Alignment Healthcare at Morgan Stanley Conference: Strategic Growth Insights

On Tuesday, 09 September 2025, Alignment Healthcare (NASDAQ:ALHC) presented at the Morgan Stanley 23rd Annual Global Healthcare Conference. The company outlined its strategic focus on margin expansion and disciplined growth. While emphasizing operational excellence, Alignment Healthcare also acknowledged the challenges posed by industry changes and regulatory shifts.

Key Takeaways

• Alignment Healthcare aims for a 20% long-term growth rate and $10 billion in revenue.
• The company is leveraging data analytics and a member-centric care model for operational efficiency.
• Alignment Healthcare is open to mergers and acquisitions to enhance its supplemental benefits.
• The company’s low SG&A ratios and high STAR ratings are crucial to its strategy.
• Leadership remains confident in managing costs and navigating regulatory changes.

Financial Results

• The company reported a 60% growth rate in 2024, with plans to focus on margin expansion in 2025.
• Acute admissions per thousand decreased from 150 to approximately 140 in Q2.
• Year one members have MLRs in the high 80s to low 90s, while year five members show improvement with MLRs in the high 70s to low 80s.
• Alignment Healthcare maintains one of the lowest SG&A ratios in the industry.

Operational Updates

• Alignment Healthcare uses a unified data architecture to manage medical costs and identify utilization hotspots.
• The care model focuses on the polychronic population, which drives a significant portion of MLR.
• Investments in automation and process improvements are enhancing operational excellence.
• A new claims adjudication application has been integrated into the company’s core system, AVA®.

Future Outlook

• The company plans to expand its model outside of California and aims for continued growth through 2026.
• Alignment Healthcare is cautiously optimistic about the upcoming open enrollment period.
• M&A opportunities are being explored, particularly in ancillary benefits, to improve MLR by up to 5%.
• The company expects to maintain high STAR ratings, with at least 100% of members at four stars and above.

Q&A Highlights

• Alignment Healthcare is preparing for potential regulatory changes, including B30 and risk adjustment model updates.
• The company anticipates growth in Medicare Advantage market share and a shift towards HMO plans.
• The health equity index could provide additional benefits, particularly in California.

In conclusion, Alignment Healthcare’s strategic focus on growth and profitability was clearly articulated during the conference. Readers are encouraged to refer to the full transcript for a detailed account of the discussions.

Full transcript - Morgan Stanley 23rd Annual Global Healthcare Conference:

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Great. Good morning, everyone. My name is Sherry Mowry. I run the U.S. Healthcare Investment Banking business for Morgan Stanley. I am thrilled to have with us today the team from Alignment Healthcare. With me to my left, I have John Kao, who is the Founder and Chief Executive Officer of the company, and Jim Head, who is the Chief Financial Officer of the company. Great to have you guys this morning.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Morning, Sherry.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: A few things going on in the industry.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Just a few.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Good to see that Alignment Healthcare’s having continued success.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Thank you.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: This year has been a very interesting year. It’s a continuation of some of what we saw last year in terms of your success. Can you talk a little bit about what’s going on in the industry that you’ve been able to achieve above-average growth and really accelerated growth relative to others in the industry?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Yeah, I mean, if you look at just the raw unit economics, and we really started looking at this in 2023, we could tell that we were going to have a Stars advantage with all the changes going on at Stars. We also knew heading into 2024, it would be the first year of V28 phase in. We knew that we had tailwinds with respect to both Stars and risk adjustment. We factored that in, and really the summer of 2023, heading into 2024 with our bids. We had, as you guys know, something like a 60% growth rate in 2024, and we tilted toward growth that year. In 2025, we kind of tilted toward margin expansion, both of which are very good decisions, I think, that we made. The industry is going through a paradigm change. There is just no doubt about it.

The way I think about it is what has worked for the sector for the last 10 years is not going to be the same going forward in the next 10 years. V28 really is similar to what happened in 2012, where they had adjustments to reimbursement for MA. Back in 2012, it was 15%. When you think about the full phase-in of V28, heading now, ending in 2026, it’s going to be about 20%. Those memories were very fresh in our minds. We were very conservative on risk adjustment and very aggressive on Stars. I think those are the right decisions that translated into very good growth, very good margin expansion. I think going forward, what’s going to be the keys to success are, do you have the ability to actually manage care and control costs?

The kind of reduction of revenue associated with V28 is really compromising the ability to have, you know, I would call it global cap. It tightens up the global cap providers. I think the third thing that is going to change is prior auth. What people have done in prior auth for the last 10 years is not going to be something that’s going to be acceptable from a Stars perspective or from a public perception perspective. You have to be really good at providing quality Stars at a low cost without just driving that low cost through dumping risk on the provider groups. I think it’s a paradigm shift that you’re witnessing now, and I think it’s going to play out over the next couple of years.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Talk about medical cost trend, because you guys have done an unbelievable job of managing medical costs relative to your peers, right, who have not had that same experience this year. How are you thinking about cost trends in the industry, and how are you planning for it for the end of 2025 and 2026?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Yeah, no, we feel really good about our ability to manage costs. For Q2, we announced that our acute admissions per thousand dropped from 150. We’ve been in the 150 range for the last six, seven years. It actually dropped to about 140-ish. We were not immune to utilization hotspots in some of our markets. What differentiates us is because of the data architecture that we have, we have visibility to hotspots very quickly. We, as an organization, meet on markets every single day. Every single day, we’re going through markets, grinding through metrics, looking at utilization, looking at disenrollment, looking at sales, looking at all the markets. That gives us the ability to make adjustments real time. It’s literally visibility to good and bad. If it’s bad, we have the control boots on the ground to make changes through our clinical leadership and our network leadership.

I don’t think there’s a kind of a silver bullet to any of this. It’s having the data that’s actionable, that when you know what needs to be done, you do something about it. For those of you that are new to the story, the whole thesis of the company is do well by doing good. The doing good part is take care of those individuals that need the care. It’s usually the 10% of the polychronic population that really are your sick patients. When we use our data and we identify who that 10% is, that’s basically costing you 75% to 80% of your MLR. You then envelop them with care at home. That does three things. It really increases your customer satisfaction. It really implements kind of chronic disease management throughout that population, and it lowers your admissions into the hospital.

It’s kind of just like, do the right thing, take care of people like your mom or your dad. You’re not going to treat your mom or your dad like a number. You’re going to treat your mom and your dad like your mom and your dad. You can do whatever it takes to make sure they’re taken care of. That’s kind of the mindset that we have. The organizations do a very good job of managing that care, thus controlling costs.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Right. We’re about halfway through the V28 implementation. Can you talk a little bit about the impact and the progression of the model you’re expecting?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Yeah, yeah. For those of you that don’t know, V28 is the new risk adjustment model that was implemented in 2024. It was phased in 2024, 2025, so you’re two-thirds of the way through. 2026 will be the last year. The impact is generally on a national basis, about 6% to 7% reduction per year. When you kind of head into 2026, you’re looking at like a high teens to 20+% reduction in premium revenue. That’s what’s creating a lot of the compression in premium right now. What it’s doing is, when you take away that premium, the trickle-down effect is huge because the plans are not in the same ability to globally cap downstream providers. There’s not enough money in that supply chain, is what I say. We experienced this same phenomenon back in the 1990s.

What’s happening is the government’s basically looking at Medicare Advantage, and they’re saying the one area that we think we need to clean up is to mitigate any potential gaming associated with risk adjustment. I say gaming very distinctly rather than I don’t think people are doing anything, you know, quote unquote, illegal. That’s my opinion. I think people are pushing the limits of what is legal. I think the intent of CMS is to make sure that the spirit of risk adjustment is actually adhered to, which is to make sure that they pay the plans more money for people that actually need it and need more care.

They’re focusing on ensuring that if we pay you a plan for a higher acuity patient, make sure the care plan is in place and make sure you can correlate the revenue that you get to the care that that member receives. It’s a very simple square deal. I think the industry is not accountable for that. I think V28, you’re going to see more pressure on everybody heading into 2026 when the third phase-in comes in. We saw this coming. We were very intentional of being conservative on our risk adjustment. We knew that with kind of whatever changes that were going to happen, we didn’t want to be exposed to it. You think about this business overall, government reimbursement is your number one risk. Right? We had to design a business model that would win in either scenario.

If rates go up, the whole, you know, all boats rise in a rising tide. If rates go down, we are exposed less because we have the lowest cost structure. Not the lowest cost structure plus the highest RAF. That wasn’t the strategy. That is where we are advantaged and we’re compromised much less than others. We’ve been public and we’ve said our RAF scores are about 1.1. It’s just not that high, but it’s by intention. You contrast that to others that are 1.5, 1.7, 2.0. There is just a farther distance to fall, so to speak, when you apply that 20% hit. I think RADV is something that you’ve probably heard of. RADV audits are going on right now.

They started dates of service in 2018 for 2019 payments, and then they’re going to go through 2019, 2020, 2021, 2022, 2023, 2024 over the next nine months or so. Through that process, everybody is validating their HCCs. It’s a huge process. If you cannot validate your HCCs that you submitted, CMS is going to say, "We want our money back." That’s what’s happening right now. We feel very well positioned in that regard because of the care model, because the entire thesis of the business is risk adjustment is not rev cycle to us. It’s actually documentation of the care model. That’s what I think about V28.

Once they kind of clean this RADV process up, and this is going to take us to the first half of next year, it’ll remain to be seen what happens next, if they’re going to make any changes to risk adjustment going forward. I think whatever things they do, they’re going to try to minimize any gaming on that. That’s what I think. Those that can be well positioned on that, I think are going to be positioned well in the future.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: have to agree, as we’ve seen. One of the unique elements of 2025 in Medicare Advantage is an implementation of the Inflation Reduction Act. Can you talk a little bit about what you’re seeing in your Part D business and what your expectations are?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Yeah, so think about V28, the Inflation Reduction Act, and all the changes going on in the environment. That was the first 100 days. It’s been really fun. As it pertains to Part D, we came into the year with a cautious stance because we wanted to make sure we could keep our MLR intact. I would say we came up with cautious guidance for the year. As we roll through seven months, we feel very good about landing that. We were a little bit ahead in the first half, but we feel like we’ll deliver on the results for the year. That’s really a testament to us being conservative, but also, you know, kind of staying on top of it. This idea of active care management permeates throughout the organization.

I think in Part D, the challenges are typically around a few classes of drugs where price has risen, and that’s harder to manage from our care model perspective. Utilization has been pretty reasonable, notwithstanding a few pockets. We feel good about Part D. I know that was a big issue at the beginning of the year. We feel, as we’re kind of crossing the halfway mark, quite good about it.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: One of the unique things about Alignment, and this has been the case for quite some time, you continue to grow above market while maintaining costs. Can you talk a little bit about what you’re seeing in the progression of the MLR per member as they come onto the platform and how that’s changed over time?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Yeah, I mean, it’s something that we’ve disclosed publicly, which is really our cohort analysis. Year one members really come in at something like, you know, high 80s to low 90 MLRs. Year five members are kind of in the high 70s to low 80 MLRs. That’s really a function, a combination of a little bit of the just kind of proper coding, just not aggressive coding, just proper coding, but really the adoption of the care model, the engagement of that 10%, and then the care of that 10%. The whole thing is working. The key takeaway, I think, for that is that right now, about 50%, a little bit over 50% of our members are still in a year one or year two cohort. Right? They’ve not even fully matured. What that implies is you’ve got this huge embedded earnings potential on the existing members that you have.

I.e., if we grew like zero, which is not going to be the case for everything, we’ll talk about growth in a second. If you didn’t grow, just the gross margin potential of the existing population is going to keep going up because, again, of the adoption of the care model. We’re happy about that. What you’ll see in the future is more and more of the proportion of the business is going to be what we call loyal members who have been with us for at least a couple of years. That margin profile is going to get very strong. That embedded earnings is what happened really this past year. You saw that in Q2.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Beyond MLR, you guys are also maintaining one of the lowest ratios of the SG&A in the business, which is an impressive feat. How have you been able to drive that savings and kind of maintain that SG&A ratio while squeezing it over time?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: We had the benefit of a clean sheet when we designed the data architecture. We don’t have what the incumbents have, which is multiple backend legacy systems that have to get reconciled. We have a single unified data architecture. We’re making investments in that to get that even better, by the way. The kind of actionable nature of the data allows us to have very high productivity of our existing employees. The other thing, we’re going to invest and have invested over the last three or four years, huge amounts in automation, workflow design, process improvements, just all the operational excellent stuff of the backend systems. It’s starting to pay off. This year, we just put in a new claims adjudication application that integrates into AVA®. We think of AVA® as our core system. It’s a single source of truth. You have different apps that plug into AVA®. That’s worked.

That’s well. The data architecture, the systems architecture is just a huge advantage from what the legacy guys have. The switching costs that they have is just an insurmountable number. I think we will continue to get operating leverage heading into 2020. Really, you’ll see in 2025 and even into 2026. I think that will be offset by we starting to invest in the brand, just because we really haven’t invested in the brand that much. I think we’ll still be below 10% overall SG&A. I think we’re not going to drive it too much further below that because whatever operating leverage benefits we have, we’re going to invest in the brand. That’s in the context that we’re going to be big enough and we’re going to get bigger through that investment of the brand.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: What about for open enrollment this coming year? Your competitors are talking about plan exits and PPO rationalization. How are you guys approaching open enrollment and plan exits?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Pretty much the same as prior years. We do a lot of market research. We do a lot of analytical work. We look at what our competitors do, what our competitors have, where we think the competitors are getting compromised, etc. We have always been disciplined about, you know, 50% growth, 50% margin. Some years we’ll tilt one way or the other. I think we’ve pretty much been balanced heading into 2026. There is going to be a lot of dislocation this coming AEP, as you all have read. We are still cautious. We’re not chasing bad business. They’re exiting products, they’re exiting markets, and you go, why? Because they’re losing money on it. We have to be very thoughtful about not just going out and growing and picking up bad business. We’re very thoughtful about that.

The other thing is, you still have the smaller players and some of the not-for-profits that I think are going to be very aggressive. I think we’ve all learned that these periods of being aggressive in light of V28, in light of RADV, in light of all this stuff, has not proven to be sustainable. Some of these smaller ones, some of these not-for-profits are very aggressive on product design. As some of the large players have demonstrated, you pay for it the next year through trend increases, and they just misprice. We’re watching all that. We feel good about our 20% long-term growth. There is no change there. The fact that we’ve had three years, kind of our three-year CAGR is about 31% growth. We’re being a little bit conservative. I think that’s fair to say. You just kind of never know what’s going to really happen in AEP.

We feel good about it, though. Our benefits are solid. We’ll let the games begin. I mean, we’re geared up for it.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Great. You’ve been phenomenally successful in California, which in and of itself is a massive market. You’ve continued to expand outside of California. Talk a little bit about your success and replicating the success in California.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Yeah, no, it’s.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: How you’re thinking about entering the market.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: The big question for us, and we’re very conscious of this, is portability of the model and viral growth. You know, how big can we get this? We’ve always said, we think we can grow this and make it viral. We think we can get, we can get, you know, twice as big in the next, call it three years. The goal always is to get, for us in the short term, is, you know, how do we get to $10 billion in revenue? It’s going to require we achieve about 600,000 in membership. I think as we go on that journey, we’re going to also be expanding our margin profile. We feel good about that. I think the sequencing of, you know, are we going to continue focusing on margin expansion, which the answer is yes, vis-à-vis growth?

Can we get to $7 or $8 billion in the next three years? I feel pretty comfortable with that, actually. Can we get to $10 billion? That’s going to require a little bit, you know, additional market expansions or, you know, any M&A. We’ll talk about that. We’re not going to do crazy M&A, so be careful. I think portability of new markets is a priority in the company right now. We have so much lessons learned that we’re being very disciplined about where we go, with what partners do we go, do we have the right broker distribution network. We’re finding that our STAR ratings are solid, really good. The care model is portable through the 80K. Of all of the ex-California markets, the 80K is really even better than California.

The margin expansion opportunity for us outside of California is even higher than in California because we don’t have the same degree of IPAs that we work with. Right? When you work with IPAs, either globally capped ones or shared risk ones, there’s some margin that’s flowing through to them, which is fine. Outside of California, we pretty much are the IPA, and the margin profile is even better. Nevada is growing nicely. Nevada, I think, is going to take off this year. Arizona, I think, is doing well. Texas is doing well. North Carolina, all the markets are starting to get toward 10,000 members or above, and in some cases, even close to 20,000. We’re starting to get the kind of the reputation in these markets. It takes about three years. Excuse me. It’s starting to work.

That’s given us the confidence to do what we also said we were going to do, which is we’re going to fund any new markets through free cash flow from operation. We’re a year early on that in 2025. Again, very disciplined, very controlled, consistent, reliable kind of growth and margin expansion.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: You do continue to outperform on STAR ratings. 100% of your members are in 4-plus STAR rating markets. There are upcoming changes to the STAR ratings program. How are you going to continue to maintain that differentiated STAR ratings platform?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: For those of you that don’t know, the plan preview two on STAR ratings came out yesterday afternoon, which is why you hear some of what the other MCOs are starting to share what they think their STAR ratings are. What happens is they give you a plan preview, and if there’s any disagreements or discrepancies between your data and CMS’s data, you talk about it between plan preview two and the end of the month. October 1 is when I think the final STAR ratings and plan finder come out, right? We’re in that process right now. I can share with you, I think I can share, I got legal counsel here, I think we can share, based on plan preview two, we will still maintain at least 100% of the members at four stars and above.

We’re working on even improving that, but I’m very, very comfortable with that. 100% will be four stars and above throughout the company. You’re going to have some increases in a couple of markets also. Just to remind you, we have five stars in North Carolina and Nevada now. We’re working on moving toward that five-star rating in other markets. We’re pretty happy about that. I think the key to this is STAR ratings is not a departmental function. STAR ratings is an enterprise-wide cultural commitment to actually doing what STAR ratings is intended to do, which is take care of seniors, right? Make seniors happy. Take care of them, that their customer satisfaction be good.

I think that as we have taken more and more control over some of the key functions associated with how we manage medical management, vis-à-vis what we’ve done in the past, which we’ve delegated to some of these IPAs, the more that we’re taking over a lot of that, you’re going to see a stronger performance across some of our cap scores. I think that’s already starting to manifest itself this year.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Let’s talk a little bit about priorities for 2026. You mentioned expansion. Please.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: They are not going to get easier. I think they’re going to get tougher. I think one of the things to think through for us is how they’re thinking about health equity index and how that impacts reward factors. Our California business is four stars now, and we get no reward factor. I think based on the calculations from the health equity index, that we think we’re very well positioned to get a reward factor. I think we’ve publicly said we think that could be worth up to 23 basis points. That would benefit us in that regard. With respect to cut points, we just got the plan preview. We’re still waiting on some of the details on the cut points.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Let me make sure that I do take any questions from the audience. If anybody does have a question, please do alert us. Please.

Unidentified speaker: Expectations. Do you expect, right, you’re going through 2019, you’re going to go through the next five years. When we get preliminary rates in January, February timeline, and final, do you expect any type of B30, like some other coding changes to be implemented where, you know, we got very excited over the trend assumption that catching up to the industry with V28, do you think there’s something else that could potentially come?

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: The answer is I don’t know. That’s the real, I don’t know. I know there’s been a lot of discussion at CMS around looking at the risk adjustment model, potentially just making it more modernized. For those of you that know, I mean, this existing model was developed 20 years ago, literally 20 years ago by Dr. McClellan. It was based predominantly against fee-for-service data. Twenty years ago, Medicare Advantage represented about 15% market share of total seniors in the market. Today, it represents 53%. Over the last 20 years, MA has really taken off in terms of market share acceleration. That creates an opportunity for people to look at how that data is going to be reviewed differently. My hunch is the administration is going to kind of, with V, they kept V28 intact. Did they make any changes to the V28?

That was something that they could have done. They’re going to keep V28 intact. They’re going to implement RADV audits, both of which I think is really good because it normalizes the playing field. I think you think about, are they pro-MA or not pro-MA? They look at the benchmark rates. They give you 9%. What I think is happening is good for the sector. Clean up coding, eliminate the gaming, support it with benchmark increases that account for some of the utilization increases you’ve talked about. If you think about what happened in 2012 to 2024, when the last time they had, we went through this cycle, everything just went up once they cleaned it up. That’s what I think is going to happen. I would not bet against MA. Anybody that bets against MA loses.

The market forces of, you know, the aging seniors is not going to slow. I think the market share penetration, the slope will kind of flatten a little bit, but market share is still, I think, is going to be, you know, 65%, you know, when it’s all said and done, of MA in terms of total seniors. I think seniors are going to keep going up. MA percentages keep going up. I think that the value proposition to seniors, as measured by benefits relative to fee-for-service in each market, is still material. Even though it’s lower than in the past, it’s still material enough to increase that market share. Steve, did that answer your question? I’m not sure what that means. Yeah, I’m not sure that’s just a California phenomenon.

I think that the product design around, if you’re talking about HMO versus PPO, yeah, I think you’re going to see a lot of PPO exits when all is said and done, PPO exits in markets. I think that’s an industry-wide phenomenon. I think you’re going to see more HMO across the board. I’ve just paused on the word gatekeeper because I haven’t heard that in like 40 years. Forty years ago, you didn’t have STAR ratings, right? If you’re denying care or blocking care, your STAR ratings are going to suffer. We kind of think about that in the context of concierge services, actually, meaning you can’t think of the PCP as blocking or being a gatekeeper. You have to support that PCP and make their practices better and more efficient. That’s where this whole care anywhere model comes into play.

I think you’re going to see PPO exits across the board.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: We only have about half a minute. Can you just quickly summarize what you’re expecting to see for 2026, what your priorities are? You mentioned M&A, so we have to get a comment on this.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Yeah, I think, I mean, as you can imagine, we’re looking at a lot of potential M&A opportunities, being very, very discerning. You know, our board is like, you guys are doing really, really well. Don’t create problems for yourself. Having said that, we’re looking at membership that have overlay networks to ours, where the integration is pretty easy. We’re thinking about it. I would say we’re being very, very discerning around that. I would say for 2026 and beyond, we feel really good about our growth and AEP. We feel good about STAR ratings. I think our core operational system implementations are going really well. I think the operating leverage opportunity is good. One thing around M&A that I’ll touch on that’s kind of new to what we’ve shared with you is in the context of captives. Captives.

The large MCOs right now have, most of them, I would say, have captive businesses that are ancillary in nature. Ancillary or supplemental benefits. So dental PPO, behavioral HMO, transportation, flex card fulfillment, all those kinds of things. Surprisingly, those account for like 5% of your MLR. 5%. Right? We’re sitting at whatever, 87-ish, 87, 88% MLR. 5% of that is supplemental benefits. That’s kind of an industry-like phenomenon. They have captives already embedded into their MLR. We don’t. We’re paying external vendors for that 5%. We’re at a size now, we’re big enough that we can start investing in or buying some of these vendors ourselves. We’re paying ourselves. For example, if we went out and bought a small dental PPO, this is just an example, and then we would seed it with 250,000 lives right off the bat as customers. Everybody, that’s a very accretive win for everybody.

I think you’re going to see margin expansion opportunities for us in the context of a focus on 2026. Ultimately, if we own all of that supplemental, ancillary kind of captive, we’re going to improve our MLR by up to 5%. I think if we can do that and we’re going to maintain our advantage on just medical management, which to me is the core of what we do, is medical management, I think the opportunity for us to improve our bid position will even be greater. The bigger we get, the stronger we’re going to get. Add that to the embedded earnings potential associated with the gross margin expansion. I think that’s the big picture. We feel very well positioned, if that makes sense.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: We are out of time. Thank you so much for being here today, John and Jim.

John Kao, Founder and Chief Executive Officer, Alignment Healthcare: Thanks, everyone.

Sherry Mowry, Runs the U.S. Healthcare Investment Banking business, Morgan Stanley: Thank you.

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