subject to penalties or sanctions; conversely, if the data incorrectly understates the health risk of our members, we might be underpaid for the care that we must provide to our members.
Any of these factors could have a material adverse effect on our business, financial condition, and results of operations. 26 We may be unable to effectively manage our growth, which could have a material adverse effect on our business, financial condition, and results of operation.
Any of these factors could have a material adverse effect on our business, financial condition, and results of operations. We may be unable to effectively manage our growth, which could have a material adverse effect on our business, financial condition, and results of operation.
We contract with third parties for important aspects of the storage and transmission of beneficiary information, and thus rely on those third parties to manage functions that have material cyber-security risks.
We also contract with third parties for important aspects of the storage and transmission of beneficiary information, and thus rely on those third parties to manage functions that have material cyber-security risks.
If our ability or the ability of our partners to market and sell our MA plans is constrained during an enrollment period for any reason, such as technology failures, reduced allocation of resources, any inability on the part of our partners to timely employ, license, train, certify and retain employees and contractors and their agents to sell plans, interruptions in the operation of our website or systems, disruptions caused by other external factors, such as the COVID-19 pandemic, or issues with government-run health insurance exchanges, we could acquire fewer new members than expected or suffer a reduction in the number of our existing members.
If our ability or the ability of our partners to market and sell our MA plans is constrained during an enrollment period for any reason, such as technology failures, reduced allocation of resources, any inability on the part of our partners to timely employ, license, train, certify and retain employees and contractors and their agents to sell plans, interruptions in the operation of our website or systems, disruptions caused by other external factors, or issues with government-run health insurance exchanges, we could acquire fewer new members than expected or suffer a reduction in the number of our existing members.
Our business, operating results, financial condition, and prospects may be materially and adversely affected if we are unable to adapt to developments in healthcare reform in the United States. 39 State corporate practice of medicine and fee-splitting laws govern at least some of our business operations; violation of such laws could result in penalties and adversely affect our arrangements with contractors and our results of operations and financial condition.
Our business, operating results, financial condition, and prospects may be materially and adversely affected if we are unable to adapt to developments in healthcare reform in the United States. 40 State corporate practice of medicine and fee-splitting laws govern at least some of our business operations; violation of such laws could result in penalties and adversely affect our arrangements with contractors and our results of operations and financial condition.
Any such use of resources diverts resources from the growth and expansion of our business. Our growth depends in part on the success of our strategic relationships with third parties.
Any such use of resources diverts resources from the growth and expansion of our business. 35 Our growth depends in part on the success of our strategic relationships with third parties.
Additionally, we conduct certain of our call center operations in the Philippines and Colombia and work with a company in India for claims processing and coding.
Additionally, we conduct certain of our call center operations in the Philippines and work with a company in India for claims processing and coding.
Furthermore, weakness of the U.S. dollar in relation to the currencies used in these foreign countries may also reduce the savings achievable through our strategy of contracting out certain services and could have an adverse effect on our business, financial condition, and results of operations.
Furthermore, fluctuations or weakness of the U.S. dollar in relation to the currencies used in these foreign countries may also reduce the savings achievable through our strategy of contracting out certain services and could have an adverse effect on our business, financial condition, and results of operations.
Further, 48 current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.
Further, current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.
Furthermore, even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our cash flow from operations was negative for the years ended December 31, 2022, 2021, and 2020, and we may not generate positive cash flow from operations in any given period.
Furthermore, even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our cash flow from operations was negative for the years ended December 31, 2023, 2022, and 2021, and we may not generate positive cash flow from operations in any given period.
Any of the foregoing could be harmful to our business, financial condition, or results of operations. 46 While we rely on software licensed from third parties for internal tools we use to operate our business we do not currently in-license any intellectual property.
Any of the foregoing could be harmful to our business, financial condition, or results of operations. 48 While we rely on software licensed from third parties for internal tools we use to operate our business we do not currently in-license any intellectual property.
If we fail to drive adoption of Clover Assistant by our Providers or fail to accurately identify beneficiaries at high risk for near-term hospitalization for our complex care management program, we could fail to drive significant reductions in MCR for our members and Non-Insurance Margin for our Non-Insurance Beneficiaries, which would have a material and adverse effect on our business, financial condition, and results of operation.
If we fail to drive adoption of Clover Assistant by our Providers or fail to accurately identify beneficiaries at high risk for near-term hospitalization for our complex care management program, we could fail to drive significant reductions in MCR for our members, which would have a material and adverse effect on our business, financial condition, and results of operation.
For example, we have entered into agreements with our PBM services suppliers to provide us and certain of our beneficiaries with certain PBM services, such as claims processing, mail pharmacy services, specialty pharmacy services, retail network pharmacy network services, participating pharmacy audit services, reporting, and formulary services.
We have entered into agreements with our PBM services suppliers to provide us and certain of our beneficiaries with certain PBM services, such as claims processing, mail pharmacy services, specialty pharmacy services, retail network pharmacy network services, participating pharmacy audit services, reporting, and formulary services.
We are currently subject to various litigation matters as described in the section entitled "Item 3. Legal Proceedings," and Note 21 (Commitments and Contingencies) to the consolidated financial statements included in this Form 10-K.
We are currently subject to various litigation matters as described in the section entitled "Item 3. Legal Proceedings," and Note 19 (Commitments and Contingencies) to the consolidated financial statements included in this Form 10-K.
These factors may include medical cost inflation; increased use of services; increased cost of individual services; large-scale medical emergencies (such as the COVID-19 pandemic); the introduction of new or costly drugs, treatments and technology; new treatment guidelines; new mandated benefits (such as the expansion of essential benefits coverage) or other regulatory changes; and insured population characteristics.
These factors may include medical cost inflation; increased use of services; increased cost of individual services; large-scale medical emergencies; the introduction of new or costly drugs, treatments and technology; new treatment guidelines; new mandated benefits (such as the expansion of essential benefits coverage) or other regulatory changes; and insured population characteristics.
Through our Non-Insurance business, we assume full risk (i.e., 100% shared savings and shared losses) for the total cost of care of Non-Insurance Beneficiaries, with the exception of certain CMS risk mitigation mechanisms (i.e., the optional stop-loss program and the mandatory risk corridor program).
Through our former Non-Insurance business, we assumed full risk (i.e., 100% shared savings and shared losses) for the total cost of care of Non-Insurance Beneficiaries, with the exception of certain CMS risk mitigation mechanisms (i.e., the optional stop-loss program and the mandatory risk corridor program).
Overall, there are various factors, some of which are beyond our control, that could negatively affect the market price of our Class A common stock or result in fluctuations in the price or trading volume of our Class A common stock, including the following • overall performance of the equity markets and the economy as a whole; • changes in the financial projections we may provide to the public or our failure to meet these projections; • actual or anticipated changes in our growth rate relative to that of our competitors; • changes in the anticipated future size or growth rate of our addressable markets; • announcements of new products and services, technological and platform updates or enhancements, or of acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments, by us or by our competitors; • disruptions to Clover Assistant or our other technology; • additions or departures of board members, management or key personnel; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • rumors and market speculation involving us or other companies in our industry; • research or reports that securities analysts or others publish about us or our business; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business, including those related to Medicare; • lawsuits threatened or filed against us or investigations by governmental authorities; • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; • health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases; and • sales of shares of our Class A common stock by us or our stockholders.
Overall, there are various factors, some of which are beyond our control, that could negatively affect the market price of our Class A common stock or result in fluctuations in the price or trading volume of our Class A common stock, including the following • overall performance of the equity markets and the economy as a whole; • changes in the financial projections we may provide to the public or our failure to meet these projections; • actual or anticipated changes in our growth rate relative to that of our competitors; • changes in the anticipated future size or growth rate of our addressable markets; • announcements of new products and services, technological and platform updates or enhancements, or of acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments, by us or by our competitors; • disruptions to Clover Assistant or our other technology; • additions or departures of board members, management or key personnel; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • rumors and market speculation involving us or other companies in our industry; • research or reports that securities analysts or others publish about us or our business; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business, including those related to Medicare; • lawsuits threatened or filed against us or investigations by governmental authorities; • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; • health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases; and • sales of shares of our Class A common stock by us or our stockholders. 49 In addition, the stock market with respect to newly public companies, particularly companies in the healthcare and technology industries, have experienced significant price and volume fluctuations that have affected and continue to affect the market prices of stock prices of these companies.
These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these expenses. Even if we are successful in increasing our Total revenues from Insurance premiums earned and Non-Insurance revenues, we may not successfully and effectively predict, price, and manage the medical costs relating to those revenue streams.
These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these expenses. Even if we are successful in increasing our Total revenues from Insurance premiums earned, we may not successfully and effectively predict, price, and manage the medical costs.
Competition from these and other new entrants may intensify as the FFS market develops and business models evolve to address it. In addition, as we enter into new markets, we may compete with regional start-up companies that offer MA plans and other participants in the ACO REACH Model.
Competition from these and other new entrants may intensify as the FFS market develops and business models evolve to address it. In addition, as we enter into new markets, we may compete with regional start-up companies that offer MA plans.
We have relatively limited experience with Clover Assistant, and initial results may not be indicative of future performance. Since launching Clover Assistant in 2018, we have continued to develop its features and capabilities, adapt our go-to-market strategy and adjust its integration with our MA plans, our Direct Contracting/ACO REACH business, and third-party systems.
We have relatively limited experience with Clover Assistant, and initial results may not be indicative of future performance. Since launching Clover Assistant in 2018, we have continued to develop its features and capabilities, adapt our go-to-market strategy and adjust its integration with our MA plans and third-party systems.
If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive provider and beneficiary data, including HIPAA-regulated PHI. As a result, our reputation could be severely damaged, adversely affecting PCP and beneficiary confidence.
If our security measures, some of which are managed by third parties, or those of the third parties with whom we contract, are breached or fail, unauthorized persons may be able to obtain access to sensitive provider and beneficiary data, including HIPAA-regulated PHI. As a result, our reputation could be severely damaged, adversely affecting PCP and beneficiary confidence.
Due to the time lag between when medical services are actually rendered by our providers and when we (or CMS with respect to the ACO) receive, process and pay a claim for those medical services, our medical care costs include estimates of our incurred but not reported ("IBNR") claims.
Due to the time lag between when medical services are actually rendered by our providers and when we receive, process and pay a claim for those medical services, our medical care costs include estimates of our incurred but not reported ("IBNR") claims.
Our market opportunity is also based on the assumption that our existing and future offerings will be more attractive to our beneficiaries and providers and potential beneficiaries and providers than competing MA plans and other participants in the ACO REACH Model. If these assumptions prove inaccurate, our business, financial condition, and results of operations could be adversely affected.
Our market opportunity is also based on the assumption that our existing and future offerings will be more attractive to our beneficiaries and providers and potential beneficiaries and providers than competing MA plans. If these assumptions prove inaccurate, our business, financial condition, and results of operations could be adversely affected.
If our Class A common stock price declines from current levels, our Class A common stock may be subject to delisting from NASDAQ If the closing bid price of our Class A common stock is less than $1.00 per share for 30 consecutive trading days, we may receive a letter from the staff of The NASDAQ Stock Market LLC stating that our Class A common stock will be delisted unless we are able to regain compliance with the minimum price Nasdaq Listing Rule requirement.
If our Class A common stock does not satisfy NASDAQ's minimum bid price rules, our Class A common stock may be subject to delisting from NASDAQ If the closing bid price of our Class A common stock is less than $1.00 per share for 30 consecutive trading days, we may receive a letter from the staff of The NASDAQ Stock Market LLC stating that our Class A common stock will be delisted unless we are able to regain compliance with the minimum price Nasdaq Listing Rule requirement.
If we are unable to retain our members and Non-Insurance Beneficiaries, our ability to realize the returns on our investments in the Clover Assistant platform could be negatively affected.
If we are unable to retain our members, our ability to realize the returns on our investments in the Clover Assistant platform could be negatively affected.
We do not know if these dynamics will return or how long they will last if they return. In addition, the market price of our Class A common stock declined sharply during 2022.
We do not know if these dynamics will return or how long they will last if they return. In addition, the market price of our Class A common stock has declined sharply in the recent years.
The lifetime value of our enrollments could be impacted by a variety of factors, including but not limited to cost of care reductions from our clinical programs and the length of time a member remains enrolled in our plan or a Non-Insurance Beneficiary remains aligned to our ACO.
The lifetime value of our enrollments could be impacted by a variety of factors, including but not limited to cost of care reductions from our clinical programs and the length of time a member remains enrolled in our plan.
Risks Related to Our Business and Industry We have incurred net losses in the past, and we may not be able to achieve or maintain profitability. We have incurred Net losses of $338.8 million and $587.8 million, and $136.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Risks Related to Our Business and Industry We have incurred net losses in the past, and we may not be able to achieve or maintain profitability. We have incurred net losses of $213.4 million, $339.6 million, and $587.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. At December 31, 2022, our directors, executive officers, and their affiliates held in the aggregate 66.5% of the voting power of our capital stock.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. At December 31, 2023, our directors, executive officers, and their affiliates held in the aggregate 70.7% of the voting power of our capital stock.
A number of factors could potentially negatively affect provider adoption and use of Clover Assistant, including but not limited to: • difficulties convincing providers of the value, benefits, and usefulness of Clover Assistant, particularly in markets where we have fewer beneficiaries; • our failure to integrate with EHR systems; • our failure to attract, effectively train and retain effective sales and marketing personnel; • our failure to develop or expand relationships with strategic partners; • our failure to capitalize on co-branding opportunities; • delays in implementation of CMS interoperability requirements; • difficulties in scheduling meetings with providers, and providing demonstrations and trainings related to Clover Assistant; • our failure to compete effectively against alternative products or services, including overcoming perceptions that existing systems, including EHR systems, are similar and adequate, or that Clover Assistant will increase administrative burdens; • technical or other problems impacting availability or reliability of the platform, including limited broadband access in certain rural areas; • difficulties for members and ACO Beneficiaries in accessing their Providers and a corresponding decrease in the number of primary care visits; • privacy and communication, safety, security or other similar concerns; • adverse changes in our platform that are mandated by, or that we elect to make, to address legislation, regulatory authorities or litigation; • poor user experiences; and • the lack of brand recognition.
A number of factors could potentially negatively affect provider adoption and use of Clover Assistant, including but not limited to: • difficulties convincing providers of the value, benefits, and usefulness of Clover Assistant, and continued physician participation in the Clover Assistant program, particularly in markets where we have fewer beneficiaries; • our failure to integrate with EHR systems; • our failure to attract, effectively train and retain effective sales and marketing personnel; • our failure to develop or expand relationships with strategic partners; • our failure to capitalize on co-branding opportunities; • delays in implementation of CMS interoperability requirements; • difficulties in scheduling meetings with providers, and providing demonstrations and trainings related to Clover Assistant; • our failure to compete effectively against alternative products or services, including overcoming perceptions that existing systems, including EHR systems, are similar and adequate, or that Clover Assistant will increase administrative burdens; • technical or other problems impacting availability or reliability of the platform, including limited broadband access in certain rural areas; • difficulties for members and Non-Insurance Beneficiaries in accessing their Providers and a corresponding decrease in the number of primary care visits; • privacy and communication, safety, security or other similar concerns; • adverse changes in our platform that are mandated by, or that we elect to make, to address legislation, regulatory authorities or litigation; • poor user experiences; and • the lack of brand recognition. 21 In addition, if we are unable to enroll a sufficient number of patients of a particular physician or provider group in our MA plans, we may have difficulty motivating such physician or provider group to utilize Clover Assistant, which is not available for use with non-Clover members.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income.
Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income.
Our success is dependent, in part, upon protecting our intellectual property rights, internally-developed technology, and other proprietary information. We rely and expect to continue to rely on a combination of trademark, copyright, patent, and trade secret protection laws to protect our intellectual property rights, internally-developed technology and other information that we consider proprietary.
We rely and expect to continue to rely on a combination of trademark, copyright, patent, and trade secret protection laws to protect our intellectual property rights, internally-developed technology and other information that we consider proprietary.
So long as 43,490,333 shares of Class B common stock remain outstanding, the holders of our Class B common stock will be able to control the outcome of matters submitted to a stockholder vote.
So long as 63,992,808 shares of Class B common stock remain outstanding, the holders of our Class B common stock will be able to control the outcome of matters submitted to a stockholder vote.
A lack of adequate research coverage may harm the liquidity and trading price of our Class A common stock. To the extent equity research analysts do provide research coverage of our Class A common stock, we will not have any control over the content and opinions included in their reports.
To the extent equity research analysts do provide research coverage of our Class A common stock, we will not have any control over the content and opinions included in their reports.
Other providers participating in Medicare may choose to see no members or only members participating in specific plans. It is also possible that Original Medicare or other insurers' MA plans may offer better provider networks in particular markets or better benefits, in which case those plans may be more attractive to a consumer than our MA plans.
It is also possible that Original Medicare or other insurers' MA plans may offer better provider networks in particular markets or better benefits, in which case those plans may be more attractive to a consumer than our MA plans.
At December 31, 2022, our directors and officers and their affiliated entities collectively owned approximately 20.9% of the total outstanding shares of Class A and Class B common stock.
At December 31, 2023, our directors and officers and their affiliated entities collectively owned approximately 22.6% of the total outstanding shares of Class A and Class B common stock.
These federal and state laws and regulations include, but are not limited to HIPAA, as amended by HITECH, which we refer to collectively as HIPAA, and the California Consumer Privacy Act of 2018 (the "CCPA"), as amended by the California Privacy Rights Act (the "CPRA").
These federal and state laws and regulations include, but are not limited to HIPAA, as amended by HITECH, which we refer to collectively as HIPAA, and the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act (the "CPRA"), which took effect on January 1, 2023 (the “CCPA”).
Additionally, if our service partners and vendors do not utilize 35 industry standards with respect to privacy and data requirements, or other applicable safeguards, we may be exposed to additional liability, the breach of our patient data, or loss of our ability to provide plans and services.
Additionally, if our service partners and vendors do not utilize industry standards with respect to privacy and data requirements, or other applicable safeguards, we may be exposed to additional liability, the breach of our patient data, or loss of our ability to provide plans and services. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources.
For example, though a substantial majority of our members are on open-network plans that enable them to visit any doctor 24 participating in Medicare who will see them, our HMO plans have restrictions on the network of doctors that HMO members can see.
For example, though a substantial majority of our members are on open-network plans that enable them to visit any doctor participating in Medicare who will see them, our HMO plans have restrictions on the network of doctors that HMO members can see. Other providers participating in Medicare may choose to see no members or only members participating in specific plans.
If we are not successful at converting the opportunities presented by new distribution channels and access to local markets, we may not be able to grow our number of beneficiaries or our plans as quickly as we need to, or at all.
This could adversely impact our financial condition and results of operations. 27 If we are not successful at converting the opportunities presented by new distribution channels and access to local markets, we may not be able to grow our number of beneficiaries or our plans as quickly as we need to, or at all.
If our sales and marketing representatives fail to achieve their objectives, our Lives under Clover Management could decrease or may not increase at levels that are in line with our expectations. This could adversely impact our financial condition and results of operations.
If our sales and marketing representatives fail to achieve their objectives, our Lives under Clover Management could decrease or may not increase at levels that are in line with our expectations.
The U.S. federal government and our other government 38 customers also may reduce funding for health care or other programs, cancel or decline to renew contracts with us, or make changes that adversely affect the number of persons eligible for certain programs, the services provided to enrollees in such programs, our premiums and our administrative and health care and other benefit costs, any of which could have a material adverse effect on our businesses, results of operations and cash flows.
The U.S. federal government and our other government customers also may reduce funding for health care or other programs, cancel or decline to renew contracts with us, or make changes that adversely affect the number of persons eligible for certain programs, the services provided to enrollees in such programs, our premiums and our administrative and health care and other benefit costs, any of which could have a material adverse effect on our businesses, results of operations and cash flows. 39 We derive substantially all of our Total revenues from Medicare Advantage premiums and expect to continue to derive a substantial portion of our Total revenues in the future from Medicare Advantage premiums.
At December 31, 2022, we had approximately $1,401.6 million of federal net operating loss carryforwards. The federal net operating loss carryforwards created subsequent to the year ended December 31, 2017, of $1,106.1 million carry forward indefinitely, while the remaining federal net operating loss carryforwards of $295.1 million begin to expire in 2033.
At December 31, 2023, we had approximately $1,525.4 million of federal net operating loss carryforwards. The federal net operating loss carryforwards created subsequent to the year ended December 31, 2017, of $1,220.0 million carry forward indefinitely, while the remaining federal net operating loss carryforwards of $295.1 million begin to expire in 2033.
However, we cannot ensure that these contractual measures and other safeguards will adequately protect us from the risks associated with the storage and transmission of such information on our behalf by our subcontractors. We also publish statements to our beneficiaries that describe how we handle and protect personal information.
However, we cannot ensure that these contractual measures and other safeguards will adequately protect us from the risks associated with the storage and transmission of such information on our behalf by our subcontractors.
These anti-takeover provisions include: • a classified Board so that not all members of our Board are elected at one time; • the ability of our Board to determine the number of directors and to fill any vacancies and newly created directorships; • a requirement that our directors may only be removed for cause; • a prohibition on cumulative voting for directors; • the requirement of a super-majority to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; • authorization of the issuance of "blank check" preferred stock that our Board could use to implement a "poison pill" to deter a takeover of our company; • provide for a dual class common stock structure in which holders of our Class B common stock, which has 10 votes per share, have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our combined Class B and Class A common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; • an inability of our stockholders to call special meetings of stockholders; and • a prohibition on stockholder actions by written consent, thereby requiring that all stockholder actions be taken at a meeting of our stockholders.
These anti-takeover provisions include: • a classified Board so that not all members of our Board are elected at one time; • the ability of our Board to determine the number of directors and to fill any vacancies and newly created directorships; • a requirement that our directors may only be removed for cause; • a prohibition on cumulative voting for directors; • the requirement of a super-majority to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; • authorization of the issuance of "blank check" preferred stock that our Board could use to implement a "poison pill" to deter a takeover of our company; • provide for a dual class common stock structure in which holders of our Class B common stock, which has 10 votes per share, have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our combined Class B and Class A common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; • an inability of our stockholders to call special meetings of stockholders; and • a prohibition on stockholder actions by written consent, thereby requiring that all stockholder actions be taken at a meeting of our stockholders. 54 Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a three-year period beginning on the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Considering these factors, even if our MA plans and technology platform are more effective than those of our competitors, current or potential members may purchase competitive plans in lieu of purchasing our health plans, or providers may adopt competing technology platforms in lieu of Clover Assistant. Any such events could adversely affect our business, financial condition, and results of operations.
Considering these factors, even if our MA plans and technology platform are more effective than those of our competitors, current or potential members may purchase competitive plans in lieu of purchasing our health plans, or providers may adopt competing technology platforms in lieu of Clover Assistant.
We are and will continue to be highly dependent on the ability of our sales force to adequately promote and market our Insurance business MA plans to enroll new members and retain our existing members, and to successfully market our Non-Insurance business to the national provider network to contract with new participant providers and grow our number of Non-Insurance Beneficiaries.
We are and will continue to be highly dependent on the ability of our sales force to adequately promote and market our Insurance business MA plans to enroll new members and retain our existing members, and to successfully market our Non-Insurance business.
Our disaster recovery plan may not be sufficient to address all aspects or any unanticipated consequence or incidents, and our insurance may not be sufficient to compensate us for the losses that could occur.
Our disaster recovery plan may not be sufficient to address all aspects or any unanticipated consequence or incidents, and although we maintain insurance covering certain business interruptions, such coverage may not be sufficient to compensate us for the losses that could occur.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeInformation concerning legal proceedings can be found in Note 21 (Commitments and Contingencies) to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, which information is incorporated by reference into this item. Item 4. Mine Safety Disclosures Not applicable. Part II
Biggest changeInformation concerning legal proceedings can be found in Note 19 (Commitments and Contingencies) to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, which information is incorporated by reference into this item. 56 Item 4. Mine Safety Disclosures Not applicable. 57 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed3 unchanged
Biggest changeHolders At February 20, 2022, there were 330 holders of record of our Class A common stock and 307 holders of record of our Class B common stock. Such figures do not include beneficial owners holding our securities through nominee names.
Biggest changeHolders At March 5, 2024 , there were 334 holders of record of our Class A common stock and 308 holders of record of our Class B common stock. Such figures do not include beneficial owners holding our securities through nominee names.
Issuer Purchases of Equity Securities We did not purchase any shares of our common stock during the year ended December 31, 2022. Unregistered Sales of Equity Securities and Use of Proceeds None. 53 Performance Graph Item 6. [Reserved.] 54
Issuer Purchases of Equity Securities We did not purchase any shares of our common stock during the year ended December 31, 2023. Unregistered Sales of Equity Securities and Use of Proceeds None. Performance Graph Item 6. [Reserved.] 58

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

105 edited+25 added−45 removed71 unchanged
Biggest changeYears ended December 31, Change between 2022 and 2021 2022 2021 ($) (%) (in thousands) Revenues Premiums earned, net (Net of ceded premiums of $470 and $489 for the years ended December 31, 2022 and 2021, respectively) $ 1,084,869 $ 799,414 $ 285,455 35.7 % Non-Insurance revenue 2,380,135 667,639 1,712,496 256.5 Other income 11,683 4,943 6,740 136.4 Total revenues 3,476,687 1,471,996 2,004,691 136.2 Operating expenses Net medical claims incurred 3,453,952 1,551,178 1,902,774 122.7 Salaries and benefits 278,725 260,458 18,267 7.0 General and administrative expenses 207,917 185,287 22,630 12.2 Premium deficiency reserve (benefit) expense (94,240) 110,628 (204,868) * Depreciation and amortization 1,187 1,246 (59) (4.7) Other expense 70 191 (121) (63.4) Total operating expenses 3,847,611 2,108,988 1,738,623 82.4 Loss from operations (370,924) (636,992) 266,068 (41.8) Change in fair value of warrants (900) (66,146) 65,246 * Interest expense 1,333 3,193 (1,860) (58.3) Amortization of notes and securities discount 30 13,717 (13,687) (99.8) Gain on extinguishment of note payable (23,326) — (23,326) * Gain on investment (9,217) — (9,217) * Net loss $ (338,844) $ (587,756) $ 248,912 (42.3) % * Not presented because the current or prior period amount is zero or the amount for the line item changed from a gain to a loss (or vice versa) and thus yields a result that is not meaningful.
Biggest changeYears ended December 31, Change between 2023 and 2022 2023 2022 ($) (%) (in thousands) Revenues Premiums earned, net (Net of ceded premiums of $444 and $470 for the years ended December 31, 2023 and 2022, respectively) $ 1,235,769 $ 1,084,869 $ 150,900 13.9 % Non-Insurance revenue 773,177 2,380,135 (1,606,958) (67.5) Other income 24,774 11,683 13,091 112.1 Total revenues 2,033,720 3,476,687 (1,442,967) (41.5) Operating expenses Net medical claims incurred 1,776,388 3,453,952 (1,677,564) (48.6) Salaries and benefits 257,157 278,725 (21,568) (7.7) General and administrative expenses 187,571 207,917 (20,346) (9.8) Impairment of goodwill and other intangible assets 15,945 — 15,945 * Premium deficiency reserve benefit (7,239) (93,517) 86,278 (92.3) Depreciation and amortization 2,509 1,187 1,322 111.4 Restructuring costs 9,931 — 9,931 * Other expense — 70 (70) * Total operating expenses 2,242,262 3,848,334 (1,606,072) (41.7) Loss from operations (208,542) (371,647) 163,105 (43.9) Change in fair value of warrants 86 (900) 986 * Interest expense 7 1,333 (1,326) (99.5) Amortization of notes and securities discount — 30 (30) * Gain on extinguishment of note payable — (23,326) 23,326 * Loss (gain) on investment 4,726 (9,217) 13,943 * Net loss $ (213,361) $ (339,567) $ 126,206 (37.2) % * Not presented because the current or prior period amount is zero or the amount for the line item changed from a gain to a loss (or vice versa) and thus yields a result that is not meaningful.
Premiums earned, gross is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurance.
Premiums earned, gross. Premiums earned, gross is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurance.
The grant date fair value of the Market PRSUs is recognized as expense over the vesting period under the accelerated attribution method and is not adjusted in future periods for the success or failure to achieve the specified market condition.
The grant date fair value of the Market PRSUs is recognized as expense over the vesting period under the accelerated attribution method and is not adjusted in future periods for the success or failure to achieve the specified market condition.
These assumptions are estimated as follows: Expected term - For stock options considered to be "plain vanilla" options, we estimate the expected term based on the simplified method, which is essentially the weighted average of the vesting period and contractual term, as our historical option exercise experience does not provide a reasonable basis upon which to estimate the expected term.
These assumptions are estimated as follows: Expected term - For Options considered to be "plain vanilla" options, we estimate the expected term based on the simplified method, which is essentially the weighted average of the vesting period and contractual term, as our historical option exercise experience does not provide a reasonable basis upon which to estimate the expected term.
Stock-based compensation costs for non-employees are recognized as expense over the vesting period on a straight-line basis. Stock-based compensation expense is classified within the Consolidated Statements of Operations and Comprehensive Loss within Salaries and benefits. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur.
Stock-based compensation costs for non-employees are recognized as expense over the vesting period on a straight-line basis. Stock-based compensation expense is classified within the audited Consolidated Statements of Operations and Comprehensive Loss within Salaries and benefits. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur.
Member months represents the number of months members are enrolled in a Clover Health plan in the period. (2) Defined as Insurance gross medical claims incurred divided by premiums earned, gross. 56 Membership and associated premiums earned and medical claim expenses. We define new and returning members on a calendar year basis.
Member months represents the number of months members are enrolled in a Clover Health plan in the period. (2) Defined as Insurance gross medical claims incurred divided by premiums earned, gross. Membership and associated premiums earned and medical claim expenses. We define new and returning members on a calendar year basis.
These variables include expected stock price volatility over an expected term, actual and projected 68 employee stock option exercise behaviors, the risk-free interest rate for an expected term, and expected dividends. The assumptions used in our option-pricing model represent our best estimates. These estimates involve inherent uncertainties and the application of judgment.
These variables include expected stock price volatility over an expected term, actual and projected employee stock option exercise behaviors, the risk-free interest rate for an expected term, and expected dividends. The assumptions used in our option-pricing model represent our best estimates. These estimates involve inherent uncertainties and the application of judgment.
In connection with the redemption, effective August 24, 2021, the Public Warrants were delisted and classified within Level 2 of the fair value hierarchy as the fair value of the Public 67 Warrants was based on proportional changes in the price of our common stock. There were no Private Placement Warrants outstanding at August 24, 2021.
In connection with the redemption, effective August 24, 2021, the Public Warrants were delisted and classified within Level 2 of the fair value hierarchy as the fair value of the Public Warrants was based on proportional changes in the price of our common stock. There were no Private Placement Warrants outstanding at August 24, 2021.
We believe our MCR is an indicator of our gross margin for 57 our Insurance plans and the ability of our Clover Assistant platform to capture and analyze data over time to generate actionable insights for returning members to improve care and reduce medical expenses.
We believe our MCR is an indicator of our gross margin for our Insurance plans and the ability of our Clover Assistant platform to capture and analyze data over time to generate actionable insights for returning members to improve care and reduce medical expenses.
We believe that the presentation of such metrics is useful to management and counterparties to model the performance of healthcare companies such as Clover. Insurance segment Through our Insurance segment, we provide PPO and HMO plans to members in several states.
We believe that the presentation of such metrics is useful to management and counterparties to model the performance of healthcare companies such as Clover. 60 Insurance segment Through our Insurance segment, we provide PPO and HMO plans to members in several states.
Recently Issued and Adopted Accounting Pronouncements See Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements in this form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.
Recently Issued and Adopted Accounting Pronouncements See Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements included in this Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
The warrant liabilities are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented within Change in fair value of warrants within the Consolidated Statements of Operations and Comprehensive Loss.
The warrant liabilities are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented within Change in fair value of warrants within the audited Consolidated Statements of Operations and Comprehensive Loss.
The warrant assets are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented within Change in fair value of warrants within the Consolidated Statements of Operations and Comprehensive Loss.
The warrant assets are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented within Change in fair value of warrants within the audited Consolidated Statements of Operations and Comprehensive Loss.
We can make adjustments from the benchmark report due to new information received directly from CMMI, national studies we complete ourselves, or other anticipated policy updates that we believe are probable and estimable. The preliminary benchmark is set based on risk scores with data captured as of a certain point in time.
We make adjustments to the benchmark report based on new information received directly from CMMI, national studies we complete ourselves, or other anticipated policy updates that we believe are probable and estimable. The preliminary benchmark is set based on risk scores with data captured as of a certain point in time.
We view our number of members and associated PMPM premiums earned and medical claim expenses, in the aggregate and on a PMPM basis, as important metrics to assess our financial performance; member growth aligns with our mission, drives our Total revenues, expands brand awareness, deepens our market penetration, creates additional opportunities to inform our data-driven insights to improve care and decrease medical claim expenses, and generates additional data to continue to improve the functioning of Clover Assistant.
We view our number of members and associated PMPM premiums earned and medical claim expenses, in the aggregate and on a PMPM basis, as useful metrics to assess our financial performance; Member growth and retention aligns with our mission, drives our Total revenues, expands brand awareness, deepens our market penetration, creates additional opportunities to inform our data-driven insights to improve care and decrease medical claim expenses, and generates additional data to continue to improve the functioning of Clover Assistant.
These commitments are associated with contracts that were enforceable and legally binding at December 31, 2022, and that specified all significant terms, including fixed or minimum serves to be used, fixed, minimum, or variable price provisions, and the approximate timing of the actions under the contracts.
These commitments are associated with contracts that were enforceable and legally binding at December 31, 2023, and that specified all significant terms, including fixed or minimum serves to be used, fixed, minimum, or variable price provisions, and the approximate timing of the actions under the contracts.
This software is used in both our Insurance segment and our Non-Insurance segment. We operate Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") Medicare Advantage ("MA") plans for Medicare-eligible consumers. We aim to provide high-quality, affordable healthcare for all Medicare beneficiaries.
This software is used in both our Insurance segment and our Non-Insurance segment. We operate Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") Medicare Advantage ("MA") plans for Medicare-eligible individuals. We aim to provide high-quality, affordable healthcare for all Medicare beneficiaries.
Non-Insurance Receivable and Performance Year Obligation Performance year receivable and obligation represents the average Medicare beneficiary's total cost of care for beneficiaries aligned to our DCE and refers to the target expenditure amount that will be compared to Medicare expenditures for items and services furnished to aligned beneficiaries during a performance year.
Non-Insurance Receivable and Performance Year Obligation Performance year receivable and obligation represents the average Medicare beneficiary's total cost of care for beneficiaries aligned to our ACO and refers to the target expenditure amount that will be compared to Medicare expenditures for items and services furnished to aligned beneficiaries during a performance year.
Premiums and recoupments incurred in direct relation to the DC Model are recognized as a reduction or increase in Non-Insurance revenue, as applicable. We believe Non-Insurance revenue provides useful insight into the gross economic benefit generated by our business operations and allows us to evaluate our performance without regard to changes in our underlying reinsurance structure.
Premiums and recoupments incurred in direct relation to the ACO REACH Model are recognized as a reduction or increase in Non-Insurance revenue, as applicable. We believe Non-Insurance revenue provides useful insight into the gross economic benefit generated by our business operations and allows us to evaluate our performance without regard to changes in our underlying reinsurance structure.
Because our reserving practice is to consistently recognize the actuarial best estimate using an assumption of moderately adverse conditions as required by 64 actuarial standards, there is a reasonable possibility that there could be variances between actual completion factors and those assumed in our December 31, 2022 and 2021, unpaid claim estimates.
Because our reserving practice is to consistently recognize the actuarial best estimate using an assumption of moderately adverse conditions as required by actuarial standards, there is a reasonable possibility that there could be variances between actual completion factors and those assumed in our December 31, 2023 and 2022 unpaid claim estimates.
These data and trends include historical data adjusted for claims receipt and payment patterns, cost trends, product mix, seasonality, utilization of healthcare services, changes in membership, provider billing practices, benefit changes, known outbreaks of disease, including COVID-19, or increased incidence of illness such as influenza, the incidence of high-dollar or catastrophic claims, and other relevant factors.
These data and trends include historical data adjusted for claims receipt and payment patterns, cost trends, product mix, seasonality, utilization of healthcare services, changes in membership, provider billing practices, benefit changes, known outbreaks of disease, or increased incidence of illness such as influenza, the incidence of high-dollar or catastrophic claims, and other relevant factors.
Gain on investment In February 2022, Character Biosciences completed a private capital transaction in which it raised $17.9 million from the issuance of 16,210,602 shares of its preferred stock.
Loss on investment In February 2022, Character Biosciences completed a private capital transaction in which it raised $17.9 million from the issuance of 16,210,602 shares of its preferred stock.
The discussion should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2022, contained in this Annual Report on Form 10-K (the "Form 10-K").
The discussion should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2023, contained in this Annual Report on Form 10-K (the "Form 10-K").
A beneficiary alignment is effective as of the first of the month, for the full calendar month, regardless of whether eligibility is lost during the course of the month. Non-Insurance revenue. Non-Insurance revenue represents CMS' total expense incurred for medical services provided on behalf of Non-Insurance Beneficiaries during months in which they were alignment eligible during the performance year.
A beneficiary alignment is effective at the first of the month, for the full calendar month, regardless of whether eligibility is lost during the course of the month. 62 Non-Insurance revenue. Non-Insurance revenue represents CMS' total expense incurred for medical services provided on behalf of Non-Insurance Beneficiaries during months in which they were alignment eligible during the performance year.
This comparison will be used to calculate shared savings and shared losses. The key inputs in determining the performance year receivable and obligation are both driven by the benchmark, which is impacted by the retrospective trend adjustments ("RTA"s), risk score, and the number of beneficiaries aligned to the DCE.
This comparison will be used to calculate shared savings and shared losses. The key inputs in determining the performance year receivable and obligation are both driven by the benchmark, which is impacted by the retrospective trend adjustments ("RTA"s), risk score, quality performance, and the number of beneficiaries aligned to the ACO.
Historically, we have financed our operations primarily from the proceeds we received through public and private sales of equity securities, funds received in connection with the 2021 Business Combination, issuances of convertible notes, premiums earned under our MA plans, and with our Non-Insurance revenue.
Historically, we have financed our operations primarily from the proceeds we received through public and private sales of equity securities, funds received in connection with the business combination which occurred early in 2021, issuances of convertible notes, premiums earned under our MA plans, and with our Non-Insurance revenue.
Among other things, the longer a member is enrolled in one of our insurance plans, the more data we collect and synthesize and the more actionable insights we generate. We believe these data-driven insights lead to better care delivery as well as improved identification and documentation of members' chronic conditions, helping to lower PMPM medical claim expenses. Premiums earned, gross.
Among other things, the longer a member is enrolled in one of our insurance plans, the more data we collect and synthesize and the more actionable insights we generate. We believe these data-driven insights lead to better care delivery as well as improved identification, documentation and management of members' chronic conditions, helping to lower PMPM medical claim expenses.
Non-Insurance net medical claims incurred. Non-Insurance net medical claims incurred consist of the total incurred expense that CMS and we will remit for medical services provided on behalf of Non-Insurance Beneficiaries during the months in which they are alignment eligible and aligned to the DCE.
Non-Insurance net medical claims incurred. Non-Insurance net medical claims incurred consist of the total incurred expense that CMS and we will remit for medical services provided on behalf of Non-Insurance Beneficiaries during the months in which they are alignment eligible and aligned to ACO REACH.
These warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrants payable on the Consolidated Balance Sheets.
These warrants were accounted for as liabilities in accordance with ASC 815-40 and were presented within warrants payable on the 2021 Consolidated Balance Sheets.
Non-Insurance revenue is also known in the DC Model as performance year expenditures and is the primary component used to calculate shared savings or shared loss versus the performance year benchmark. Non-Insurance revenue includes a direct reduction or increase of shared savings or loss, as applicable.
Non-Insurance revenue is also known in the ACO REACH Model as performance year expenditures and is the primary component used to calculate shared savings or shared loss versus the performance year benchmark. Non-Insurance revenue includes a direct reduction or increase of shared savings or loss, as applicable.
For a discussion of these items and comparison of our results of operations for the fiscal years ended December 31, 2021 and December 31, 2020, see Item 7.
For a discussion of these items and comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see Item 7.
We believe our MCR is an indicator of our gross profitability and the ability to capture and analyze data over time to generate actionable insights for returning beneficiaries to improve care and reduce medical expenses. 58 Results of Operations Comparison of the Years ended December 31, 2022 and 2021 The following table summarizes our consolidated results of operations for the years ended December 31, 2022 and 2021.
We believe our MCR is an indicator of our gross profitability and the ability to capture and analyze data over time to generate actionable insights for returning beneficiaries to improve care and reduce medical expenses. 63 Results of Operations Comparison of the Years ended December 31, 2023 and 2022 The following table summarizes our consolidated results of operations for the years ended December 31, 2023 and 2022.
The following discussion and analysis does not include certain items related to the year ended December 31, 2021, including year-to-year comparisons between the year ended December 31, 2021 and the year ended December 31, 2020.
The following discussion and analysis does not include certain items related to the year ended December 31, 2022, including year-to-year comparisons between the year ended December 31, 2022 and the year ended December 31, 2021.
Overview At Clover Health, our vision is to empower Medicare physicians to identify and manage chronic diseases early. Our strategy is to improve the care of our Medicare beneficiaries, develop wide physician networks, and provide technology to help empower physicians.
Overview At Clover Health, our vision is to empower Medicare physicians to identify and manage chronic diseases early. Our strategy is to improve the care of people with Medicare, develop wide physician networks, and provide technology to help empower physicians.
There are additional cost-sharing elements that are recorded within medical expenses and take into account factors such as member income levels, brand-name versus generic drug spend, and total spend by member within a plan year. Management estimates and recognizes adjustments to medical expenses based upon inputs such as pharmacy claims experience, rebate activity, and input from third-party experts.
There are additional cost-sharing elements that are recorded within medical expenses and take into account factors such as member income levels, brand-name versus generic drug spend, and total spend by member within a plan year. Management estimates and recognizes adjustments to medical expenses based upon inputs such as pharmacy claims experience, and rebate activity.
Stock-based Compensation We measure and recognize compensation expense for all stock-based awards, including stock options, restricted stock units granted to employees, directors, and non-employees, and stock purchase rights granted under the 2020 Employee Stock Purchase Plan ("ESPP") to employees, based on the estimated fair value of the awards on the date of grant.
Stock-based Compensation We measure and recognize compensation expense for all stock-based awards, including Options and RSUs granted to employees, directors, and non-employee consultant, and stock purchase rights granted under the 2020 Employee Stock Purchase Plan ("ESPP") to employees, based on the estimated fair value of the awards on the date of grant.
Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of this Form 10-K.
Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of this Form 10-K.
IBNR represented all of our unpaid claims, as reflected below: Years ended December 31, 2022 2021 Total % Total % (dollars in thousands) IBNR $ 6,119 100.0 % $ 4,607 100.0 % Total unpaid claims and claims adjustment expense $ 6,119 100.0 % $ 4,607 100.0 % Our actuaries estimate the unpaid claims by following a detailed actuarial process that uses historical claim payment patterns.
IBNR represented all of our unpaid claims, as reflected below: Years ended December 31, 2023 2022 Total % Total % (dollars in thousands) IBNR $ 2,856 100.0 % $ 6,119 100.0 % Total unpaid claims and claims adjustment expense $ 2,856 100.0 % $ 6,119 100.0 % Our actuaries estimate the unpaid claims by following a detailed actuarial process that uses historical claim payment patterns.
We offer most members in our MA plans (the "members") among the lowest average out-of-pocket costs for primary care provider and specialist co-pays, drug deductibles and drug costs in their markets. We strongly believe in providing our members provider choice, and we consider our PPO plan to be our flagship insurance product.
Among plans with similar major characteristics, we offer most members in our MA plans (the "members") among the lowest average out-of-pocket costs for primary care provider and specialist co-pays in their markets. We strongly believe in providing our members provider choice, and we consider our PPO plan to be our flagship insurance product.
Beneficiary months represents the number of months beneficiaries are aligned to our DCE in the period. (2) Defined as Non-Insurance net medical claims incurred divided by Non-Insurance revenues. Non-Insurance Beneficiaries.
Beneficiary months represents the number of months beneficiaries are aligned to our ACO REACH Model in the period. (2) Defined as Non-Insurance net medical claims incurred divided by Non-Insurance revenues. Non-Insurance Beneficiaries.
Non-cash activities included a $164.3 million charge to Stock-based compensation expense, $94.2 million of amortization of the 2022 Premium deficiency reserve, and a $9.2 million Gain on investment related to the change in the equity structure of Character Biosciences. Payments due to CMS related to our Non-Insurance operations increased by $110.4 million.
Non-cash activities included a $164.3 million charge to Stock-based compensation expense, $93.5 million amortization of the 2022 Premium deficiency reserve, and a $9.2 million Gain on investment related to the change in the equity structure of Clover Therapeutics. Payments due to CMS related to our Non-Insurance operations increased by $110.4 million.
An important feature of our MA product is wide network access. We believe the use of Clover Assistant and related data insights allows us to improve clinical decision-making through a highly scalable platform. At January 1, 2023, we operated our MA plans in eight states and 220 counties, with 84,138 members.
An important feature of our MA product is wide network access. We believe the use of Clover Assistant and related data insights allows us to improve clinical decision-making through a highly scalable platform. At December 31, 2023, we operated our MA plans in eight states and 220 counties, with 81,205 members.
We also grant certain awards that have performance-based vesting conditions, including performance restricted stock units that become eligible to vest if, prior to the vesting date, the average closing price of one share of our common stock for ninety consecutive days equals or exceeds a specified price ("Market PRSUs").
We also grant certain awards that have performance-based vesting conditions, including performance restricted stock units that become eligible to vest based on achievement of certain Company or individual performance milestones (“Non-Market PRSUs”) and other performance restricted stock units that become eligible to vest if, prior to the vesting date, the average closing price of one share of our common stock for ninety consecutive days equals or exceeds a specified price ("Market PRSUs").
Investing Activities Net cash provided by investing activities for the year ended December 31, 2022, of $95.1 million was primarily due to $485.4 million provided from the sale and maturity of investment securities. This was offset by $369.4 million used to purchase investments and 62 $16.2 million used in connection with the 2022 Business Combination.
Net cash provided by investing activities for the year ended December 31, 2022, of $95.1 million was primarily due to $485.4 million provided from the sale and maturity of investment securities. This was offset by $369.4 million used to purchase investments.
Premiums are earned in the period in which members are entitled to receive services, and are net of estimated uncollectible amounts, retroactive membership adjustments, and any adjustments to recognize rebates under the minimum benefit ratios required under the Patient Protection and Affordable Care Act.
Premiums are earned in the period in which members are entitled to receive services, and are net of estimated uncollectible amounts, retroactive membership adjustments, and any adjustments to recognize rebates under the minimum benefit ratios required under the Patient Protection and Affordable Care Act. We earn premiums through our plans offered under contracts with CMS.
Key Performance Measures of Our Operating Segments Operating Segments We manage our operations based on two reportable operating segments: Insurance and Non-Insurance. Through our Insurance segment, we provide PPO and HMO plans to Medicare Advantage members in several states.
Key Performance Measures of Our Operating Segments Operating Segments We manage our operations based on two reportable operating segments: Insurance and Non-Insurance. Through our Insurance segment, we provide PPO and HMO plans to Medicare Advantage members in several states. Our Non-Insurance segment consists of our operations in connection with our participation in the ACO REACH Model.
Our primary uses of cash from operating activities are payments for medical benefits and payments of Operating expenses. For the year ended December 31, 2022, Net cash used in operating activities was $203.9 million, which reflects a Net loss of $338.8 million.
Our primary uses of cash from operating activities are payments for medical benefits and payments of operating expenses. For the year ended December 31, 2023, Net cash used in operating activities was $115.9 million, which reflects a Net loss of $213.4 million.
IBNR represents a substantial portion of our unpaid claims, as reflected below: Years ended December 31, 2022 2021 Total % Total % (dollars in thousands) IBNR $ 124,165 90.4 % $ 125,436 92.0 % Other unpaid claims 8,255 6.0 5,863 4.3 Claims adjustment expense 4,974 3.6 5,018 3.7 Total unpaid claims and claims adjustment expense $ 137,394 100.0 % $ 136,317 100.0 % Management determines the unpaid claims and claims adjustment expense with a supplemental perspective provided by a third-party actuarial firm.
IBNR represents a substantial portion of our unpaid claims, as reflected below: Years ended December 31, 2023 2022 Total % Total % (dollars in thousands) IBNR $ 121,961 89.0 % $ 124,165 90.4 % Other unpaid claims 10,261 7.5 8,255 6.0 Claims adjustment expense 4,878 3.5 4,974 3.6 Total unpaid claims and claims adjustment expense $ 137,100 100.0 % $ 137,394 100.0 % Management determines the unpaid claims and claims adjustment expense with a supplemental perspective provided by a third-party actuarial firm.
Fair values of the Legacy warrants and derivative liabilities related to the Convertible Securities were estimated using a probability-weighted expected return method, where the values of various instruments were estimated based on an analysis of future values of our business, assuming various future outcomes.
The embedded derivatives associated with the Convertible Securities were recognized as derivative liabilities and recorded at fair value. 72 Fair values of the Legacy warrants and derivative liabilities related to the Convertible Securities were estimated using a probability-weighted expected return method, where the values of various instruments were estimated based on an analysis of future values of our business, assuming various future outcomes.
After evaluating our ownership interest in Character Biosciences, we began applying the equity method of accounting during the year ended December 31, 2022, and recorded a gain on investment of $9.2 million, which is attributable to our proportionate share of the gain on equity of that entity during that period.
After the Company evaluated its ownership interest in Character Biosciences, it began applying the equity method of accounting during the three months ended March 31, 2022, and for the year ended December 31, 2022 recorded a gain on investment of $9.2 million, which is attributable to its proportionate share of the gain on equity of that entity during that period.
A Non-Insurance Beneficiary is defined as an eligible Original Medicare covered life that has been aligned to our DCE, Health Partners, via attribution to a DCE-participant provider through alignment based on claims data or by beneficiary election through voluntary alignment.
A Non-Insurance Beneficiary is defined as an eligible fee-for-service ("FFS") covered life that has been aligned to our ACO REACH, Clover Health Partners, via attribution to an ACO REACH-participant provider through alignment based on claims data or by beneficiary election through voluntary alignment.
The fair value of each stock option and ESPP opportunity granted is estimated using the Black-Scholes option-pricing model. The fair value of each restricted stock unit ("RSU") is based on the estimated fair value of our common stock on the date of grant.
The fair value of each Option and stock purchase right is estimated using the Black-Scholes option-pricing model. The fair value of each RSU is based on the estimated fair value of our common stock on the date of grant.
Derivatives embedded within non-derivative instruments, such as convertible securities, are bifurcated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument. The embedded derivatives associated with the Convertible Securities were recognized as derivative liabilities and recorded at fair value.
Derivatives embedded within non-derivative instruments, such as convertible securities, are bifurcated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument.
We believe gross medical claims incurred provides useful insight into the gross medical expense incurred by members and allows us to evaluate our underwriting performance without regard to changes in our underlying reinsurance structure.
Insurance gross medical claims incurred reflects claims incurred, excluding amounts ceded to reinsurers, and the costs associated with processing those claims. We believe gross medical claims incurred provides useful insight into the gross medical expense incurred by members and allows us to evaluate our underwriting performance without regard to changes in our underlying reinsurance structure.
As part of our Non-Insurance operations, we empower providers with Clover Assistant and offer a variety of programs aimed at reducing expenditures and preserving or enhancing the quality of care for our Non-Insurance Beneficiaries.
Non-Insurance segment Our Non-Insurance segment consists of operations in connection with our participation in the Direct Contracting program through the ACO REACH Model. As part of our Non-Insurance operations, we empower providers with Clover Assistant and offer a variety of programs aimed at reducing expenditures and preserving or enhancing the quality of care for our Non-Insurance Beneficiaries.
The reserve is derived from the assessments performed and provides the amount by which insurance-related expenses are expected to exceed insurance revenues. There are key financial statement line items and associated drivers considered in determining the reserve. The most significant of financial statement line items considered when performing reserve assessments are premiums earned and Insurance net medical claims incurred.
The reserve is derived from the assessments performed and provides the amount by which insurance-related expenses are expected to exceed insurance revenues in addition to net investment income. There are key financial statement line items and associated drivers considered in determining the reserve.
The amortization of the reserve occurs ratably over the assessed contract period and will offset expected future losses . Revenue Recognition - Insurance We receive monthly premiums from the federal government according to government-specified payment rates and various contractual terms. Revenue from premiums earned is recognized as income in the period in which members are entitled to receive services.
Revenue Recognition - Insurance We receive monthly premiums from the federal government according to government-specified payment rates and various contractual terms. Revenue from premiums earned is recognized as income in the period in which members are entitled to receive services.
The grant date fair value of Market PRSUs is determined using a Monte Carlo simulation model that incorporates multiple valuation assumptions, including the probability of achieving the specified market condition, expected volatility and risk-free interest rate.
The grant date fair value of Market PRSUs is determined using a Monte Carlo simulation model that incorporates multiple valuation assumptions, including the probability of achieving the specified market condition, expected volatility and risk-free interest rate. There have been no Market PRSU awards granted during the years ended December 31, 2023 and 2022.
For additional information regarding our remaining estimated contractual obligations and commitments, see Note 12 (Notes and Securities Payable), Note 15 (Leases), Note 21 (Commitments and Contingencies), and Note 22 (Non-Insurance) to the consolidated financial statements included in this Form 10-K. 63 Indemnification Agreements In the ordinary course of business, we enter into agreements, with various parties (providers, vendors, consultants, etc.), with varying scope and terms, pursuant to which we may agree to defend, indemnify, and hold harmless the other parties from any claim, demand, loss, lawsuit, settlement, judgment, fine, or other liability, and all related expenses that may accrue therefrom (including reasonable attorney's fees), arising from or in connection with third party claims, including, but not limited to, negligence, recklessness, willful misconduct, fraud, or otherwise wrongful act or omission with respect to our obligations under the applicable agreements.
Indemnification Agreements In the ordinary course of business, we enter into agreements, with various parties (providers, vendors, consultants, etc.), with varying scope and terms, pursuant to which we may agree to defend, indemnify, and hold harmless the other parties from any claim, demand, loss, lawsuit, settlement, judgment, fine, or other liability, and all related expenses that may accrue therefrom (including reasonable attorneys' fees), arising from or in connection with third party claims, including, but not limited to, negligence, recklessness, willful misconduct, fraud, or otherwise wrongful act or omission with respect to our obligations under the applicable agreements.
Material cash requirements from known contractual obligations and commitments at December 31, 2022 include: (1) the recognition of a performance guarantee of $73.8 million in connection with the Company's participation in the DC Model and (2) operating lease obligations of $5.9 million.
Material cash requirements from known contractual obligations and commitments at December 31, 2023 include: (1) the recognition of a performance guarantee of $15.6 million in connection with the Company's participation in the ACO REACH Model and (2) operating lease obligations of $4.7 million.
For a detailed discussion of our regulatory requirements, including aggregate statutory capital and surplus as well as dividends paid from the subsidiaries to the parent, please refer to Notes 24 (Dividend Restrictions), 25 (Statutory Equity), and 26 (Regulatory Matters) to the consolidated financial statements included in this Form 10-K, as well as Item 1 Business.
For a detailed discussion of our regulatory requirements, including aggregate statutory capital and surplus as well as dividends paid from the subsidiaries to the parent, please refer to Notes 22 (Dividend Restrictions), 24 (Statutory Equity), and 25 (Regulatory Matters) to the consolidated financial statements included in this Form 10-K, as well as in Part I. 66 Cash Flows The following table summarizes our consolidated cash flows for the years ended December 31, 2023 and 2022.
On April 1, 2021, our subsidiary, Clover Health Partners, LLC ("Health Partners"), began participating as a Direct Contracting Entity ("DCE") in the Global and Professional Direct Contracting Model ("DC Model") of the Centers for Medicare and Medicaid Services ("CMS"), which transitioned to the Accountable Care Organization Realizing Equity, Access, and Community Health Model ("ACO REACH Model" or "ACO REACH") in January 2023.
Our subsidiary, Clover Health Partners, LLC ("Health Partners"), participated as a Direct Contracting Entity ("DCE") in the Centers for Medicare and Medicaid Services ("CMS") Accountable Care Organization Realizing Equity, Access, and Community Health Model ("ACO REACH Model" or "ACO REACH").
Years ended December 31, 2022 2021 Total PMPM (1) Total PMPM (1) (Premium and expense amounts in thousands, except PMPM amounts) Insurance members as of period end (#) 88,627 N/A 68,120 N/A Premiums earned, gross $ 1,085,339 $ 1,041 $ 799,903 $ 997 Premiums earned, net 1,084,869 1,041 799,414 996 Insurance medical claim expense incurred, gross 997,576 957 848,288 1,057 Insurance net medical claims incurred 996,410 956 847,286 1,056 Medical care ratio, gross (2) 91.9 % N/A 106.0 % N/A Medical care ratio, net 91.8 N/A 106.0 N/A (1) Calculated per member per month ("PMPM") figures are based on the applicable amount divided by member months in the given period.
Years ended December 31, 2023 2022 Total PMPM (1) Total PMPM (1) (Premium and expense amounts in thousands, except PMPM amounts) Insurance members at period end (#) 81,205 N/A 88,627 N/A Premiums earned, gross $ 1,236,213 $ 1,250 $ 1,085,339 $ 1,041 Premiums earned, net 1,235,769 1,250 1,084,869 1,041 Insurance medical claim expense incurred, gross 1,004,454 1,016 997,576 957 Insurance net medical claims incurred 1,003,683 1,015 996,410 956 Medical care ratio, gross (2) 81.3 % N/A 91.9 % N/A Medical care ratio, net 81.2 N/A 91.8 N/A (1) Calculated per member per month ("PMPM") figures are based on the applicable amount divided by member months in the given period.
Year ended December 31, 2022 2022 2021 Total PBPM (1) Total PBPM (1) (Revenue and claims amounts in thousands, except PBPM amounts) Non-Insurance Beneficiaries as of period end (#) 164,887 N/A 61,876 N/A Non-Insurance revenue $ 2,380,135 $ 1,175 $ 667,639 $ 1,194 Non-Insurance net medical claims incurred 2,460,879 1,214 705,407 1,262 Non-Insurance MCR (2) 103.4 % N/A 105.7 % N/A (1) Calculated per beneficiary per month ("PBPM") figures are based on the applicable amount divided by beneficiary months in the given period.
Year ended December 31, 2023 2022 Total PBPM (1) Total PBPM (1) (Revenue and claims amounts in thousands, except PBPM amounts) Non-Insurance Beneficiaries at period end 50,529 N/A 164,887 N/A Non-Insurance revenue $ 773,177 $ 1,232 $ 2,380,135 $ 1,175 Non-Insurance net medical claims incurred 771,798 1,229 2,460,879 1,214 Non-Insurance MCR (2) 99.8 % N/A 103.4 % N/A (1) Calculated ("PBPM") figures are based on the applicable amount divided by beneficiary months in the given period.
We receive premiums from CMS on a monthly basis based on our actuarial bid and the risk-adjustment model used by CMS. Premiums anticipated to be received within twelve months based on the documented diagnostic criteria of our members are estimated and included in revenues for the period, including the member months for which the payment is designated by CMS.
Premiums anticipated to be received within twelve months based on the documented diagnostic criteria of our members are estimated and included in revenues for the period, including the member months for which the payment is designated by CMS. 61 Premiums ceded is the amount of premiums earned, gross ceded to reinsurers.
An evaluation of multiple scenarios for future payoffs for the underlying Convertible Securities was performed using option pricing models, and probability-weighted average value indications were used to arrive at the estimated fair values. For information on fair values of the Public Warrants and Private Placement Warrants, please refer to the section entitled "Warrants" above.
An evaluation of multiple scenarios for future payoffs for the underlying Convertible Securities was performed using option pricing models, and probability-weighted average value indications were used to arrive at the estimated fair values. No such derivative liabilities exist at December 31, 2023.
Years ended December 31, 2022 2021 (in thousands) Cash Flows Data: Net cash used in operating activities $ (203,926) $ (282,326) Net cash provided by (used in) investing activities 95,133 (435,447) Net cash (used in) provided by financing activities (4,962) 925,393 (Decrease) increase in cash, cash equivalents, and restricted cash $ (113,755) $ 207,620 Cash Requirements Our cash requirements within the next twelve months include medical claims payable, accounts payable and accrued liabilities, current liabilities, purchase commitments, and other obligations.
Years ended December 31, 2023 2022 (in thousands) Cash Flows Data: Net cash used in operating activities $ (115,871) $ (286,348) Net cash provided by investing activities 140,013 95,133 Net cash (used in) provided by financing activities (33,861) 77,460 Decrease in cash, cash equivalents, and restricted cash $ (9,719) $ (113,755) Cash Requirements Our cash requirements within the next twelve months include medical claims payable, accounts payable and accrued liabilities, current liabilities, purchase commitments, and other obligations.
Insurance Net Medical Claims Incurred Insurance net medical claims incurred is recognized in the period in which services are provided and includes paid claims and an estimate of the cost of services that have been incurred but not yet reported ("IBNR") and certain other unpaid claims and adjustments.
For further information, see Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements included in this Form 10-K. 68 Insurance Net Medical Claims Incurred Insurance net medical claims incurred is recognized in the period in which services are provided and includes paid claims and an estimate of the cost of services that have been incurred but not yet reported ("IBNR") and certain other unpaid claims and adjustments.
Prior to the first quarter of 2022, this entity was consolidated on our financial statements, and therefore we did not recognize a loss or gain on investment in this entity for the year ended December 31, 2021.
Prior to the first quarter of 2022, this entity was consolidated on Clover's financial statements, and therefore the Company did not recognize a loss or gain on investment. In accordance with ASC 323, for the year ended December 31, 2022, the Company recognized the proportionate share of Character Bioscience's net losses up to the investment carrying amount.
The following table summarizes the impacts of the key inputs to the Non-Insurance receivable and Non-Insurance performance year obligation that contribute to the change in the benchmark from beginning of the 2022 performance year: Increase (Decrease) in the adjustment to Non-Insurance Receivable/Obligation % Change $ Change (in thousands) Change in Beneficiary Alignment (0.7) % $ (17,670) Retrospective Trend Adjustment 0.1 3,308 Normalized Risk Score (0.1) (2,422) All others (including change in total cost of care trend) 0.1 2,856 Total (0.6) % $ (13,928) Warrants Legacy Warrants In September 2015, we issued warrants to purchase 2,100,000 shares of our common stock.
Lastly, Non-Insurance Beneficiary counts are updated throughout the year and represent a timing difference between CMMI reporting, for which we accrue. 71 The following table summarizes the impacts of the key inputs to the Non-Insurance receivable and Non-Insurance performance year obligation that contribute to the change in the benchmark from the beginning of the 2023 performance year: Increase (Decrease) in the adjustment to Non-Insurance Receivable/Obligation % Change $ Change (in thousands) Change in Beneficiary Alignment (1.9) % $ (14,749) Retrospective Trend Adjustment 4.4 33,134 Normalized Risk Score (1.6) (12,064) All others (including change in total cost of care trend) (2.6) (19,684) Total (1.7) % $ (13,363) Warrants Legacy Warrants In September 2015, we issued warrants to purchase 2,100,000 shares of our common stock.
Non-Insurance revenue is also known in the DC Model as performance year expenditures and is the primary component used to calculate shared savings or shared loss versus the performance year benchmark.
Non-Insurance revenue is also known in the ACO REACH Model as performance year expenditures and is the primary component used to calculate shared savings or shared loss versus the performance year benchmark. Non-Insurance revenue includes a direct reduction or increase of shared savings or loss, which is calculated as the difference between the total benchmark and CMS' total expense.
Regulated Entities Our regulated insurance subsidiaries held $32.5 million and $190.7 million of cash, cash equivalents, and short-term investments at December 31, 2022 and 2021, respectively. Additionally, our regulated insurance subsidiaries held $191.1 million and $118.0 million 61 of available-for-sale and held-to-maturity investment securities at December 31, 2022 and 2021, respectively.
Regulated Entities At December 31, 2023 and December 31, 2022 total cash, cash equivalents, restricted cash, and investments for our regulated subsidiaries were $280.5 million and $223.6 million, respectively. Additionally, our regulated insurance subsidiaries held $203.4 million and $191.1 million of available-for-sale and held-to-maturity investment securities at December 31, 2023 and December 31, 2022, respectively.
The volume of our ceded earned premium is impacted by the level of our premiums earned, gross and any decision we make to adjust our reinsurance agreements. Insurance gross medical claims incurred. Insurance gross medical claims incurred reflects claims incurred, excluding amounts ceded to reinsurers, and the costs associated with processing those claims.
Ceded earned premiums are earned over the reinsurance contract period in proportion to the period of risk covered. The volume of our ceded earned premium is impacted by the level of our premiums earned, gross and any decision we make to adjust our reinsurance agreements. Insurance gross medical claims incurred.
See Note 18 (Employee Benefit Plans) to the Consolidated Financial Statements included in this Form 10-K for a complete description of the accounting for stock-based compensation awards.
The grant date fair value of Non-Market PRSUs is determined based on the closing price of the Company’s class A common stock. 73 See Note 16 (Employee Benefit Plans) to the consolidated financial statements included in this Form 10-K for a complete description of the accounting for stock-based compensation awards.
Under this approach, we include an average historical "age-to-age" estimate, excluding the highest and lowest of the historical factors. We also set a lower limit on the cumulative or "age-to-ultimate" development factors at 1.0, to prevent negative amounts incurred but not paid as a result of expected claim recoveries from being factored into our IBNR.
We also set a lower limit on the cumulative or "age-to-ultimate" development factors at 1.0, to prevent negative amounts incurred but not paid as a result of expected claim recoveries from being factored into our IBNR. 69 In addition, for more recent coverage periods we utilize historical estimates of completed claims to estimate the cost of subsequent months based on either expected or known changes in cost drivers.
Medicare Advantage Part D Payments received from CMS and members in connection with our participation in the Medicare Advantage Part D program are determined from our annual bid and represent amounts for providing prescription drug insurance coverage; these amounts are recognized as premium revenue for providing this insurance coverage ratably over the term of the annual contract.
Any known or expected unfavorable risk score impacts related to quality assurance diagnosis deletions or risk adjustment data validation audits are also considered within accruals and are recorded as a reduction of revenue from premiums earned, based on available information. 70 Medicare Advantage Part D Payments received from CMS and members in connection with our participation in the Medicare Advantage Part D program are determined from our annual bid and represent amounts for providing prescription drug insurance coverage; these amounts are recognized as premium revenue for providing this insurance coverage ratably over the term of the annual contract.
The increase was primarily driven by an increase in net medical claims attributable to our Non-Insurance Beneficiaries from $705.4 million for the year ended December 31, 2021, to $2,460.9 million for the year ended December 31, 2022, which was driven by an increase in the number of our aligned Non-Insurance Beneficiaries from 61,876 at December 31, 2021, to 164,887 at December 31, 2022.
The decrease was primarily attributable to a decrease in net medical claims for Non-Insurance Beneficiaries from $2,460.9 million for the year ended December 31, 2022, to $771.8 million for the year ended December 31, 2023 as a result of our strategic reduction in Non-Insurance Beneficiaries from 164,887 at December 31, 2022, to 50,529 at December 31, 2023.
Unregulated Entities At December 31, 2022, total cash, cash equivalents, restricted cash, and investments for the parent company, Clover Health Investments, Corp., and unregulated subsidiaries were $331.7 million. We operate as a holding company in a highly regulated industry. As such, we may receive dividends and administrative expense reimbursements from our subsidiaries, two of which are subject to regulatory restrictions.
Unregulated Entities At December 31, 2023 and December 31, 2022, total restricted and unrestricted cash, cash equivalents, and investments for the parent company, Clover Health Investments, Corp., and unregulated subsidiaries were $136.8 million and $331.7 million, respectively, with the decrease for December 31, 2023 primarily reflecting operating expenses. We operate as a holding company in a highly regulated industry.
Other income Other income increased $6.7 million, or 136.4%, to $11.7 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.
Other income Other income increased $13.1 million, or 112.1%, to $24.8 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.
If a reserve is deemed necessary, a liability and expense will be recognized as of the end of the quarter directly preceding the period for which the future loss is projected. That reserve will be amortized over the course of the contract period assessed to have expected insurance expenses that will exceed insurance revenues.
For the fourth quarter, assessments are made related to the entire subsequent fiscal year's projected net performance. If a reserve is deemed necessary, a liability and expense will be recognized as of the end of the quarter directly preceding the period for which the future loss is projected.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe continue to monitor the potential impacts from inflation and are prepared to respond to inflationary pressures as necessary. For further information regarding risks we encounter in our business due to economic conditions including inflationary pressures, see "Risk Factors" contained in Item 1A of this Form 10-K. 69
Biggest changeWe continue to monitor the potential impacts from inflation and are prepared to respond to inflationary pressures as necessary. 74
Treasury fixed maturity securities. At December 31, 2022, none of our fixed maturity securities portfolio was unrated or rated below investment grade. Inflation Risk The United States economy continues to be impacted by rising inflation.
Treasury fixed maturity securities. At December 31, 2023, none of our fixed maturity securities portfolio was unrated or rated below investment grade. Inflation Risk The United States economy continues to be impacted by inflation.

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