Oscar Health Aktie

Okay. Well, thank you for joining us for the next panel. We're really pleased to have Oscar Health with us for the next panel. I'm Scott Fidel, I'm the health care services analyst here with Goldman Sachs.

Joining us today from Oscar, we've got Scott Blackley. He's the Chief Financial Officer. And then also, we have Bianca Rodriguez from Investor Relations, who is also in the audience with us today. So first of all, Scott. Great to see you and welcome to the conference. It's great to have Oscar and it's great to have you here as well.

We've got a nice list of questions and conversation that we're going to have. But Scott, I thought maybe first, you did have an 8-K out this morning, and had sort of an allusion to a business update. I'm sure we'll get into that. But maybe I'll sort of kick it over to you if there's any initial comments you wanted to make and sort of set things up for the conversation.

Great. Thank you. Good morning, everyone. Yes. So why don't we start off with just a quick update on where we are with the business as we've closed out the month of May. I would say that '26 is off to a very strong start. We spent several years planning for how 2026 was going to play out with the expiration of enhanced subsidies. I think a lot of that planning work that we did is showing up in the results that we're seeing.

As you talked about, Scott, we did file an 8-K this morning and just reaffirmed our full year guidance. But behind that affirmation of our current guidance, we do see some pretty healthy tailwinds in the performance of the company.

First off, I would just say that when it comes to membership, we continue to see trends as expected. So we finished open enrollment with 3.4 million members. That migrated down to about 3 million members at the beginning of Q2, and things are proceeding more or less as we would expect from there.

On utilization, utilization through May has been and continued to be modestly favorable to our expectations. So continue to see strong performance there. And then another important update, we did receive the final 2025 Wakely report. This report is based on the actual data that the carriers submit to CMS. So it tends to be the most accurate weekly report of the year. And that report was $130 million favorable to the accruals that we had booked in the first quarter. So a pretty significant tailwind to where we were at the end of the first quarter.

So I take all that together, I think there's some pretty strong tailwinds. But given that we still are waiting for the first 2026 weekly report, which gives us a bit more information about the market morbidity this year, we are holding off on making any updates to our guidance at this point in time. But I think we go into the quarter close this month with a pretty strong tailwind.

All right. Well, great. Thanks for those updates. Scott, that's encouraging and also helps to provide some nice visibility into trends year-to-date. And certainly, those are three topics that we were going to want to discuss. So to the extent that we can drill further, looking forward to doing that.

Just first on the first formal Wakely report, the June report. Can you just -- to the extent of -- I know it's coming in June, what's -- where would you sort of guide investors to in terms of to when expect that report would come out?

Yes. So we tend to get the Wakely report -- the first one we'll get here, we should receive it at the end of this month. We'll run -- we'll have claims through April. And then each report has claims for an additional 90 days. So we tend to get a report from them every month. And obviously, the first report has got a light amount of claims data. And so it is -- we typically look at it as just indicative of how does it compare to our expectations.

Last year, we saw that market morbidity was certainly accelerating in a way that the market hadn't expected. So it can give you information even though it's early. So we will we should have that report again by the end of this month, and we're looking forward to seeing it because a lot of what had the research that's come out from third parties, our own claims data, is suggesting that market morbidity in '26, which we all went into this year with assumptions that it was going to increase pretty dramatically. It looks a lot of the early signs are suggesting that it is probably going to come in a bit lighter than what we all expected, which would be good news for us.

In fact, Wakely had published an early report on market morbidity market sizing in April. And that report had a range of market morbidity, which actually was lower than what we had built into pricing. And so if indeed, we see that market morbidity come in favorable as the Wakely early report had suggested that gives us an opportunity for some upside for the year.

Yes. And maybe we'll even step back and we'll just -- let's -- why we just stay on Wakely since we're already there and just sort of make sure that we cover each of the steps and sort of getting to where we are now. So first, going back to that final 2025 report. And like you said, it is while it's a 2025, it has earnings implications, as you just talked about. Maybe can you provide us some more information visibility around -- the particular input that ultimately informed those revisions to your accruals when thinking about sort of data, sort of what you saw around the overall market and around morbidity and around the risk profile of the market and then relative to how you were assuming that for Oscar versus the market, and then we'll sort of move to the interim report.

Yes. So the '25 report that we got, typically, there's not that much variability between the final Wakely report and the final CMS report, which will come out later. So from here, don't expect, at least historically, there hasn't been much volatility. So we feel like that's a good estimate of how '25 is closing out. .

And I think that what -- the really good news about the Wakely report, I'll take the $130 million as a tailwind to the year, but seeing that market morbidity was not accelerating at the end of '25 as much as we and the rest of the market had expected. Like all of those assumptions ultimately got built into our guidance, got built into our pricing. So while it's a positive for our prior period development is also a persistent tailwind to '26 because of the way we thought about market morbidity and our pricing.

The -- I'll just comment on overall risk adjustment, as you know, is the most challenging part of our business to predict. We have to predict our own risk scores, and we have to predict the market risk scores. Seeing '25 and how '25 is coming out also gives us an additional lens for predicting '26. And so it helps us to refine our models to understand better what's going on a state-by-state basis. and to be able to kind of be ready to receive that first Wakely report.

And then how much do you discount? Or are you able to bridge some of the unique dynamics around '25 versus '26 just given the more extreme or material sort of change in the marketplace just because of the sunset of the enhanced subsidies and the resulting particularly sort of changes into sort of metal level products that we've seen play out so far this year.

Yes. The -- I think for '26, we have as an industry. I think we have more information about market morbidity earlier in the year than we've ever had. The Wakely report that I think we and others sourced information gave the -- we gave that to Wakely early in the year, which they took and then gave back an early read on what is market morbidity looking like for '26. It's the first time we've all had that report.

We also got additional third-party data about our incoming membership, which gave us much more information about the risk scores and the potential utilization of our new members. So we walked into this year, I think, with more information than we've ever had about the membership.

Since then, just the read-through from first quarter, it looks like we didn't see any of the competitors that had called out significant pressure on utilization. Our results were -- our utilization was favorable to our expectations as well. So when I kind of take that information in the aggregate and look at how is '26 playing out, there -- I keep looking for some piece of bad news about '26, market morbidity. And at this point, I just haven't seen any.

Yes. Well, I mean relative to the -- I think the fear levels or just uncertainty around how much the market could see a deterioration in the risk profile because of the loss of the subsidies and then the sharper premium increases. It's certainly encouraging to see that.

And Scott, can you -- to what extent can you sort of line us up with that in terms of that favorable underlying sort of variance around morbidity relative to maybe some of the assumptions that you had before that were in the accruals. And then again, I think also consistent with how the industry was thinking about things, in terms of like what are some of the underlying inputs into what you're seeing that's coming in more favorable? Is it in terms of demographics of the membership in terms of sort of the product, again, sort of shifting more into the products that ultimately -- I mean, again, that's may actually affect some of the utilization dynamics which we'll get to. Are there any particular characteristics that sort of jump out particularly?

Yes. I would say that given the amount of change that was happening in the marketplace with the expiration of enhanced subsidies I think we and others, including the consulting firms were probably as conservative as we could be in terms of trying to estimate what the effects of the loss of those subsidies would be on the marketplace.

I think that Oscar has been working backwards from an assumption that the subsidies would expire in '26. That was when we did our last Investor Day a couple of years ago now, that's the guide that we came up with is in the event these expire, here's what's going to happen, we were hopeful that they wouldn't, but we were planning for the worst-case scenario that they would.

And I think that, that has allowed us to really approach the market from the lens of what are the right products that need to be in this market if those subsidies are gone. And that really informed how we built our bronze plans, our gold plans and, to a lesser extent, silver because what we're trying to do is to make sure that we had plans that could give those individuals that were able to maintain benefits or some type of subsidy, a landing spot where they could go to gold and get rich benefits using the subsidy dollars that they had. They could go to bronze and get potentially a cheaper plan, not have an out-of-pocket increase but still maintain coverage. And that strategy was really successful in both allowing us to retain our own members but also collecting a lot of members from other plans that are new to the marketplace.

So really, I think that when we look at what happened this year, you did see a fairly significant change in metal demographics. And at least in our case, that was very intentional something that we had worked for quite a long time, and we think that was a huge reason for the success this year.

Well, certainly, what we're talking about right now is going to have, I think, pretty meaningful implications for how you're thinking about '27 strategy. So we'll -- let's put an asterisk on that. But I first want to sort of fill in the updates that you provided and sort of continue to sort of build out that mosaic of the inputs to '27. So I think this is a good transition towards utilization. And I very much appreciate you giving the update so that we can actually talk a little bit about some of the backdrop around utilization and certainly not a significant surprise to hear that the bias may be more towards favorability just in terms of what we're hearing out in the market and with all the checks that we do.

And then obviously, the rest of the Street does as well. I guess to start with, Scott, can you -- any more additional layering that you can give us around just when sort of as that sort of bias towards favorability in terms of the cost components or the key provider settings? Are you generally seeing it sort of broad-based? Or -- are we seeing -- clearly, it feels like on the hospital front, we've definitely felt like things have maybe sort of come in little bit more than the hospitals expected, but I don't want to put words in your mouth. What you're seeing out there?

Yes. I think I'll save the details of the categories of utilization for our full quarter update. But I would say that there's always puts and takes that you see along the way. So we are seeing exactly that. There are some areas that are running really quite favorable. There's other areas that are running a little bit unfavorable in the aggregate, which is what I really focused on, we're seeing utilization that is kind of persistently grinding favorable each month. And so that's a real positive.

I think that there's a question about how much is AI in the background starting to affect whether it's hospital systems or the way that Oscar [Audio Gap] utilization. We've been working to sure that we remove friction from our member experiences. And that's always been kind of, as you know, the entire history of Oscar has been built around that concept. And I think we've been pretty methodically doing that over a number of years, but we're really starting to see some of that kind of working its way through towards more predictable utilization patterns because we know what type of things go straight through and get approved by us, what things need to actually go in for a clinical review. But it is something that I think you're starting to certainly see the hospital systems using more AI to help them with coding charts. And so I think that potentially a lot of this utilization favorability can be kind of attributed back towards just more efficiency in how we all manage patient interactions.

Okay. All right. And then getting back to just the membership dynamics and how that's tracking. So it sounds like things are right on track with your book of business is there? How would you characterize the overall market at this point? It feels like from our perspective, that we're probably right in that mid-20s type range if you sort of aggregate everything that we've seen in terms of down mid-20s, and I know that's part of the range that you provided as well. Is that still sort of makes sense to you? Or are you [indiscernible] in this direction?

Look, I think that our estimate was that the market would contract by 20% to 30% in 2026. We priced morbidity assuming a 30% contraction. And that currently, our risk adjustment accruals are based on that pricing view of a 30% market contraction.

Just like you, I read everything I can get my hands on. I just see nothing in any of the competitor data, our own data, third-party kind of reviews that would suggest that it's going to be at the higher end of the range that we provided, the 20% to 30% range. So we'll see how it all plays out. I'm super excited to see this Wakely report just because while we think we've got good data that's going to help us understand how the year is going to play out, seeing that first confirmatory report will certainly give us even another layer of support behind starting to lean in and feel like, okay, market morbidity is going to come in below where we had all expected.

So let's talk about sort of where we sit right now. And to the extent that we can sort of tease out some of your thinking around the outlook for '27 and some of the key variables that may be in consideration around game theory and around how you're going to position pricing and how competitors are, so I mean, there are some interesting cross currents here, right? Because certainly, it feels like the market is performing better than feared so far this year, obviously, we're coming off of a pretty dynamic, pretty brutal last year for the sector in the exchange market, but also more broadly in, all the key markets on the government side.

So margins have certainly been beaten down in our view is that the industry is sort of in that inflection towards cyclical recovery across some of these markets. We're seeing some of the key things that we track are certainly around capacity as part of our sort of different key sort of critical inputs on the underwriting cycle. And it's definitely sort of as would be expected in terms of this late sort of cycle sort of period, we've been seeing more announcements of market exits from carriers and more from regional and provider-sponsored carriers, the types that we would generally expect, but it's a steady tempo there. And so I want to sort of get your opinion on sort of to what extent that capacity dynamic sort of may influence your thinking.

But ultimately, I think it's -- like, ultimately, it's like the big sort of choice or pick right is going to be like, are we going to -- are competitors going to pivot back to already sort of looking back to get on the growth side, more on the exchange side after seeing some of this favorability? Or is it the broader sort of pressure that the industry has faced across multiple lines? And again, still a market that is shrinking 25% and has a lot of underlying sort of variations going on in it you think that, that ultimately keeps a disciplined sort of balance around that price versus margin. And there's a lot in there, but there are game theory that you may be thinking about it at this point.

A lot to unpack. And so I would say '27 has some new set of regulatory requirements for the marketplace. As we think about pricing for '27. Trying to figure out how are each of the different new regulatory standards going to affect the size of the market. we did see another piece of litigation come out that last year, many of the program integrity efforts that CMS was trying to put into place ultimately got stayed by the courts. And a similar lawsuit was filed recently, same court systems, challenging some of the new rule-making that CMS has just released.

So there's a little bit of a lack of -- while we know what the final rule proposal is, and we're working to build that into our pricing, we're also going to have to be thoughtful about having an alternative pricing scheme that says, what if some of the current proposed -- or some of the current regulations ultimately get stayed again.

So they are meaningful enough that you would have a...

I think that it would -- I think that there's some important things that would cause us to need to adjust some of the key inputs that go into pricing. So we'll be carefully monitored in that.

When would you expect to have visibility into that? Or is it...

That's a court matter, and we would be hopeful that it gets resolved quickly. At least they've get some precedent about from how it was handled last year. So there's some optimism that we could see this get rapidly resolved. But like all things, in the government, surprise is probably more likely than not. So we'll keep a close eye on that.

I think that the thing that I learned most specifically about 2025, my biggest takeaway from that is when you know what is coming, even when the changes are pretty significant, and you are -- we are able to price those into the assumptions that we use. And actually, within a relative range, we're able to predict what's going to happen in the marketplace. When things change midyear is when it gets pretty bumpy. And when you have a lot of midyear regulatory changes or midyear membership changes in who's allowed to access the marketplace. Those are the things that I think create the most volatility. So I'm pleased that we're going to try to get some of these things for 2027. It looks like we'll have clarity on how 2027...

And at least this year, too. There's not all that exact SEPs exactly what you said.

While it may seem like it's more dynamic, I actually view it as being a bit more structurally consistent each year where we know kind of what is happening in the year. We're able to price for it. So that gives me some optimism about being the predictability of the market. [Audio Gap] exited. This is a very hard business [Audio Gap] incredibly important.

I think that for what you see is those who have been in this business and are staying in this business tend to have networks that are built neural networks. Some have Medicaid chassis. We've gone to the market with more of an approach of let's build neural networks. I think that you've seen others who've tried to use a commercial network, just struggle to be able to be competitive with that type of backdrop. And so, there are some carrier exits this year. We have a pretty good overlap with the markets where those carriers are. So that gives us an opportunity for '27.

But overall, I think that the -- '25 was a tough year for everyone. I'm not sure that '26 is going to be quite -- that we're all going to conclude that we've completely recovered to where we need to be. So I know that when I look at the marketplace and I think about how we're approaching pricing, I would characterize it as competitive, but also this isn't a marketplace where you win by being significantly the lowest price because that just doesn't get you anywhere. So I would expect it to be a rational market in terms of pricing.

Got it. I have one more question on the exchanges, and then I want to sort of open it up to see if there's any questions in the audience. And then we'll see how much Lucie and ICHRA we can get in with the time.

The final question on the exchanges is just around, again, that's sort of where we stand with market and program integrity and the numbers that we continue to still see around sort of how much of proper enrollment may or may not be in the market Paragon, just put out their update? And they're still calling that very substantial relative to -- especially with the -- against the size of the exchange market this year versus last year.

Obviously, Oscar has a tremendous amount of technology, sort of monitoring things for our [Audio Gap]. What's your observation on maybe just sort of that the Paragon view or just the general, like, let's say, more much more cautious view on some of those -- the accuracy of all the enrollments that are in the market?

Well, look, I think that the Paragon report clearly has a lens that they're trying to paint on the marketplace. They start with the 23 million open enrollment and use that as their proxy for how many people were inappropriately enrolled. We think that's more likely should be -- your starting point should be kind of the post, and so there's already inflation.

And it's also based on some census data that is known to be it's lagged. It -- the census themselves will say that they are very ineffective at capturing data for low-income populations, and immigrant populations. And I think that's -- those are important pieces of data in terms of what's going on with the marketplace. So I think that we know the folks at Paragon, they're obviously smart people, but I do think there's a little bit of a purpose for their report.

When we look at things, our view is we think that a stable marketplace is best for all the ACA participants. It's the best thing for Oscar. And so we support thoughtful program integrity initiatives. We think they're good.

In our own book of business, we do bring AI to look for anomalous patterns amongst members, amongst brokers. When we see those things, we suspend brokers if we see patterns that we deem suspicious. We have a constant dialogue with CMS about anything that we're seeing. So we try to be very front-footed in protecting ourselves in the marketplace from fraud. If we think that there's suspicious behavior amongst members, we don't recognize the revenue on those members. So we're trying to make sure that we set the company up to be successful in a world where we're we want to be a market leader in making sure that this is a clean and healthy marketplace.

Great. Well, we probably have time for a question or 2 from the audience if anybody -- has any anything that cares about?

Yes. The question being with as much power as the current administration has to create rules, what happens if you see a change in administration and how likely is it that we might see a flip flop?

I'm sure there's a handful of initiatives that if we did see a different administration and power at some point in the future, certainly, they would have their own set of agendas. What I think that will likely be sticky as some of the program integrity initiatives that have been put into place. So I would expect to see those continue I think some of the expanded open enrollment or SEP type of characteristics that were put into place during COVID. I don't think those will be -- we'll see those returns. So I don't want to get too far ahead of ourselves, but I think that the parameters of what can be -- what would be different are narrower than maybe they've been in the past because I think the market is going to be more stable going forward.

Well, great. Well, I think we're right at time. So we're going to pause the session there. And Scott, I want to thank you so much for joining us and hope the rest of the conference goes well for you.

Really appreciate it, Scott. Thanks for your time.

You're welcome.

All right. Take care.

Good morning. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations.

Good morning, everyone. Thank you for joining us for our first quarter 2026 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar Health's Chief Financial Officer, will host this morning's call. This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website at ir.hioscar.com.

Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our annual report on Form 10-K for the period ended December 31, 2025, filed with the Securities and Exchange Commission and other filings with the SEC, including our quarterly report on Form 10-Q for the period ended March 31, 2026, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the first quarter earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2026 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable without making unreasonable efforts to calculate certain reconciling items with confidence.

With that, I will turn the call over to our CEO, Mark Bertolini.

Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar Health announced strong first quarter 2026 results with year-over-year improvement across all core metrics. Oscar reported revenue of $4.6 billion, an increase of 53% year-over-year. Our SG&A ratio improved 60 basis points year-over-year to 15.2%, driven by disciplined expense management, top line growth and the growing impact of AI across our operations and member services. MLR improved 490 basis points year-over-year to 70.5%, with utilization largely in line with expectations. We delivered $704 million in earnings from operations, an increase of nearly 2.5x over the same period last year.

Oscar is the largest carrier fully dedicated to the individual market. Our tech-first approach, ability to efficiently scale the business and deliver measurable value to our members positions us for continued expansion. We are reaffirming our full year guidance and remain on track to deliver meaningful profitability in 2026.

Before diving into our business highlights, I will share our early view on trends in the individual market. The individual market is resilient at 23 million lives and is a fundamental pillar of American health care. Consumers now expect to shop for coverage like they do for everyday products, comparing options, prices and value. The individual market has the opportunity to deliver that level of choice and transparency. We are working with federal and state policymakers to advance policies that strengthen transparency while increasing product choice and innovation with consistent quality across plans. While early in the year, initial reports show market dynamics are in line to favorable to our expectations. Wakely's new report shows market contraction is tracking in line to favorable to our 20% to 30% estimate. We took a cautious approach to risk adjustment in the first quarter. Our reserves are built on market morbidity assumptions consistent with our pricing. We look forward to further clarity with the first 2026 Wakely report in Q2.

The health care landscape is undergoing a major structural shift. The small group market is contracting and consumers are rejecting the legacy model. Oscar is shaping the individual market to meet the needs of the modern workforce, including entrepreneurs, gig workers, part-time employees and early retirees.

Now I will review our business highlights. Oscar ended the first quarter with 3.2 million members, an increase of 56% year-over-year. Our innovative and affordable plan designs and superior member experience are fueling strong growth and retention. Our record membership underscores the strength of Oscar's strategic plan and positions us for sustained growth and meaningful profitability. Oscar is rapidly evolving our technology and deploying AI use cases at ever-increasing speed to drive growth, lower costs and help members make smart choices. We recently launched several new transparency tools, including a real-time drug pricing feature that predicts when costs may cause a member to abandon a prescription. The tool instantly cross-references deductible status, local supply and pricing and guides members to lower-cost pharmacies or equally efficacious alternatives in the network.

We are also scaling new bilingual voice agents to support care navigation and improve speed to care. ICHRA is gaining traction as employees demand choice and flexibility and employers seek predictable health care costs. Oscar recently brought the industry together to launch ICHRA X to meet the rising demand. ICHRA X will be a plug-and-play data exchange connecting carriers, benefit brokers and ICHRA platforms to create a more consistent employee experience. States like Mississippi and Illinois are taking steps to incentivize ICHRA adoption by giving tax credits to businesses. Oscar is now working with other state legislatures and business groups to advance similar ICHRA policies that support local economies and reduce the friction of traditional employer coverage.

Building on this momentum, we recently launched the Lucie Health Marketplace. Lucie is a carrier-agnostic shopping platform for consumers, brokers and employers built on 1 of 11 CMS-approved systems. Lucie brings together a wide selection of ACA plans with leading ancillary and supplemental products like Aflac. We are combining our technology capabilities with individual networks in nearly every ZIP code nationwide. This broad coverage network allows consumers and brokers to shop, bundle and build their own personalized coverage in a few clicks. We will continue to add more AI solutions and health services on the Lucie platform to bring more people into the individual market. Lucie represents a key step in our long-term strategy to build a consumer-driven health care market.

In summary, Oscar Health is off to a strong start in 2026. Our innovative technology products focused on user experience and disciplined execution are delivering clear results. No one understands the individual market better than us. Our strong results in the first quarter are ahead of plan, and we are well positioned to meet or exceed our current guidance. We expect to significantly expand margins and achieve meaningful profitability in 2026. Oscar is unlocking even greater possibilities in the individual market. The entire U.S. economy is modernized except health care. It is the only major market where consumers are stripped of their purchasing power and have 0 visibility into cost or quality.

Our team is arming consumers with technology that puts them in control. Today, it's about choosing the medical coverage that fits your needs. Tomorrow, it's about making all of health care shoppable. Oscar is shaping the new consumer health economy to lower costs and make health care work like every modern market. Thank you to the Oscar team for making our vision of consumer-driven health care a reality. I look forward to sharing more details on our long-term strategic plan at Oscar Health's Investor Day on September 16.

I will now turn the call over to Scott. Scott?

Thank you, Mark, and good morning, everyone. This morning, we reported strong first quarter results and reaffirmed our full year 2026 outlook.

Net income in the first quarter was approximately $679 million or $2.07 per diluted share, the highest in the company's history. Our first quarter results position us well to meet or exceed our current full year 2026 guidance.

Let me now turn to details on the first quarter performance. We ended the quarter with approximately 3.2 million members, a 56% increase year-over-year. Membership growth was driven by above-market growth during open enrollment and solid retention. We started the second quarter with approximately 3 million paid members, in line with our expectations. Payment rates are consistent year-over-year and modestly favorable to our plan despite the sunset of the enhanced premium tax credits. Looking ahead, we continue to expect gradual churn throughout the balance of the year, consistent with pre-ARPA levels.

Total revenue increased 53% year-over-year to $4.6 billion in the first quarter, driven by higher membership and rate increases, partially offset by higher risk adjustment payable accrual. The first quarter medical loss ratio was 70.5%, a 490 basis point improvement year-over-year. The significant improvement was primarily driven by our disciplined pricing strategy, claims and risk adjustment seasonality from new member and metal mix and favorable prior period reserve development. The first quarter MLR was impacted by $68 million of favorable development, primarily related to claims run out from the prior year. That compares to $31 million of unfavorable development in the prior year period. Overall, utilization is largely in line with the morbidity of our book.

I want to spend a moment on risk adjustment. Medical claims were seasonally low in the first quarter, and as a result, we recorded a higher risk adjustment accrual. It is early in the year, but we are encouraged by the data we are seeing on overall market contraction and market morbidity. Our claims experience, coupled with third-party data on both new and renewing members points to market morbidity tracking in line to favorable to our pricing expectations. We continue to expect risk adjustment as a percentage of direct premiums to be approximately 20% in 2026 as new members engage with their benefits and members meet their annual deductibles.

Switching to administrative costs. The first quarter SG&A expense ratio of 15.2% is the lowest in the company's history. The approximately 60 basis point year-over-year improvement was driven by fixed cost leverage and disciplined expense management, including an increasing impact from technology and AI initiatives, partially offset by higher risk adjustment as a percentage of premium. Across all of our key performance metrics, we are seeing significant year-over-year improvement. We reported earnings from operations of $704 million in the first quarter, a $407 million year-over-year improvement. Operating margin was 15.2%, a 540 basis point increase year-over-year. Net income was approximately $679 million, a $404 million increase year-over-year. Adjusted EBITDA was $727 million in the quarter, an increase of approximately $398 million year-over-year.

Turning to the balance sheet. Our capital position remains very strong. We ended the first quarter with approximately $8.1 billion of cash and investments, including $279 million of cash and investments at the parent. As of March 31, 2026, our insurance subsidiaries had approximately $1.7 billion of capital and surplus, including $809 million of excess capital, which was driven by our strong operating performance. Based on first quarter results, we are reaffirming all of our full year guidance metrics. Total revenues are still expected to be in the range of $18.7 billion to $19 billion in 2026. MLR remains in the range of 82.4% to 83.4%, with MLR lowest in the first quarter and highest in the fourth quarter.

On administrative expenses, our SG&A expense ratio guidance is unchanged at 15.8% to 16.3%. Earnings from operations are still expected to be in the range of $250 million to $450 million. As a reminder, we expect adjusted EBITDA to be roughly $115 million higher than earnings from operations.

In closing, we're off to a strong start to the year with first quarter results that exceeded our expectations. Record membership and strong financial performance reflect the actions we took last year to position the business for growth and meaningful profitability. We are well positioned to meet or exceed our full year guidance.

With that, I will turn the call over to the operator for the Q&A portion of our call.

[Operator Instructions] And your first question comes from the line of Jessica Tassan.

I guess my first one is just can you describe the first quarter behavior of the 200,000 or so members who fell off between 1Q and April 1? I'm curious if they were pulling utilization forward into the grace period or if they just kind of didn't utilize were they not aware they have coverage? And then can you just describe the accounting for any expenses incurred by that population in your first quarter results?

So I would say that for members who churned off, nothing unusual about any of the utilization patterns that we experienced in the first quarter. And those members, in general, the biggest portion of the drop-off really are people that never made a payment. And so we would not expect to see a significant amount of utilization for people that aren't using. And once that person goes into -- if a member goes into a delinquent status, we no longer pay claims that you have to pay in advance in order to be covered. And so once you go into delinquency, we wouldn't expect to cover any claims that might be incurred.

So really pulling up on that, everything that we saw in terms of member transition going from 3.4 million to 3.2 million and then starting the second quarter with 3 million members proceeded exactly as we expected.

Got it. So just to clarify for that population, you'd only reflect January expenses in the 1Q MLR. And then just my follow-up is, do you all agree with the Wakely assessment that market morbidity is up 2.9% to 6.5% in 2026? And then can you just describe where you think maybe Oscar's membership morbidity is trending year-over-year in '26?

Yes. So on Wakely, look, I think it's a positive development that this new report is out. What that report is really trying to do is to take early information and look at the morbidity of who was retained in the marketplace, who are the new members that came in and what might the risk scores look like for the people who left. And so that's the process that Wakely used to come to build that. I would say that it's very early in the year to draw conclusions about market morbidity, but we really are encouraged about the data that we saw in that report. I would describe it as in line to favorable with our expectations.

And when I look at our claims experience, kind of what we're seeing through that report and other reports, really does point to market morbidity that could be a tailwind for us this year. I would say that when I look at the risk adjustment accruals and other accruals that we booked, we have yet to take into account any of the potential favorability that is -- that we're seeing in some of these reports, and we build our accruals based on our pricing expectations. So we may have some tailwinds there as well.

Your next question comes from the line of John Ransom with Raymond James.

Just wanted to ask a question about SG&A. So your revenue was suppressed by almost 400 bps by your risk adjustment versus the 20% guide, but your G&A was 15.2%. Why would G&A go up if presumably you're going to get a revenue lift for the rest of the year with a lower risk adjustment hit to revenue?

And I appreciate the question. Look, I think that we saw obviously strong revenue growth, revenue growing at 53% based on the headline numbers, higher than that, as you said, if you normalize for the risk adjustment. SG&A grew at 46% in terms of SG&A dollars. So we are clearly seeing leverage coming through. I would say the first quarter SG&A ratio is likely to be the lowest for us during the course of the year. There's a little bit of just a dynamic as we grow membership and have some open positions at the beginning of the year. There's a natural kind of flow as we normalize the business for the higher membership. So we'll see that kind of growth throughout the quarter.

I would think that from here, we'll probably see membership or SG&A ratio moving sideways to slightly up. And the fourth quarter tends to be a little bit higher as we start to pick up expenses associated with OE efforts. So I continue to think that there's a lot of opportunity to continue to drive performance and improvements in SG&A even at the low levels that we achieved in Q1.

And I would add, John, that taxes and fees are pretty much fixed for us based on the level of membership. It's 9% to 10%. So we're looking at the variable piece that we can manage versus that fixed piece, which we literally is kind of a tax for being in the game.

And just my second question. Your old guide, I think you hinted at this, but just to nail you down, the membership in 2Q, I think you talked about 3 million. Is that still a good number to start with in April?

That was our number April 1.

3 million.

Your next question comes from the line of Andrew Mok with Barclays.

The risk adjustment transfer as a percentage of premium is tracking around 24%, but you continue to expect the full year to be 20%. Can you help us understand what's driving that higher now and why you're expecting that to moderate throughout the year?

Yes. So medical claims were in the first quarter, seasonally low and were also favorable to our expectations. Given those low level of claims, we have a natural offset, which is when your claims content is suppressed, then your risk adjustment ends up being higher. So it's just -- it's a little bit of a trade-off there. We do have a higher portion of new members in bronze plans this year. That's driving some of the seasonality that we're seeing in claims. We expect that we'll get to that 20% during the course of the year as those new members and use their benefits and as members with higher deductible plans like in Bronze start to hit those deductibles. So over the course of the year, I would expect claims to normalize, and that's how we'll see the company get to the 20% that we are projecting for risk adjustment.

Got it. Maybe just a follow-up to that point, like given the combination of higher Bronze mix and Silver buydowns, what are you experiencing with the Bronze mix behavior at this point? And how does that compare to historical behavior?

Look, I think that the -- as we've said, the metal mix, we try to make sure that all of our metals have targeted profitability and that we're not having one perform at a really high level and others that are drags for us. So at this point, and we're talking about 15% of claims that have...

15.4%.

15.4%, Mark always reminds me. We're early, early days, but everything we're seeing, whether it's through utilization, authorizations, actual claims suggest that the risk of the membership that we have is in line to favorable with what we would have expected. And we're not seeing any patterns that cause us to believe that there's anything here that is unexpected.

Your next question comes from the line of Scott Fidel with Goldman Sachs.

This is Sam on for Scott. We were just wondering, what are the key swing factors remaining that could materially shift your view on 2026 EBITDA in the second quarter and then going into the second half of '26?

It's largely the Wakely numbers and risk adjustment. And given if you look at the year-over-year differences between our risk adjustment at this point last year, which was 11%, Scott, and we're now at 24.5%. We've begun to accommodate for what we believe to be the risk associated with morbidity and we put that into our numbers and still generated these returns. And so from our point of view, that's the number that we wait for. And obviously, claims will develop more fully by the end of the second quarter, and we'll have a pretty good pinpoint spot on...

Your next question comes from the line of Jonathan Yong with UBS.

Just going back to the risk adjustment again. I guess, would you say the risk adjustment was just more a function of the claims data that you're kind of seeing so far? And just to be sure, there's no sweep or cleanup related to 2025 accruals within that? And then I guess alongside that, did the Wakely data influence how you came to the 24% about?

Yes. So maybe take those 2 things separately. So the -- the 24% risk adjustment level is explicitly being driven by our claims experience. As I mentioned, our risk adjustment reserves are still based on the market morbidity assumptions that we went into pricing with and that we set our guidance with. And so we have not made any adjustments for some of the favorability that we see in the Wakely market morbidity report. So again, that could be a tailwind to us, but we're waiting to see more signals before we lean into that.

And on PPD, we did see some in the last Wakely report that we got for 2025, we did see a couple of states that had adverse development there. That totaled up to about $85 million. So we reflected that in the quarter. We did have some other states that have some positive developments. We chose not to recognize those and wait for the final report. So we feel like we balanced the risk in that department. We also had favorable claims run out to a pretty significant degree of $150 million. So net-net, our PPD was favorable $68 million in the quarter. And when I look at the combination of those factors, I'm always happy to have favorable prior period development as a gift in the quarter. But I think there's also kind of a longer tailwind that comes with that because we did use those kind of risk levels and reserve levels in building our pricing for '26. So those tailwinds, we think will transition beneficially over the year.

And one note I'd make, Jonathan, on that is that the Wakely report we received doesn't include experience. It really just includes some of the same demographics and things we've looked at in prior years on our own basis. So it was nice to have some outside verification of the way we view the marketplace from a morbidity standpoint. So it's not really all that tight the way we would see in a regular report on claims. It doesn't include claims.

Okay. Great. And then I guess to any emerging utilization -- well, actually, let me go back to the first quarter. Did flu or weather play any factor into kind of the beat? And was there any emerging trends that you're just kind of keeping an eye on at this point?

Flu was sort of okay. We had a worse flu quarter than we had in the fourth quarter. I haven't talked about flu in the first quarter call in like a decade. But flu was okay. The weather was fine. We didn't see anything abnormal in our results. And we looked at claims submissions and lags and the whole routine with our team and the experience has been better than we anticipated, but we have not booked all of that.

Jonathan, just to add to pile on there. I think the most insightful thing about utilization patterns is the lack of interesting utilization patterns.

Your next question comes from the line of Michael Ha with Baird.

This is Olivia Miles on for Michael Ha. Do you expect that the outlook on risk adjustment provided in the upcoming June Wakely report should likely remain stable through the rest of the year? Or are there any other puts and takes, particularly with the increased members in bronze plans that could cause industry-wide volatility in risk adjustment in the second half to materialize differently than in historical years?

I think that we sit here at this point in the year with more data than what we've had in any of the preceding years. I think the new Wakely report is certainly, as Mark talked about, it's -- it gives you some level of information. Obviously, we'll all wait to see how claims performance actually develops. That will be the most important factor that will ultimately tell us what's going on with market morbidity.

When we look at all of the metrics that we have at this early point in the year, and we calibrate those against external data points, I'm pleased with where we are versus market morbidity. I think almost all the signals are pointing towards favorable market morbidity development versus where we entered the year. We'll have to wait and see there. And as we all know, each sequential report that you get from Wakely improves your confidence and visibility into where the full year is going to settle. We think Q2 will be an important first report because it will be really the first time we'll see from a claims perspective, what is market morbidity looking like. But again, we see primarily favorable signals when we think about market morbidity.

And congratulations on the recent announcement of the Lucie Health Marketplace. Looking to dive a little bit more into the financial impact of this model, both in 2026 and in future years. Can you please provide some details on if revenue or an EBIT contribution from Lucie is contemplated in 2026 guide, how you're expecting to grow and scale this platform over the next few years? And any visibility into the revenue basis or long-term targets for this new product?

So I'll go into great depth as much as we can in September, but I'll give you some sort of headlines. As we talk to employers around the country, including increasingly larger employers who are interested in ICHRA as a solution, what we have found is that they're very concerned about the network. Now while an individual buying, and this is why we've invited all of our competitors to the platform, but an individual is buying, they want to select their network. given we're not in every market nor our competitors, it's an opportunity for us to share each other's networks by allowing the employee to select from different plans. Why does that matter? Because you're converting a whole employer.

Now to the economics of it all. In converting to an all of employer, you're going to have to meet other benefit solutions. So we have companies like Allstate Health on our platform and Aflac and Guardian, others joining us so that they can provide other tools that -- which, by the way, they have been providing to ACA members who have had money that they want to buy catastrophic illness policies or whatever, critical illness policies. But the more important part is, and this is where the economics matter, and we'll dimension this more in September, is that the margin from a dollar standpoint is higher than any insured member would bring us inside the ACA for all the employees, and it's unregulated from the standpoint of having to put up any risk capital. And it's another margin opportunity for us to grow the bottom line and the top line of the organization over time. And so we're excited about that model.

We're just putting it all together, but having everybody on the platform so that we can share each other's networks, our response to employers, large employers is when we say, well, we have a big PPO, our response is we have the biggest PPO at narrow network rates. So you ought to be going to us because you can't get the rates we get when you put all of our combined purchasing power together.

I'd just add that any of the cost revenues of standing up that business are included in our guidance. For this year, we would expect that to be a modest effect. But as Mark talked about, we're excited about the prospects of building a fast-growing, high-margin business.

Your next question comes from the line of Raj Kumar with Stephens.

Maybe just on effectuated enrollment. Maybe any kind of market level color, any markets are doing better than worse kind of than your internal expectations or even kind of the Wakely expectations?

Looking at the landscape of our competitors who have reported our own performance results, I would say that effectuation rates have been pretty much as expected to modestly favorable. I think that they also line up in the same way against what Wakely had assumed. So to me, what we've seen so far through this year has been that whether it's Oscar or competitors, our expectations of how members would ultimately roll out of the ACA have been pretty much spot on. So again, I think that is a positive sign if we're seeing stability in our ability to estimate what's happening in the market that generally portends well for the rest of the year.

Got it. And then as I think about kind of this year and some of the market dynamics, large competitor exited this year, -- maybe just kind of any color on those dynamics in terms of that membership and how that's trending from an [ RA ] standpoint. And then as we think about maybe '27, there's another competitor with modest portfolio of members exiting the market. So how does that kind of bake into your expectations as you go into the pricing cycle for next year?

I'd like to explain that by the distribution model because I think it's hard for us to know exactly where all our members came from, but we did pick up some auto assigned members from a competitor that left the marketplace. But what we did, and I'll remind you when we did our Investor Day 2 years ago, we said we assumed that there would never be any enhanced subsidy extension. That's how we built our plan. And we started building our response to that. And that allowed us to prepare products that would ameliorate the cost increase to our members. And we built tools that allow brokers to start setting aside what they needed to do for their members to retain them because for the broker community, it's about maximizing capacity and their ability to sell and retain.

And so we gave them these products and we gave them lists of our members and said, here are the people that are most affected and here are the product recommendations that we would offer. What happened is that a lot of our competitors got stuck in the middle between whether or not there are going to be enhanced subsidies or not. They didn't necessarily make the plays that we made on product. And when the brokers couldn't see those opportunities, they turned around and they brought those members to us from our competitors. because we gave them a solution. It allowed them to be very productive. And when you look at our growth curve, which you obviously don't see, but we see every day on our enrollment, it was almost a straight line up over the first 3, 4 weeks when enrollment opened because our brokers were ready, already talked to their clients using some of our technology, and we're able to get them signed up and moving forward.

Your next question comes from the line of Craig Jones with Bank of America.

So I think your member mix, when you think about like the bronze members, I think it went from a little below average in 2025 to now a little above average in 2026 versus the market. So with that mix shift towards bronze versus average, how does that impact your risk adjustment payable year-over-year?

Yes. So our book is -- we've got bronze is our largest category. Silver is a close second, Gold is a follower, but also a significant portion of the book. So a relatively balanced book. I think when you look at risk adjustment, the entire way that risk adjustment is -- like the risk adjustment formula actually is intending to make it neutral across metal levels. So there are some coefficients that sit in that formula that basically say the claims that you're getting and the condition value for a bronze plan, you get a bit more risk score offset because in that plan, you're not -- you're getting lower premiums, and so you're expecting lower claims. And so when you do have claims, you get a bit higher risk score benefit from those claims.

The inverse is true for metals that have higher amounts of benefits built into them. So in general, I would say risk adjustment really isn't driven entirely by metal mix. But what is -- what's important is for us, it is the -- #1, the products that we build, we tend to attract healthier members. It's the markets we're in. We tend to be in more urban areas versus rural. So those tend to skew healthier on average.

I do think that you see healthier members in bronze than in silver, for example. And we think that across all those metals, we have an opportunity to see strong margin performance and would expect that risk adjustment is more driven by overall levels of utilization across all of those than any one metal in particular.

And I would add that even given our prior period development in this quarter, what we see in our population we cover is that we've been at or below expectations relative to utilization and costs. So if you go to last year, were it not for that risk adjustment change, we would have hit our numbers. But because of the change in the morbidity in the market, we had that offset to revenue, which drives up the MLR. So the MLR was driven up by the change in the market morbidity, not by our underlying utilization. And we're seeing that same trend in the first quarter of this year.

Your next question comes from the line of Justin Lake with Wolfe Research.

This is Dillon on for Justin. Quick question about growth in historically smaller states like Arizona, North Carolina, New Jersey. Just curious on the trends you're seeing there and any early reads on economics in those states?

Too early, not enough claims, quite frankly, to have any real big differentiation.

And I'd just add on membership side, we're excited about the growth that we've seen in some of these smaller and newer markets for us. We have a playbook where we kind of go into new markets, make sure that we understand the local environment in a really grounded way before we really start to look for growth at an accelerated level. And we're seeing primarily strong results in those new markets. But as Mark said, it's still early in the year. So it's too early for us to get ahead of ourselves.

There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Chris Potochar, Vice President of Treasury and Investor Relations.

Good morning, everyone. Thank you for joining us for our fourth quarter and full year 2025 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar Health's Chief Financial Officer, will host this morning's call. This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our quarterly report on Form 10-Q for the period ended September 30, 2025, and filed with the Securities and Exchange Commission and other filings with the SEC, including our annual report on Form 10-K for the period ended December 31, 2025, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today.

Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the fourth quarter and full year 2025 earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2026 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable without making unreasonable efforts to calculate certain reconciling items with confidence. With that, I will turn the call over to our CEO, Mark Bertolini.

Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar announced fourth quarter and full year 2025 results and the 2026 outlook. We reported total revenue of $11.7 billion, a 28% increase year-over-year. Our SG&A expense ratio of 17.5% improved by approximately 160 basis points over the prior year, reflecting continued efficiency gains through growth, disciplined expense management and AI and technology advancements across the business. MLR increased 570 basis points year-over-year to 87.4% and our 2025 loss from operations was $396 million, primarily due to higher market morbidity resulting in a higher risk adjustment payable. Oscar is on track to return to profitability this year. We expect a significant year-over-year improvement of nearly $750 million in earnings from operations in 2026, representing the midpoint of our guidance. Scott will discuss our financials in more detail shortly.

Before I get into our business highlights, I want to provide an update on the performance of the individual market. Overall, 2025 was a reset year for the industry. The industry-wide increase in market morbidity due to Medicaid lives entering the market and program integrity initiatives shifted market dynamics. Oscar embraced the change and positioned the company for strong top line growth and margin expansions in 2026. We took decisive actions with a disciplined pricing, distribution and product strategy to go after profitable growth as competitors pulled back or exited the market. Our pricing strategy always assume the expiration of enhanced premium tax credits.

Our final 2026 rates also reflected higher market morbidity, elevated trend and the effects of program integrity initiatives. Early 2026 open enrollment results demonstrate the resilience of the individual market. The latest CMS data indicates overall market membership of 23 million lives representing a better-than-expected decline of 5% year-over-year. We expect many passively enrolled members facing higher premiums will exit the market when the grace periods expire. We will, therefore, have greater clarity on final paid membership and market contraction when CMS releases final enrollment data midyear. Current enrollment data indicates market contraction may track toward the lower end of our original projection of 20% to 30%.

The individual market stability underscores the priority consumers place on maintaining health coverage, more small business owners, working Americans and gig workers are running the market as group insurance fails to meet their affordability needs. The individual markets fundamental characteristics, combined with a larger and growing addressable market can absorb morbidity changes without dramatic trend impacts Oscar is in a strong position to continue leading the individual market and defining the future of consumer-centered health care for all Americans. Now I will review our business highlights. The 2026 open enrollment period was a record for the company. Oscar delivered another year of above-market growth, and we are privileged to serve 3.4 million members as of February 1, 2026.

We expect to start the second quarter with approximately 3 million paid members, a 58% increase year-over-year. Member retention remains solid across the book, driven by our suite of affordable products, agenetic AI features and a superior member experience. Oscar's market share across our footprint increased from 17% in 2025 to 30% in 2026. We continue to grow IFP and ICRA membership in prominent service areas, including new and existing markets in Arizona, Florida, New Jersey and Texas. The team created new cost-effective bronze and gold plans to support consumers losing enhanced premium tax credits and expanded broker partnerships by 60% to manage distribution across the overall market.

Our integrated strategy, which we deployed well ahead of enhanced premium tax credit exploration, positioned us to profitably capture new membership in the active shopping season. Product innovation was a key growth driver of this open enrollment. We launched several new lifestyle offerings tailored to certain conditions at stages of life. These include Hello Menno, the first menopause plan in the ACA, when a Salud, our Spanish first experience for members with diabetes and Hive Health with Oscar, our landmark ECR plan. Our lifestyle products are attracting new consumer segments and creating a loyal customer base. Members enrolled in our lifestyle products have above-average retention rates and are 50% more likely to recommend Oscar to family and friends. They are also more likely to come in as direct enrollments, demonstrating the greater attachment to our brand.

Our deep understanding of the consumer and the strength of our product experience continue to create powerful entry points for consumers, positioning us for long-term IFP and ICRA growth. Oscar investments in AI are creating efficiencies across the business as we grow. We lowered administrative costs by 160 basis points year-over-year while significantly increasing membership. AI is integrated across the Oscar platform, enabling teams to automate routine tasks, efficiently scale our service operations and improve decision support. For example, our Agentic AI bot for care guides reduced response times by 67% during peak and open enrollment period. AI is also central to our member experience. Oswell, our industry-first Health agent now completes 86% of questions received from members with high accuracy and quality. We continue to embed Oswell across our product portfolio to help members take control of their health. The impact of AI on our efficiency and the quality of the interactions for our members is unparalleled in this pace in my 40 years in this industry.

In summary, Oscar's disciplined pricing, record high membership and top line growth lay a strong foundation for this year. We are well positioned to significantly expand margins and return to profitability in 2026. Our strategic priorities position Oscar to shape the next evolution of the individual market in the following ways. First, accelerate National IFP and Ecraexpansion. Second, create lifestyle products with an exceptional consumer experience; and third, drive operational excellence through AI and frictionless execution. The individual market is the engine of consumer-driven health care. When consumers choose how and where to spend their money, they exploit inefficiencies and improve the quality of the interaction.

We see in our own growth, the power of designing products around consumer needs. That's the promise of the individual market. the promise of choice, the promise of long-term innovation, innovation our country needs to turn healthcare into a market that fits real lives and creates meaningful coverage for life. I want to thank our Oscar team for their dedication to our customers if we're delivering a successful open enrollment. Our 12 years of experience in the individual market will drive results for 2026 and beyond. I will now turn the call over to Scott. Scott?

Thank you, Mark, and good morning, everyone. 2025 was a challenging year for ACA carriers as market morbidity stepped up across the industry. We experienced these industry-wide trends with higher-than-expected claims and lower-than-expected risk adjustment offset leading to a net loss of $443 million in 2025. Over the course of 2025, we took appropriate steps to position Oscar to deliver strong earnings in 2026 including disciplined pricing and cost management actions. I'll begin with a brief overview of fourth quarter results, review of our full year performance and then discuss our outlook for 2026. Starting with the fourth quarter. We ended the year with approximately 2 million members, an increase of 22% year-over-year.

Membership growth was driven by solid retention, above-market growth during open enrollment and continued SEP member additions. The fourth quarter medical loss ratio was 95.4%, an increase of 730 basis points year-over-year. During the quarter, we received an updated risk adjustment report for claims through October. The report indicated that overall market morbidity remains stable from the third quarter to the fourth quarter. However, relative to our expectations, Oscar's membership skewed healthier than the broader market, which required an increase of our risk adjustment accrual of $275 million in the fourth quarter. The fourth quarter risk adjustment true-up was partially offset by $99 million of favorable in-year development and $36 million of favorable prior period development, primarily related to claims run out from the prior year.

Overall utilization in the quarter was modestly above our expectations. Inpatient utilization continued to moderate while outpatient and professional increase, which we believe was associated with members accelerating care as the enhanced premium tax credits expired. Pharmacy utilization was largely in line with our expectations. Turning to the full year. Total revenue increased 28% year-over-year to $11.7 billion, driven by membership growth, partially offset by an increase in the net risk adjustment payable. The full year medical loss ratio was 87.4%, an increase of 570 basis points year-over-year. Risk adjustment was a headwind throughout 2025, driven by higher market morbidity which we primarily attribute to the full year impact of members entering the ACA market as a result of Medicaid redeterminations as well as program integrity efforts.

Risk transfer as a percentage of direct premiums was approximately 18.5% for 2025, representing a 390 basis point increase year-over-year. Switching to administrative costs. We continue to drive improvements in our SG&A expense ratio. The full year SG&A expense ratio improved by approximately 160 basis points year-over-year to 17.5%. The year-over-year improvement was driven by fixed cost leverage, lower exchange fee rates and disciplined cost management, including an increased impact from technology and AI initiatives. The loss from operations for the full year was approximately $396 million, a change of $454 million year-over-year, driven primarily by the higher risk adjustment payable.

The adjusted EBITDA loss for the full year was approximately $280 million, a change of $479 million year-over-year. Turning to 2026. We have been preparing for the expiration of the enhanced premium tax credits for some time and took deliberate actions in 2025 to position the business for profitable growth and improved financial performance. We introduced innovative and affordable plan designs aligned with member needs, optimized our distribution strategy and took a measured approach to geographic expansion. Our disciplined pricing assumed and expected market contraction at the high end of our previously communicated 20% to 30% range driven by the expiration of enhanced premium tax credits and CMS program integrity initiatives.

We also refiled rates in states covering approximately 99% of our membership to reflect the higher market morbidity in 2025. Together, these actions position us to profitably drive share growth. For 2026, we expect total revenues to be in the range of $18.7 billion to $19 billion, an increase of 61% year-over-year at the midpoint, driven by another year of above-market growth during open enrollment, solid retention and rate increases. While our weighted average rate increase for 2026 was approximately 28%, the increase on a per member per month basis is lower, reflecting shifts in member age and metal mix. Our outlook also reflects elevated churn this year, driven primarily by passively enrolled members facing higher premiums following the sunset of the enhanced premium tax credit and ongoing CMS program integrity initiatives.

From a member profile perspective, our average member is 38 years old, approximately 1 year younger year-over-year. As expected, we saw migration from silver plans to Bronson gold plants, reflecting plan designs intended to offer affordable options following the expiration of the enhanced premium tax credits. For 2026, we expect risk adjustment as a percentage of direct premiums to be approximately 20% based on our updated membership mix and 2025 risk adjustment experience. Turning to medical costs. We expect our medical loss ratio to be in the range of 82.4% to 83.4%, representing 450 basis points of year-over-year improvement at the midpoint.

Our outlook reflects elevated market morbidity observed in 2025, an incremental increase in morbidity in 2026 and medical cost trends and utilization patterns largely consistent with our 2025 experience. We also incorporated additional third-party data to assess the risk profile of new members, which is tracking modestly better than our pricing expectations, while renewal risk scores are in line with our expectations. With respect to seasonality, we expect MLR to be lowest in the first quarter and highest in the fourth quarter as members meet their annual deductibles. On administrative expenses, we expect continued improvement in our SG&A expense ratio. We expect the SG&A expense ratio to be in the range of 15.8% to 16.3%, representing an approximately 140 basis point year-over-year improvement at the midpoint.

We continue to see the benefits of scale as fixed cost leverage and variable expense efficiencies driven by technology and AI are expected to drive further improvement in our SG&A expense ratio. We expect our SG&A expense ratio to be fairly consistent in the first 3 quarters with an uptick in the fourth quarter. We expect to meaningfully improve financial performance and a return to profitability in 2026. We expect earnings from operations to be in the range of $250 million to $450 million, a significant improvement of nearly $750 million year-over-year implying an operating margin of approximately 1.9% at the midpoint. Adjusted EBITDA is expected to be approximately $115 million higher than earnings from operations.

Shifting to the balance sheet. we have taken opportunistic steps to strengthen our capital position and optimize our capital structure. As a reminder, during the third quarter, we increased our capital in preparation for 2026 growth, completing a $410 million convertible notes offering due 2030, generating $360 million of net proceeds. Subsequent to that transaction, we entered into a new $475 million 3-year revolving credit facility. The transaction was well supported by a strong syndicate of top-tier banks and executed on favorable terms, further strengthening our balance sheet and providing additional flexibility as we execute on our strategic plans. We ended the year with approximately $5.5 billion of cash and investments, including $414 million at the parent.

As of December 31, 2025, our insurance subsidiaries had approximately $1 billion of capital in surplus, including $315 million of excess capital. To help frame our capital position in the context of our growth outlook, I want to spend a moment on regulatory capital requirements. While individual states vary, a useful rule of thumb is that for every $1 billion of premiums, we are required to hold approximately $50 million of capital, which reflects roughly 55% quota share reinsurance ceding percentage for 2026. Overall, our capital position remains very strong.

In closing, 2025 marked a shift in the individual market dynamics. Oscar has been in the ACA since its inception. And today, we are operating from a position of scale and experience. That perspective has informed the actions we've taken to position our business for profitable growth in a rational market and improved financial performance. We are well positioned to return to meaningful profitability this year. With that, I'll turn the call back over to Mark for his closing remarks..

Oscar is stronger than ever. Our decisive actions in 2025 position us to take a significant leap forward on profitability in 2026. We primed Oscar for the market of the future. The team introduced new affordable consumer products. We increased broker distribution with new tools, data and training to efficiently move new and existing members to Oscar Plans. We drove strong retention, showcasing brand loyalty and followership. 2026 is the springboard for Oscar to accelerate financial performance toward our long-term targets. Our playbook drives repeatable value in the market with ongoing product innovation, geographic expansion and membership growth. We are not here by accident. Our growth is the culmination of years spent navigating the market and obsessing about the consumer experience.

We proved consumers vote where they find value. Oscar's growth is not just about retaining our book of business. It's about staying ahead of the consumer, driving long-term individual market growth and setting a new standard for healthcare. Now I will turn the call over to the operator for the Q&A portion of our call.

[Operator Instructions] Your first question comes from the line of Josh Raskin from Nephron Research.

I guess the obvious question is how you get comfort on this new membership coming in for 2026 and why you think the MLRs will be down so much? And then I guess, related to that, maybe, Scott, if you could provide a little bit more color on your assumptions around risk adjustment, I heard the 20% accrual. But as you become a larger part of the market, I think you said 30% market share overall. Does that actually help, does that reduce your overall accruals? So I know there's a bunch in there.

Yes, Josh, can you just restate the second half of your question? I want to make sure I get that right.

Just more color on the assumptions around your risk adjustment in 2026. And my point being, if you're 30% of the market does that make your risk accruals more market rate, right? Meaning are you going to see less volatility as you become a larger part of the market?

Yes, understood. All right. Well, let's start off with kind of the membership and our ability to project what we see there. So I would kind of bifurcate the membership between -- we've got a significant portion of our membership or renewing members we have a lot of information about those members and feel like we can project what their behaviors are going to look like. And then we also have a population that is new members for Oscar. We obviously picked up share. So we do have a lot of new members One of the things that we've increasingly done is to leverage third-party data to pull in clinical information about those members. That really is giving us a fairly rich amount of information about those members in terms of their historical utilization trends. It also helps us to target our outreach to help them manage their care journey.

So we feel like we've got better insights into this oncoming membership and we've had really at any point in our history. So those are kind of the building blocks in terms of why we're comfortable with the MLR projections. On risk adjustment in '26, I would say that you can see from my talking points that we're actually expecting our risk adjustment as a percentage of direct revenues to increase year-over-year from 25% to 26% to about 20% in 2026. It's an interesting thing that we're starting to see a little bit of a barbell between the plans who really cater to the highest morbidity populations and the plans that have everyone else, we're picking up a very large share of young, healthy members. And so that's driving risk adjustment higher. We are continuing to look at ways to get more information about what is going on outside of our books because that's the hardest part of forecasting risk adjustment.

We've been engaged with Wakeley on helping around this new reporting that they're proposing to bring forward in the first quarter. We're expecting that will give the entire market more visibility into what's going on with membership. That should help all of us in forecasting risk adjustment and so I don't know that it's going to decrease the challenges in making that estimate as accurate as it can be, but it certainly will give us a head start.

Your next question comes from Jessica Tassan with Piper Sandler.

So I appreciate the color on membership. Can you elaborate maybe a little on the fourth quarter utilization pull forward you described. You guys spoke about higher retention. So should we think about the pull forward as being kind of silver members in '25 who are disinclined to utilize care in '26 due to higher deductibles? Just any color on 4Q utilization and how it relates to your 2026 utilization expectations?

Yes. Thanks for the question, Jess. So I want to emphasize utilization was modestly higher than our expectation in the quarter. Really, when I look at the MLR performance in the quarter, I really would say that it is vastly driven by the risk adjustment true-up. In terms of the utilization pressure, we did see -- we had a modest expectation of an increase as we went into the end of the year. members losing their subsidies likely to go ahead and seek care. We saw that. We think that was a primary driver of some of the movement we saw in outpatient and professional. We also saw things like substance abuse disorders that ticked up, some mental health benefits that ticked up in labs types of things.

So really things that would indicate to us these were members that we're just trying to make sure that they took advantage of the benefits why they have them don't give us a lot of concern about carryforward impact of those types of activities.

Got it. And then just -- I know you all mentioned that overall market-wide membership could come in a little bit better than the 20% to 30% disenrollment you had been forecasting last year. Can you just maybe offer any color on the overall size of the market post the fluctuation? And then secondarily, just any comments on kind of the adequacy of pricing market-wide. So how should we get comfortable with the fact that all of the peers have been also priced appropriately and that risk adjustment doesn't end up being a problem in '26 might was in '25.

From the standpoint of effectuation versus actual enrollment, we believe that the market -- the market currently has shrunk by 5%. However, a lot of people have changed their plan signs and it was purposeful on our part to give brokers specific transitions that they could do for their members to impact the loss of enhanced premium tax credits. And so as a result, in our book, we saw silver drop in half as a percentage of what it was before and bronze increase by almost 50% and gold almost quadruple. And that's the kind of shift we saw in our membership mix. That means people are carrying higher deductible plans. And this is the big open question mark for the rest of the year, 2 things. One, when we get closer to pages and our pads are on par with where they've been in the last couple of years anyway. The next question is how many people when they see their premium actually pay it.

And that's the first piece that will get us to the end of the year, and that's where we go from 3.4 million lives as we currently stand in February, the 3 million lives by the time April 1 rolls around. The next big question is this is as big a political issue is any other thing around in premium enhanced premium tax credits is as people start to use their plans and realize the amount of out-of-pocket that they need to pay to use those plans, will they maintain coverage? Or will they drop out? And this is where the big paths of enrollment, you don't know how they're going to behave until they start using the plans. It's going to create a lot of financial hardship for most Americans who only have $400 in their bank account.

And this is where we have an open question. And we think by the end of the year that, that number drops to the lower end of our range, which was 20% to 30% reduction in the overall market size.

Your next question comes from Andrew Mok with Barclays.

This is Tiffany on for Andrew. Can you share where OEP membership landed for the book and give us a sense of where paid rates are tracking in January '26 versus January 2025.

Our OEP ended with 3.4 million lives enrolled. We have not seen all the page yet, but our current pads are sitting close to where they were last year. and a little lower than they were in '23 and '24 on the Oscar book.

And as a reminder, we expect that as of the end of the first quarter, we'll have 3 million paid members. That's what our expectation is for that time period. .

Okay. Got it. That's helpful. Can you provide a bit more color around expected membership cadence following the 1Q grace period? And how we should think about that throughout the year?

Sure. So in terms of churn expectations, through the first quarter, we're obviously going to see higher churn as we see the effects of the higher payment rates or premiums that Mark just talked about. And so we'll see a dip from 3.4 million down to $3 million by our estimate by the end of the first quarter. From there, we're expecting churn patterns to look more similar to what we saw pre-ARPA, so in the range of 1% to 2% a month in terms of kind of churn from the end of the first quarter through the end of the year. The other thing I'd just point out is the other factor impacting the churn rates is that we are expecting to see less SEP membership this year than what we've seen in recent years as some of the things like the continuous enrollment for people below the FPL 150 level now that, that's expired, we would expect to see less of that membership.

So while in recent years, we've seen our overall membership trending up throughout the year, we would expect this year to kind of revert to more pre-ARPA trajectories where you see membership decrease throughout the year.

Your next question comes from the line of Jonathan Yong with UBS.

Can you just talk about your mix of metal tiers. It sounds like Bronson Gold went up significantly and silver went down. And I assume you're skewing a little bit more towards bronze which typically has had more variability. How would you characterize your historical experience with bronze and how you're thinking about this time around?

Yes. I would say it's going to be interesting, everything that you might think about metals, we should probably discard because we've seen a transition from people who've historically been in silver to other metal mixes. So I don't think you're going to be able to really proxy history. Bronze in general for us has always been a high-performing product. So the fact that we've seen more growth in bronze than in silver, and we've seen that transition is actually something that we are completely comfortable with. If I just kind of pull up for a second and talk about the metals. Overall, our general philosophy is that our plans need to have margins that are in a relatively tight band. We would expect that all of them generate strong contribution towards total company profitability.

I do think that with the momentum -- with the movement from silver to bronze and gold, we will see those plans look and act actually more similar to each other. Obviously, bronze has higher deductibles. So we may see a bit higher churn in that population than we may see in other populations that don't have those higher deductibles. As Mark talked about, we think that may be a driver over time of more churn.

Great. And then just going back to the membership gains. If I think of that 400,000 that's going to roll off by 2Q, I assume those are the passive renewals. So that would imply a little less than half of your membership is "new" I guess are those new members coming in from new markets that you entered into? And I know you have data, you're using third-party data to get a better sense of the members. But I guess how much has things changed from last year to what it may look like this year where maybe that third-party data may not be as accurate.

I'll let Scott talk about the third-party data, but let me just sort of dimension this for your calculation is pretty close. That 400,000 is going to be passive that will roll off. We have grown a bit. And what we did early in the summer as we went out and enrolled 11,000 new brokers. We met with 17,000 brokers over the summer and gave them a list of members that they have with us. and showed them the members that were most affected by the lack of enhanced premium tax credit and what plans you could move them to based on their needs. They went and did that. And we gave them access through our broker portal to our campaign builder software, which we used to outreach to members to reach those people and give them the information before open enrollment. And that's why we got off to a fairly significant start early on because the brokers had it all stacked up, ready to go.

Our view was the more we can help the brokers get people to the right place, the more they can be productive elsewhere, which is then what happened, is that they went to other plans who either were leaving the market or had not prepared the broker community or the membership with the right kind of product changes and move those members as well. So that's sort of the lay of the land on how our growth occurred. We weren't sure how it was going to roll out for new membership, but it obviously had a significant impact.

Yes. And Jonathan, with respect to the third-party data, I would say that for new initiations, most of those people, we've got clinical information from third parties that gives us a good basis to have an expectation of how they're going to perform. And importantly, it gives us a lot of information about who we need to start to engage to help them manage their healthcare conditions. That's important both from the perspective of managing our costs as well as getting the member in as early as we can, which is a positive thing for risk adjustment as well. There are a portion of our new initiations who are new to the market, who we don't have great information about, but we do have a significant amount of data over time as to what those types of people might look like in terms of their acuity. And we've -- in looking at kind of the information that we do have about those members, we're not seeing anything in terms of the characteristics of them that costs us to think that there's something there that should be concerning for us. .

Your next question comes from the line of John Ransom with Raymond James.

So if we take 3 million as kind of the "real member number, approximately what percent of those do you think work with the broker and tried to tailor the coverage versus the remaining passive renewals. I think that would be helpful.

We generally see 90%, 95% of our members come through the brokers, although in some of our custom plans, like -- hello Meno, we saw a lot of direct enrollment, significant direct enrollment. People specifically wanting that product and came directly through us through the exchanges. So -- but generally, and we're looking at 90%, 95%.

And then my -- I mean this is kind of a basic question. So you all can downgrade your opinion of my IQ. But what I don't understand is, I get the passive enrollment, but you've got to pay the first premium before you get covered. So what kind of member gets passively renewed pays the first premium and then decides to drop off?

Again, that's the big question this year versus prior years, usually when they start paying premium, they stay with us. unless there's some sort of event where they don't require our coverage anymore. However, in this case, when they start looking at the out-of-pocket costs associated with plans that they were moved to or stayed in. They're going to start to say, wait a minute, this is expensive, and I'm not going to be able to afford this. Now what we see, and this is an important aspect, it's far different than prior years in the marketplace is that most Americans now see health care is the single largest line item in their homes, in their family budget, more than their own mortgage. The result is that they are afraid of a lot of people who buy from us are afraid of losing the house or losing their family or having to go bankrupt if they don't get coverage.

So then the real question, the pivot question that we have and I met with the AHA Board of Directors a couple of weeks ago, is what happens when they can't pay the deductible? And how do we handle that? And that's where we're sort of looking at this mill and saying, does it create this enrollment. Do people still hold on to it because they're afraid of losing their homes or going into bankruptcy. We're not sure. So we're not -- we're hedging our bets on the level of disenrollment that will occur as a result.

John, just to add 1 more dimension there. When you look at our expectation and what we're seeing on payment rates, if you're going from having an out-of-pocket premium that you were paying in 2025 to having an out-of-pocket premium that you're paying to '26. And you have actively enrolled and even passively enrolled. We're seeing relatively strong payment rates in those categories. It's really the population where you're going from a $0 plan to something that you've got to pay out of pocket. So you've either lost your subsidy or you've transitioned from 1 plan to another. That's where we expect to see really high nonpayment rates. And the way the whole process works, you may not make your first payment in January, but you don't ultimately churn off until the end of the quarter because you are in a grace period until then. .

I see. So passive going from 0 premium to some premium. And we know that like call centers, in some cases, we used to send these people up and never had a payment link. But our understanding was of care wasn't a big user of these legacy call centers. So you've got payment links. It's just that they go from, say, $0 to $100 a month, and they just -- that's just a bridge to part. Is that right?

You are correct. We did not -- we are not a big user of call centers. .

Your next question comes from the line of Stephen Baxter with Wells Fargo.

I want to come back to some of the questions on mix. I appreciate you're saying that silver is lower in both gold and bronze are much higher. But is it possible to get maybe the percentages kind of before and after for each category? And basically, the crux of it is that, obviously, your membership, PMT seem like they're going to be up somewhere in the 50% range. So we're kind of comparing that to the overall revenue increase on the guidance line and it's a little bit hard for us to square quite why. There's not maybe more of a PMPM yield in there. So it'd be great to have some more quantification on that? And then I have a follow-up at this time.

Sure. So for Bronze for the prior 2 years, around 25% and '26 to 39%. Silver has been steady at 71% in the prior 2 years. This year, they're at 36%. In gold, which is in the low -single digits, 3%, 4% for the last 2 years is now 25%. So fairly significant changes. And the bronze and the gold plans we offered were $0 with fairly -- not very rich benefits.

Stephen, the other thing I would just mention is that the characteristics of the membership are important to modeling your revenue. So the fact that we're seeing a year younger membership has an impact on PMPM revenue. So you need to factor that in. That's 1 of the reasons why I discussed that in the call is to help with your ability to project revenue with that information.

Got it. No, that's helpful. And then maybe just qualitatively, like is there any difference in terms of this MLR guide, how you're thinking about kind of what you're budgeting in for retain membership and sort of how you're thinking about this newer to the planned membership and how that might perform? I would love to understand is philosophically how you're thinking about that part of it?

Yes. Well, we obviously modeled membership with a lot of our past history. So we will have experiences that are different for returning members versus new initiations. I would say that in the aggregate, given the amount of work we've been doing on this population going -- which is now over 2 years that we've been expecting that the subsidies are going to go away. And so starting with the whole, how do we design plans to capture people who had a price shock. We've really built in, I think, a deep level of expectation and understanding about how those different populations are going to perform. I talked about all the ways that we tried to triangulate and get data about those folks.

But I think that in general, I would say we're using our historical experience with each of those populations to project the future, feel like that the estimates that we've made both in pricing. And now we've taken everything that we've heard to date and built that into our guidance. And I feel like we're being very balanced in our estimates.

And the increase in risk adjustment allowed also takes MLR up.

Your next question comes from the line of Scott Fidel with Goldman Sachs.

This is Sam Becker on for Scott Fidel. Yes, I was just curious on what are your levers -- key levers to achieving EBITDA profitability without the extension of the enhanced subsidies? And what are those key headwinds or tailwinds when thinking about MLR and SG&A from 2025 to 2026.

Well, there are a number of them. First, it's growth. So it's growth drives a reduction in overall percentage of costs. AI, where we're able to create a better member experience and greater stickiness, and we're seeing that on a regular basis. We have a dozens of LLMs on the back end of the business. and now 2 agentic AIs are about to launch another here in the next few months. So we're now having a lot of impact where people can access us quicker with much more accuracy and without having to wait on phones, which would also again reduces our costs. And then on the MLR front, we are constantly working on our contracts and our utilization management, and we task the team to deliver so many hundred basis points every year and opportunities to keep our trend in line with where we think the market should be. And so all of those things together, and there are a lot of levers that we manage every day through the management process are the things that we track to make sure that we commit our targets.

And Sam, I just want to make 1 point really clear. Our guidance is on EBIT. So it's not on adjusted EBITDA. I did talk about it in the call that we would expect adjusted EBITDA to be $115 million above our earnings from operations guidance that we put out. So I just want to make sure that we're talking about the same things. Thank you. .

Your next question comes from the line of Michael Hall with Baird.

This is Olivia on for Michael. Because exchange marketplace risk adjustment is net neutral, creating a reliance on other plans in our markets the lack of visibility, any 1 plan has into the rest of the market makes risk adjustment mechanics difficult in our view. Looking to 2026 and beyond, you mentioned the potential Wakely industry report in 1Q, whether it's through this potential Wakely report or other efforts, can you share how you're getting more insight into the rest of the market as well as your thoughts on what can be done to make risk adjustment more transparent and less volatile in the future. Is there any potential reform you think could be done to improve risk adjustment? And I have a follow-up at this time.

Olivia, thanks for the question. Look, I think that estimating risk adjustment, as you say, is the most difficult thing that we have to do each quarter because you're both trying to project your own performance inside your own book and also the market. It's -- I think we're quite good at projecting our own market -- our own book and what the performance is where we do get surprised by how the market moves in ways that we can't see. I'm optimistic that working with Wakeley, and it sounds like most of us in the industry are working with them as an important service provider to all of us. to help get more timely information about what's going on with the market because that's the most challenging part of our ability to project that. So I think we're taking steps in that direction. I'm not sure that we'll get all the way there in this first report, but I do think that with the support of many of the industry players that we can increase visibility into this estimate over time. .

And if I can squeeze in 1 more, please. When I think about healthcare innovation, 2 specific areas I see offer leading the way and becoming an agent of change are in ICRA that could disrupt an employer group market that is ripe for change and leading the charge in crafting condition and disease-specific plans, which appear to be the future of health insurance. Both are exciting, but both are early on. So as you look ahead, what do you think needs to happen to catalyze the rate of adoption. And as a first mover, what type of competitive advantages do you believe this will present us for longer term?

So from a micro standpoint, Olivia, we are not only concentrating on products to capture membership in the insurance company, but we've also built out the front end of the business where we can now work with employers to convert them. There's a lot of opportunity in revenue and actually in a higher margin, unregulated and not requiring any risk capital to work with employers to move employees into defined contribution and once in defined contribution, work with brokers to get them into whatever plan works for them, whether that is an Oscar plan or not? So you're going to start seeing us over time report 2 different kinds of revenue in the model. where we're going to have revenue coming out of the conversion of employers that have defined contribution, the whole brokerage work that's done there, and then also membership that we capture inside our own health plan.

So the acre opportunity is much larger than just the membership, although our membership did double this year. And given what happened in the individual market relative to rates, there was some reluctance on employers to jump in now. We need to show that we can stabilize that marketplace and get more people in. So that's sort of the lay of the land on ICRA. On the disease or the lifestyle products, we truly believe and this is the proposal that we put in front of the administration and 1 they've talked about is to separate the investment decision from the financing decision.

The investment being what I buy versus how I pay for it. And the opportunity to create HSA Roth IRA like funds, where people can take whatever funding mechanism they have, whether that's their employer, their own money, Medicare, Medicaid or other subsidies like from the ACA and put them into a bucket -- and by buying a qualified health plan manage the rest of their costs by themselves, and this is where our new Agentic AI tool is headed than having a marketplace where people can use the money that they receive for healthcare to buy what they want in their local market, a narrow network with a plan design that changes with their life, starts to create the opportunity for lifetime value of membership and change the investment thesis that insurance companies would have in managing that membership and how we would approach it, which leads to the lifestyle products. if we can move with a family or an individual through their lifetime, offering them new designs that allow them to stay with their network, be effective in managing their current health status and live as fully as they can until the last day, I think that's the ultimate culmination of an individual market where all Americans can get healthcare that they want their choice -- and where we have a market so large, the morbidity changes really have no impact on the overall underwriting cycle of the business.

Your next question comes from the line of Raj Kumar with Stephens.

Maybe just following up on the kind of ICAcommentary. Just curious on the membership associated with the IV arrangement and kind of what's the initial uptake from that employee base -- and then historically, have you seen kind of the ICRA population exhibit a more kind of stickier membership base? Or should we expect a similar level of churn relative to the kind of broader individual plan?

I think -- first of all, we're not giving out actual ICRA numbers by segment yet. It's not meaningful enough to move the dial, although we see all of these efforts being successful so far. The more important part is, again, back to this thesis of I have my money, I buy it the way I want. We think ICRA's stickier because as long as I have the funds to pay for it, I can keep what I bought. I don't have to change it. If my financial -- if my funding circumstances change, I just use the different funding to keep the same thing I had. So we view ICRA as a development moving beyond the ACA model. which is helping people when they can't afford health insurance to a model where I now buy my own insurance, my own network, the product design that fits me at this time, it allows me to stay with my product and my network for as long as I want. That's where the member experience and all these tools we're building comes in where people can actually use it the way they need to and have the information they need to use it most effectively.

Got it. And then as a quick follow-up, just kind of curious on the new member engagement rates for 2026. And how is that comparing to what you're seeing or experiencing at this same point last year?

Yes, I don't think that It's too early to tell -- after the first quarter, we'll have a better idea. .

Your next question comes from the line of Craig Jones with Bank of America.

Right. I was wondering what you've assumed in your guidance, does the change in the percentage of 0 utilizers between 2025 and 2026. I think that will need to come down the exploration enhanced tax credits. I was just going to give us an exact percentage, maybe just how do you think it will compare to your 2019 percentage prior to when those were enacted?

Yes, correct. Thanks for the question. In general, we don't comment on the portion of our book that's nonutilizers. It's a normal part of given that we have a very healthy membership, we would anticipate that not all of those members need care in any given year. So we do have a portion of the book that doesn't utilize. When I look at the -- how our book has evolved, there our book is younger than it was a year ago. So it isn't necessarily the case that you should assume that we'll see lower levels of nonutilization. We take all of those factors into account when we set our guidance for MLR. And as I talked about earlier, we've done a terrific amount of work to build up our estimates around those projections and we feel like we've -- we're as comfortable as we can be with them at this point in the year? .

Okay. Got it. And then maybe for those 400,000 number that you expect to roll off by the end of the quarter, what do you think their 2025 MLR was? And how would that compare to, say, historically what your members that rolled off would be.

Yes. I'm not going to dimension the specifics of those members. When I look at the difference between 2025 MLR and 2026 MLR. It's really a story about the changes in market morbidity on a year-over-year basis. That's really the biggest driver. We've taken into our pricing for the upcoming year, all the changes that happened in market morbidity last year, our expected increases as people are leaving the ACA in '26. We've built all of those things in. We've included a trend that is higher than what we've seen in the historically but relatively consistent with last year. So we feel like we've taken all of those building blocks that's going to impact utilization next year into our pricing, which gives us confidence about our ability to return to profitability next year. .

There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

All right. Thanks, everyone, for joining us. Here we have Oscar Health's CFO, Scott Blackley, who is joining me on stage.

So I guess we'll kind of jump in before we talk about the other big things that have happened. But we'll start with just your third quarter results. We obviously saw what happened. But I guess on the Wakely data, it impacted your 3Q results. Assuming it remains stable from here on out, given it was off, did you make any changes in how you were weighting the updated data for the remainder of the year?

Now on the flip side of this, you did say the FTR and other program integrity measures were not factored into it. So this theoretically could be a positive. You indicated those members tend to carry higher risk. Any color and thoughts on that?

Yes. In terms of the estimate, our full year guidance assumes that we don't see any further decay in market morbidity in 2025. At this point, my best information about market morbidity is the most recent information, which is what we've got. We use that. We then roll that forward throughout the year with expectations for how much we and the industry -- how many charts we collect, what's the impact of that on risk score. So it's a pretty dynamic calculation. But the inputs were based on the second quarter Wakely results.

And as you talked about, there's always puts and takes, particularly at this time of the year, that could impact the market risk scores. And on the one hand, we did talk about the fact that, at least in the data that we've specifically seen for our members, the members who lost their subsidies and left us who had an FTR issue or were identified by CMS to be duly enrolled, they did have higher risk scores. So them leaving the ACA would be a good thing, if everyone saw those.

It's not really a big population, though. I would just -- I would point out that, that in the end, after we got the files from CMS, for us, less than 2% of our book. But it does have a modest tailwind effect. On the flip side, I've read other people's transcripts and did see at least a few carriers that talked about increased utilization pressure. We've built in already into our expectations that we would see a fourth quarter increase in utilization. So that's also built into our estimates. So at this point, fingers crossed. But that we based our guidance on everything we know at this point.

Okay. Just on the utilization that you and your peers have kind of been seeing, at least as it relates to you, you said it was trending down and actually stabilized your book of business. And it is elevated, but it doesn't sound like you're seeing what the peers are seeing. What do you think is kind of the dynamic of why that would be?

That is a great question, and I scratch my head over that as to why do people who have similar businesses sometimes have quite different experiences. I think partly that could be on your footprint and where you're seeing it. We have -- not all of our market performs the same. We've got some states that are having much more challenging times and other states that are performing really well. So it could just be mix that is driving that.

Overall on utilization, I think of it as, in the first quarter, we had high utilization and it was well above our expectation and really being driven by inpatient. We saw that moderate every month in the second quarter, into the third quarter. And as you mentioned, we saw a stabilization in that through the end of the third quarter.

A lot of the improvement that we've seen and some of the category shifts are the result of actions that we believe that we drove. Things like making sure our members are getting their care at the right point of care, site of care. Things that were done in the first quarter in an inpatient setting that we think were more appropriately done in outpatient or even in professional settings. We worked really hard to help those transitions of care happen.

So overall when I look at our utilization, I feel like it's the best spot it's been throughout the year, and haven't seen anything that suggests that we need to change our guidance when we were evaluating our full year guidance before the call. And as I said on the call, we feel like we looked at all the factors and it supported reiterating our guidance for the year.

Okay. Just on the kind of total cost of care initiatives that you're kind of talking to. What exactly are you kind of doing there? Is it just intervening earlier with your members, redirecting them to cheaper areas of care? And then is the drop in utilization just settling down at this point where the market's just utilized a little bit and we're kind of here where we are?

Well, it's some of all those things. So the total effect on MLR for the year, part of that is, as I talked about, transitioning sites of care, which is proactive efforts on our part both working with the providers and health systems. And so those are active engagements. As we see something coming through for a procedure, helping the member know, "Here's a better choice of -- and more effective cost of care for you," and then talking with the physicians to make those transitions. So that's part of our playbook.

More broadly, working on fraud, waste and abuse, on overpayments, on all of the things that I think are blocking and tackling in this industry. And I think we've just continued to improve our ground game on all those measures as we've gone throughout the year, which has been a tailwind to total utilization.

Okay. Great. So rates have been officially released, year-over-year basis, I think you said you're around 28%. And from our perspective, the average premium dollar doesn't -- didn't seem to look too far off from peers, and you're lowest cost in 30% of your counties. So how do you feel about your relative positioning, kind of how enrollment could theoretically shake out?

Yes. Well, I think you hit on probably the most important thing, is if you look at dollar premiums, year-over-year prices, you got to know the starting point. So our 28% increase might not be directly comparable to something you're seeing from a peer. But when I look at the dollars of where prices landed for '26, I would characterize the market as being really rational.

There's a group of competitors that I think all have similar price positions. Obviously, we got more competitive this year. We basically went from, in 2025, we were the lowest or second lowest in 15% of our markets in Silver. This year, we're at 30%, so we are more competitive. We've seen some of our biggest competitors who've either stayed similar or who've come down. But what I take comfort from is we are all priced in a fairly narrow band when I look at the overall. It's a market-by-market story, of course, so in every individual market, you might see slightly different competitive dynamics.

I would kind of describe pricing as there's a group of companies, some public, some not-for-profits, that are all kind of in a reasonable band that look to be trying to get market share and achieve their target margins. There's another group of companies that look to be trying to defend their position, not interested in growing their books, looking to shrink their books.

And so I feel like we've got a really good competitive position in pricing, give us the opportunity to grow our share in the marketplace. And based on the pricing work that we have done, which I'm happy to talk about, what we considered in pricing, we think we've got a great opportunity to both grow share and deliver profitability and meaningful margin next year.

Okay. And then we'll get to the pricing, which is, can you talk about the rate development process and how you -- and your landing zone for your prices within the construct of growth versus margin, particularly in this coming year, because obviously it's very uncertain?

Right. I would say we spent probably twice as much time on building pricing this year as we've done in my history at the company. We measured each individual component of pricing specifically. We started with what we observed is trend in 2025. We then added on what is the impact of the market morbidity movements that we had seen in 2025. We measured the impact of a potentially smaller market next year as a result of the enhanced subsidies expiring. We separately measured that. Then we considered some of the program integrity measures that are currently stayed but might come back in at some point next year. We separately measured those, assuming that they were in place for the year.

And then we built those all -- added those all up, and then we added actually a buffer for margin on top of that. So I would say in terms of our framework, we believe we were as conservative as we could be within kind of the guidelines that we have in discussing those pricing regimes with regulators and the actuarial values that we need to create in the plans. So really a very thorough modeling exercise.

A lot of the presumptions that we had or assumptions that we had about '26 market morbidity were built on our historical experience and data, right? We do have a pretty lengthy history in this marketplace. And so we were able to look at markets where we had changed our pricing, and we could see the behavior of how many of our members transitioned out of that market, and this was where we and some other competitors had changed our market pricing in those markets. So we had some data to see how people responded to significant price changes.

We do think there's a portion of the market that will not be able to afford the premium and will likely leave the marketplace next year. And our estimate for the marketplace is that it will contract by 20% to 30% next year. And most of that is on the back of individuals that can no longer afford the premium and will leave the marketplace. And that assumes that enhanced subsidies did -- were allowed to sunset and expired.

Yes. Okay. And then as you expand into a number of new counties, how do you feel about your positioning there just given there is a bit of a lack of experience, I guess? And any early indicators of how enrollment is doing in those markets?

Yes. So we are always looking to continue to expand our book. And I think we entered something like new 70-ish counties in this year's open enrollment. I would say our playbook is pretty consistent every year in terms of we look to take advantage of networks that we already have relationships with as often as possible and expand and ride the rails of existing network partnerships. That results in a lot of visibility into how those networks perform and what we should expect from them, which even though it's a new market, we get the benefit of having experience with those networks.

In new states, for example, I think there's -- we need to let those markets mature a little bit. We have a pretty strong playbook of land-and-expand in those markets where we kind of get a foothold, make sure that the networks that we have and the arrangements that we put into place are resulting in outcomes that are consistent with our expectations. We always end up making some adjustments along the way for those. So that's the playbook that we run, very similar this year to what we've done in the past.

And I would say more broadly about open enrollment and how that's going, we've had, jeez, 3, 4 days since we last talked about this in our commentary with our last call, but I would say that open enrollment so far is really going well. Like we spent so much time planning for this open enrollment, working with the broker community, educating them about all the changes that were coming through, what was going to happen with our membership around changes in enhanced subsidies, helping them to understand how can you map those members to different plans that can give them affordable plan options.

We emphasized out-of-pocket premium is probably the single biggest factor that would drive decisioning, and we created plans to allow people to buy down. We feel like we were extremely creative in our plan design to what we've put into the market. So thus far, we've been really incredibly pleased with what we've seen at this point in enrollment. Seeing kind of the structures that we put into the market seem to be really getting traction. Obviously, still very early, but so far really strong outcomes.

Okay. I guess just building on that a little bit. Is it kind of retention that you're seeing that's much better than -- or to your words, coming in very strong, et cetera? And then are you seeing members downgrade into cheaper products at this point? Or is it still too early from that perspective?

I would say we had planned that we would have -- retention this year would be historically low compared to, let's say, the last couple of years where we had really, really high levels of retention. And that was because we had assumed that with the loss of subsidies, that we would see attrition at a higher level than what we had historically seen.

At this point, I think it is too early to say if some of the early retention stats are going to be indicative of the full OE. I would say that the plan designs that we put into place, our expectation about where we see people moving, have been really successful. So we are excited about our opportunity to, again, pick up market share. I feel like we did really disciplined pricing. So the combination of great products, great pricing and some new markets, we think there's a real great opportunity for us to both pick up share and to improve profitability.

Okay. My next batch of questions, let's focus on the enhanced subsidies. So maybe a little stale at this point just given the events over the weekend. But given the uncertainty of enhanced subsidies, if there was an extension, which may be a lower probability than it was 24 hours ago, what may be included in any extension from your perspective, any adjustments that they can do. And then, can you frame out the upside that you theoretically have? And then on the downside, what's the risk that perhaps none of us aren't necessarily thinking about?

Yes. Well, I was super pleased last night flying in to see all these things changing last night. And then to this morning, you can imagine it's always fun to be the first person from your company to talk post a big change like that. But I would say that it's pretty clear that we won't get enhanced subsidies with the extension of the budget. I still think there's room for hope and optimism that you could see something, as we get into December, that there's still room for negotiation and for some benefits to be put into place.

We continue to think that this should be a bipartisan issue. Like there's millions of people who are hard-working Americans that are impacted by an inability to afford the premiums. And when you have subsidies in the marketplace and you take them away, that's a big transition for a lot of families in this country. So we think there's a lot of real strong reasons to figure out solutions.

I did see some of President Trump's texts about alternatives that he might propose. And I think our general point of view is anything that we can do to help the American families afford health care is something that we should support, and we'll work with the administration on how we could potentially make that as feasible as possible. But again, we're excited about the potential to see something get done. Obviously, less clear as to how that might happen now. And so to speculate what it might look like I think is premature given the developments we've seen thus far.

But I'll just reiterate that Oscar has been planning to run this 2026 with no enhanced subsidies. It's been kind of our playbook since well into early last year. So we're ready for the market as -- assuming that those subsidies go away. And we think we've got great opportunities even if the subsidies don't get extended.

Okay. Kind of keeping on the idea that if they are extended to any extent possible. There's been talk of possible clawbacks from the industry side, but that hasn't necessarily come from the government side of the world. If there was an extension, kind of what's your perspective? And have you heard anything from the government side in relation to this?

Look, if there were -- if subsidies got extended, we did build into pricing that there would be an adverse impact to market morbidity from a loss of the enhanced subsidies. So there's a potential that we might end up with margins that are above what are allowed for by regulation. We think there's already market mechanisms to deal with that. There's a rebate calculation that if your margins, you have an MLR that's too low, you've got to return that premium back to members.

So our point of view is that this market is best served by stability. We think that allowing the market mechanisms that are already in place to return those premiums to members seems like the best way to approach this. But if that wasn't what the regulators and politics angles want to do, then our primary feedback to the regulators has been, don't do some -- don't make a change midyear that the industry hasn't been able to build into its pricing expectations. That creates just more of these cycles of surprise and then repricing.

And so we've suggested that we need to put these changes in, in advance of pricing. And so either make changes for '27 or in advance of any kind of SEP period for 2026, allow us to actually reprice the book and create the actuarial estimates that are underlying all of our pricing, and to reprice. So we still think the best course of action would be just to let the rebates carry the load. But if that's not the case, then let the industry reprice and put something out there that has high fidelity.

Okay. And then, any thoughts or idea of like some of the members who effectively said that they couldn't afford the exchange products without the enhanced subsidies, are they effectively gone permanently at this point in your perspective? I know you mentioned the 20% to 30% decline will likely be borne by those members. Your perspective on that.?

Look, I think that there isn't an alternative opportunity for these members to get health insurance, right? They're basically going to be uninsured. So we think there is certainly an opportunity to bring them back into this marketplace.

And I don't think that we all appreciate like the sophistication and magnitude of the broker engagement that is now in this marketplace. It's the vast majority of the population who is in the marketplace is coming there through brokers. Those brokers are compensated by bringing people and keeping people in the ACA. So they know who in their books of business aren't renewing in the ACA. They know where those -- they have those people's contact lists, they know who those people are. I think they would be incredibly incentivized to go find them and bring them back in.

So of course, there's going to be some churn. I don't think you'll get back to 100%. But we think that there would be a very significant population that could and would come back into the ACA if subsidies were extended.

Okay. And then we've generally had the view that young, healthies would be the most likely to opt out of coverage. Your average member does seem to skew a bit younger than peers. Kind of how do you view that dynamic?

Yes. Well, part of the reason why we're not expecting retention to be as high as what we've seen in recent history is exactly to your point, right, that we do tend to skew younger, we do tend to skew healthier. And I would say that a big part of our effort's to try to ensure that we have plans that allowed people to buy down to a price point where their out-of-pocket premium is similar to what they're paying in 2025. I think that means that they're likely to have higher deductibles, higher out-of-pockets, higher coinsurance. And so it does create more of a burden on a family who ends up needing to have any type of health insurance coverage. So that's probably not a great thing for the long-term health of these members.

But we do think it's important that they have access and have insurance coverage. And so we did build many plans that would allow them to basically buy down and retain their coverage. So we do think that would mitigate to a degree, but there are clearly still a cohort of lives that are in this marketplace who are just not going to be able to afford paying for health care when there's no subsidy.

And as Mark talked about in his commentary in our call, these are the people who support this country, doing the jobs of farmers and construction and Uber drivers and the waiters and all the gig economy folks. And we need those people to have the same opportunity to get health insurance as the rest of us. This is not a market that I think is optional at this point. There's just too many people who need and rely on the ACA. And so we continue to believe this is the market for the future, and we're -- our kind of conviction that this is a marketplace that we want to be in now and for the foreseeable future is high.

Okay. Just going to the idea of an extension, if that happens, additional outreach, optimization of it. Some of your peers have called out that they've kind of embedded some G&A or keeping some in their back pocket in case something does occur. I guess from your perspective, how much of a lift would it be within your business to kind of do this? Is it embedded in your expectations? Do you need to work with the brokers a little bit more closely and maybe that could be a factor?

Yes. I think our existing cost structure could absorb a range of membership outcomes without having to make significant investment. There's obviously a point where we would have to bring in more resources to support particularly kind of the onboarding and the first couple of months of post open enrollment. So we've assumed a certain cost structure given some membership projections. If we saw something above that, that's where we could potentially see some pressure in the back half of this -- I guess we're almost at the end of '25, but really before the end of this year and into the first part of next year, I would view that as a plus, an upside opportunity because we are confident in our pricing. And so if we had more members, we view that as a good thing.

So I don't think that's a significant risk, but there is some risk that we may have to scale up if we did see more members than what we are expecting.

So on capital, you did the raise in September, reduced your convertible recently. Can you talk about the decision to reduce the convertible? And I assume it's you approaching them versus them coming to you? And any reason the whole amount wasn't done?

Yes. Well, for those of you who did not see the commentary or read the commentary about this, we had a convertible transaction that we did back in 2022, $305 million, that had a 7.25% coupon. And we worked with one of the primary owners of that instrument for an early redemption. We had the ability to force conversion at the end of 2026. The security was deeply in the money, basically it was trading like a common stock instrument.

And it was an opportunity for us to save on the coupon and to create some liquidity for a partner who basically there was not very much option value left in that security given how in-the-money it was. It was kind of a -- we're constantly talking to our investors, including our debt security investors, and felt like this was an opportunity for both of us to achieve goals.

And the reason that the entire thing getting all converted once was more about just ownership dynamics and not wanting too much concentration at any one time. So we -- they have until December 14. They've redeemed a significant portion already and they have an option to convert the remaining of their position up through the mid-part of December.

So we think it was a pretty fantastic transaction for both parties. We're excited to take something that basically was trading like common equity and redeem it into common equity, reduce the debt on our balance sheet. That arrangement also had some covenants, some restrictions on our ability to issue debt. We paid them some money in order to get our convert done that we did in October. So not having it, and those covenants basically have been removed with the conversion that we've done, so we feel like it just really cleaned up the balance sheet and improved the financial performance of the company.

Okay. And I'm assuming this level of capital is enough for what we currently know as of today. But under the premise of the subsidies theoretically being extended, and you see an influx of members above baseline plan, or even above where you currently are kind of projecting, are you comfortable with where you stand from that perspective? How should we think about that?

Yes. We've got over $1 billion of excess capital and parent cash. So we go into a situation where -- it's kind of funny that I think if 3 or 4 months ago we'd said subsidies are set to expire, do you have enough capital? Are you going to grow? Is there a chance that you'll need more capital if subsidies get extended? That conversation was pretty dynamic. Today, with the subsidies looking like they're not going to get extended, at least in this -- with the bill, that seems less of an issue for us.

But we were -- we have always tried to run the balance sheet to try to position us for both upside and downside exposure. Felt like we had enough opportunity for growth in 2026, both with and without the subsidies, that rehydrating our balance sheet after the losses that we were seeing in '25 just made sense. I'm really comfortable that we've got a really strong capital surplus at the moment that gives us the ability to absorb a lot of growth. There's obviously a point where you just don't have the capacity for endless growth in a business that requires you to post capital before you earn any money.

But the other thing I would just say is that I remind people that we do use quota share. It is -- they basically, those quota share arrangements, our quota share partner posts their portion of capital, and it's a little bit more than half of our book is covered by quota share. So they are covering a significant amount of capital. And if we grew, they would continue to post a portion. So that reduces the burden on us. We do pay them for that rented capital.

But we feel well positioned. We think that there's certainly, in the scenarios that we're projecting, that we'll have adequate capital. But there are certainly points where if we really grew significantly, if something happened that allowed that to occur, we may need to look at additional fundraising, which we think we would have ready access to.

Okay. I'll just ask, if someone has any questions, just raise your hand. But I'll continue on here. Just on ICRA, this is an opportunity that you continue to focus on, and one of your larger peers has also placed a pretty big emphasis on. On the other hand, there are others that believe ICRAs are just not viable even if they have their own exchange product offering. What's your perspective on this?

I think that the naysayers on ICRA probably have commercial and group plans that they're protecting. That's kind of the friction point of ICRA, because we think there's a huge opportunity to move small, midsized and even large companies into ICRA over time. Our focus is really to create more awareness of what these products can be and to try to grow the TAM, as much as even building a direct business for us.

We're having a lot of really encouraging conversations. Our pipeline of potential ICRA, both customers as well as people that want to partner with us, like the Hy-Vee relationship that we just launched in Des Moines, Iowa this year, right, there's -- we've got a lot of people in the pipeline for us that we're working with.

So I think this is a marketplace that may take more time to mature than maybe we thought. But it's -- and so like as CFO, I look at the mechanics of why and how you do this, and it's so obvious to me. Like there's just really no reason for a company to be responsible for making the decisions about what providers we all have access to. And if you can provide your employees with a plan that lets them choose the network they want and allows them to basically maintain that network or go to a new network without the employer intervening, and it's cheaper for the employer, like why isn't this a home run? It's really a head-scratcher to me as to why we're not seeing more adoption.

I would say that when I look at the fundamentals that are here, there's more infrastructure, there's more platforms that are available. There's more engagement by brokers and by the types of people that might market these arrangements. So I do see certainly green shoots coming out on ICRA that tell me that this is going to be a market that gets some strong footing. And we continue to be very, very optimistic about the opportunity for this to be a significant business for us over time.

Okay. We're basically at the 1-minute mark, so I'll just close out here. What do you kind of see as the biggest risks for 2026? Obviously, utilization is always one thing. But what would you characterize as the biggest risks for you in your mind?

The number one is did we and our competitors price market morbidity correctly? Because when I look at my peers and I see pricing where we're all kind of in the same band, it's not like there's a whole bunch of people that have taken different points of view as to what morbidity is going to be next year, that might be because a whole bunch of consultants were walking around selling their information to all of us over and over again and we all took input from similar sources.

But I would, first of all, say that if you believe that we're mispriced, I think you probably think the market is mispriced. So the biggest risk for this industry is going to be what's the market morbidity next year. We believe that we built in more than enough for us to accommodate that in our pricing. So that's probably the biggest risk going into next year.

I think that we're, on balance, I would say I'm incredibly excited about the opportunity for Oscar to really have a transformational 2026 in terms of picking up market share and delivering significant profitability and margin improvement. So on balance, I'm excited to have the opportunity that we have in our price position and what we've seen from kind of the early days of enrollment. We feel great about our opportunities for next year, and I look forward to coming back next year and telling you how great it's been.

All right. Great. With that, we'll end it there. Thank you.

Thank you. Appreciate it.

Good morning. My name is Dustin, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us for our third quarter 2025 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar's Chief Financial Officer, will host this morning's call.

This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our annual report on Form 10-K for the period ended December 31, 2024, and the quarterly report on Form 10-Q for the period ended June 30, 2025, each as filed with the SEC and other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended September 30, 2025, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the third quarter earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2025 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable without making unreasonable efforts to calculate certain reconciling items with confidence.

With that, I will turn the call over to our CEO, Mark Bertolini.

Good morning. Thank you, Chris, and thank you all for joining us.

Today, Oscar announced third quarter results and reaffirmed updated 2025 guidance. We reported total revenue of approximately $3 billion, a 23% increase year-over-year. MLR increased approximately 380 basis points to 88.5% due to higher market morbidity, partially offset by favorable prior period development. Our SG&A expense ratio of 17.5% meaningfully improved by approximately 150 basis points year-over-year. Overall, Oscar reported a $129 million loss from operations and adjusted EBITDA loss of $101 million. Net loss for the third quarter was $137 million. We remain confident in our ability to expand margins and return to profitability in 2026. Scott will walk through our financials in details in a few moments.

Before I get into our results, I want to underscore the long-term importance of the individual market. The individual market is the only source of affordable health coverage to 22 million Americans who power our economy. The majority of members are from the small businesses, service and farming sectors, which together generate nearly half of U.S. GDP. These hard-working people do not have access to employer coverage and rely on enhanced premium tax credits to fill the gap. For example, the average farmer making $60,000 a year now pays $75 a month for health insurance compared to $300 a month before the enhanced premium tax credits. That $225 is the difference between paying for health care or paying the bills.

Limiting access to affordable coverage in the individual market undermines Main Street and rural America. This market is critical regardless of policy changes, and we are engaged with policymakers on both sides of the aisle to ensure Americans have access to the coverage they need.

Now I will update you on current market dynamics. As we said last quarter, 2025 is a reset moment for the individual market. Overall risk adjustment data from Wakely in the third quarter show continued higher market morbidity, which we attribute to Medicaid lives entering the market and the initial impacts of program integrity efforts.

Looking ahead, we see rational pricing in the 2026 open enrollment period. We also see the overall market to contract due to the expiration of enhanced premium tax credits and program integrity efforts. However, we remain optimistic Congress will reach a compromise on tax credits to address affordability issues many Americans will face without them.

The Oscar team is well positioned to profitably grow share and improve margins. Our 2026 pricing strategy remained disciplined, balancing membership and profitability. For 2026, we resubmitted rate filings in states covering close to 99% of current membership. And our weighted average rate increase is approximately 28%. Our rate filings reflect elevated trend, significantly higher market morbidity in 2025, the expiration of enhanced premium tax credits and program integrity initiatives. Our teams are actively directing members to plans at affordable price points to ease this transition. We have a strong opportunity to capture share profitably as other carriers retreat or price themselves out of the market.

Oscar ended the first nine months of 2025 with more than 2 million members, a 28% increase over last year. We are now in the first week of the 2026 enrollment period. The Oscar experience will be available in 20 states, including 2 new states, Alabama and Mississippi. We are also entering new markets and expect to grow share in existing markets in core states next year. Our total addressable market for plan year 2026 is approximately $12 million, up 500,000 year-over-year.

Oscar offers consumers more choice in the individual market. We continue to diversify our product mix, evolving from condition-specific plans to plans tailored to meet different phases of life. Our long-standing clinical plans for members with diabetes, asthma, COPD and multiple chronic conditions remain strong performers in the book. Now our new product, HelloMeno, helps women take control of the menopause experience. Today, nearly 5.4 million women over the age of 45 are enrolled in the ACA, a rapidly growing demographic with limited support. Oscar is the first individual market carrier to offer this type of product in partnership with leading women's health clinics and menopause-certified clinicians across the U.S. We help members save up to $900 per year by getting them into the right plans with $0 benefits, early intervention programs and high-value treatments that improve outcomes at lower costs.

Oscar also continues to shape the future of employer coverage through ICRA. Our pricing is competitive across our major markets compared to group plans. We expect to see continued conversion from small and midsized employers who are suffering from double-digit group rate increases. Our Hy-Vee Health with Oscar product is now live in Des Moines, Iowa for plan year 2026. This innovative plan is the first of its kind. The plan offers $0 concierge-type care at an affordable fixed price and in-store rewards for buying healthy food. We plan to expand this partnership in additional markets. Our momentum in ICRA reflects the growing demand among employers for a wider range of affordable and innovative benefits.

Finally, Oscar is infusing an industry-first health AI agent, Oswell, into our entire product portfolio. Oswell is powered by OpenAI and helps members manage their health on demand. Unlike other AI tools, Oswell is connected to Oscar's cloud-native tech platform. It draws from claims, medical records, care guide notes and other member data for a personal experience. Members can better understand symptoms, common test results, medications and preapprovals tied to plan benefits. Owell also provides doctors with data to improve care paths and members with questions to ask their doctors so they are informed on their care. This is just the beginning of what we will do with leading AI models to redefine the health care experience.

In summary, Oscar's highly innovative products, superior member experience and disciplined pricing set us up to grow market share. We remain front-footed and know how to run a successful company in dynamic markets. Oscar will continue to lead the individual market regardless of the outcome on enhanced premium tax credits. All of our attention and resources are focused on executing against our strategic plan.

We are well positioned to expand margins and return to profitability in 2026. The ACA and ICRA have the potential to meet the health care needs of approximately 120 million working people. The individual market aligns with major macroeconomic workforce and consumer trends. More Americans work in the service economy than ever before. More businesses want affordable benefit options. More people want greater choice. Oscar is ahead of the demand, and we are creating the future of individual health care for all Americans.

I want to thank the entire Oscar team for their hard work during our busiest time of the year. I am proud of how we consistently show up for our members, partners and the business community. I will now turn the call over to Scott. Scott?

Thank you, Mark, and good morning, everyone. This morning, we reported our third quarter financial results and reaffirmed our full year guidance.

2025 has been a dynamic year for the ACA marketplace. We've observed higher average market morbidity attributable to strong ACA growth from Medicaid redeterminations and ACA program integrity efforts that were implemented after the completion of 2025 pricing. We have taken disciplined actions to manage costs this year and to position us to ensure we return to profitability next year.

Turning now to third quarter results. Total revenue increased 23% year-over-year to approximately $3 billion, driven by higher membership. We ended the quarter with 2.1 million members, an increase of 28% year-over-year. Membership growth was driven by solid retention, above-market growth during open enrollment and SEP member additions. The third quarter medical loss ratio was 88.5%, an increase of approximately 380 basis points year-over-year. We received a risk adjustment report in the third quarter for claims through July, which showed a further increase in market morbidity across several states. The third quarter MLR was impacted by a $130 million increase to our risk adjustment payable for 2025, partially offset by $84 million of favorable prior period development, primarily related to claims run out from the prior year.

As discussed during our second quarter earnings call, we observed a sequential decrease in utilization each month throughout the second quarter. This trend persisted into early 3Q before stabilizing to be more in line with our expectations. Overall year-to-date utilization is modestly above our expectations. By category, inpatient utilization remained elevated but moderated meaningfully throughout the first 9 months of the year. Outpatient and professional were slightly elevated, while pharmacy remained favorable.

Switching to administrative costs. We continue to deliver strong improvements in the SG&A expense ratio. The third quarter SG&A expense ratio improved by approximately 150 basis points year-over-year to 17.5%. The year-over-year improvement was driven by fixed cost leverage, lower exchange fee rates and disciplined cost management, partially offset by the impact of higher risk adjustment payable as a percentage of premium.

In the third quarter, the loss from operations was $129 million, a change of $81 million year-over-year, and the net loss was $137 million, an $83 million change year-over-year. The adjusted EBITDA loss was $101 million in the quarter, a change of $90 million year-over-year.

Shifting to the balance sheet. We have taken opportunistic steps to strengthen our capital position and optimize our capital structure. During the third quarter, we completed a $410 million convertible notes offering due 2030. Net proceeds were $360 million, inclusive of the cost of a capped call transaction, which increased the effective conversion price to $37.46.

In addition, subsequent to quarter end, we entered into an agreement to redeem the vast majority of our outstanding $305 million convertible senior notes for shares. We ended the third quarter with approximately $4.8 billion of cash and investments, including $541 million of cash and investments at the parent. As of September 30, 2025, our insurance subsidiaries had approximately $1.2 billion of capital and surplus, including $564 million of excess capital.

Turning now to 2025 full year guidance. Based on our results through the first nine months of the year, we are reaffirming all of our guidance metrics. For total revenue, we now expect to be towards the low end of our guidance range of $12 billion to $12.2 billion, driven by the third quarter ACA Marketplace morbidity that increased by more than our prior estimates. Membership growth has been strong through the first nine months of 2026.For the fourth quarter, our outlook contemplates a sequential decline in membership, driven by more historical churn patterns as the continuous monthly SEP for those at or below 150% of federal property level ended in the beginning of September. Our outlook also assumes risk adjustment as a percentage of direct and assumed policy premiums is in the high mid-teens range.

Shifting to the medical loss ratio. We continue to expect a full year MLR in the range of 86.0% to 87.0%. The full year MLR guidance reflects higher average market morbidity, year-to-date utilization patterns and continues to assume a modest increase in utilization in the fourth quarter as members may seek additional care ahead of anticipated coverage changes next year.

On administrative expenses, we continue to expect an SG&A expense ratio in the range of 17.1% to 17.6%, driven by greater operating leverage and variable cost efficiencies. We expect a loss from operations in the range of $200 million to $300 million and an adjusted EBITDA loss of approximately $120 million less than the loss from operations. While the third quarter risk adjustment true-up is expected to drive total revenues towards the low end of our full year guidance range, favorable prior period and in-year claims development and administrative expense efficiencies substantially offset the impact. So net-net, our outlook for the loss from operations remains unchanged.

Now I'll spend a moment on our planning assumptions for 2026. While it is too early to provide formal guidance, we have taken appropriate actions to ensure we can deliver meaningful margin expansion and return to profitability next year. Our 2026 pricing strategy balanced growing market share and improving profitability. As Mark mentioned, our weighted average rate increase is approximately 28% for 2026. This increase anticipates above-average trend and is significantly higher market morbidity driven by increased market morbidity in 2025, the expiration of enhanced premium tax credits and the current ACA program integrity initiatives.

We believe our disciplined pricing strategy captures the changing market conditions we've observed this year and the expected changes next year. Based on a review of final rates, our competitive positioning is in line with our expectations, and we are confident in our ability to profitably grow market share next year. As previously mentioned, we also took actions to eliminate approximately $60 million in administrative costs for 2026.

In closing, we remain committed to bringing consumers affordable, innovative products and building an even larger ACA market over the long term. 2025 is a reset for the ACA marketplace. We've taken necessary pricing and cost actions and are confident in our ability to meaningfully expand margins and return to profitability in 2026.

With that, I will turn the call over to the operator for the Q&A portion of the call.

[Operator Instructions] And we will take our first question from Michael Ha from Baird.

Regarding the September weekly report, I understand there's worsening market morbidity shifts. But curious, is there any indication in that report how much of that might have been from things like FTR rechecks and removal of duplicative members heading into fourth quarter? I'm curious to hear how you view the potential risk of there being maybe more market morbidity shifts in the December weekly report. So thoughts there would be great.

Michael, thanks for the question. So the Wakely report that we received had market morbidity increases by about 1.5 points to 2 points across several of our markets. We think that the drivers of that increase are the same types of things that we discussed last quarter, obviously, to a lesser magnitude. As you think about that report captures claims through July. And so it wouldn't capture the impacts of FTR or dual enrollment churn that really happened in the third quarter.

On those two topics, I would say that we've seen about 45% of the people who were part of CMS' list to us on FTR or dual enrollments with 45% of that list has churned. When we look at the nature of those members, they actually have higher risk than our average book. So if we -- if the whole industry had similar types of characteristics in their populations, that actually would be a tailwind to market morbidity. So we don't see any reason to change our expectations that market morbidity will stay consistent through the end of the year.

Great. And just one more question. So G&A, if I take a step back, has been such a bright spot in your fundamental story. I think it's shined a really powerful light on +Oscar as well. So I'm thinking ahead regarding your longer-term G&A target for '27, 16% I wanted to ask if you still feel confident on achieving this target even with the magnitude of expected member attrition over the next couple of years. So I'm curious on the target. And I guess, more broadly as well, how to think about decremental margins.

Thanks, Michael, Mark here. We actually believe we have more room in our SG&A as we go forward. The AI models we're creating, we've got well over two dozen models on the back end. We've just launched our first agentic. We have another one coming out of the lab. We have a lot of really good opportunity with AI to streamline our operating costs. And of course, the discipline we have on making sure that our variable costs, first and foremost, are fit to the size of our business. So if there is market shrinkage, then we believe that we have plenty of time to be able to adapt our variable costs to fit our cost structure going forward.

Our next question comes from the line of Josh Raskin from Nephron Research

I was wondering, Scott, if you could just elaborate a little bit more on the underlying cost trends in the quarter and maybe any changes you saw from the first half? And within that, what areas drove that favorable development and seemed like a pretty sizable number for the prior year? And then I guess, I know it's super early, but any sense of that expected increase in utilization that you mentioned as we're entering fourth quarter? Are you seeing any of that as members get their new rates?

Josh, let me go through those questions. So I'll start with the PPD, which was $84 million in the quarter. And that was -- about half of that was related actually to risk adjustment where we had some favorable development around some of our estimates for rebates. I know you wouldn't expect that we have rebates because we're a large payer, but we do have some markets where we do pay rebates, and we got some clarity on a few topics that allowed us to true that up. So that was about half of it. The remainder was favorable development from claims, and that just is, I think, encouraging for us that we continue to see both prior year development that's favorable and in-year development. So we feel like those are positives in terms of that we're appropriately reserving for the risk that we're seeing.

And if I shift then to what's going on in utilization and trend, I would say that utilization continues to moderate year-over-year. it's still modestly elevated versus our pricing expectations. Inpatient remains elevated, continued to moderate into the third quarter. Outpatient professional, slightly elevated. I would say that we believe that some of the changes we're seeing in terms of shifts between categories is a result of some of the total cost of care initiatives that we're running, where we're really focused on driving appropriate site of care transitions. So not much there that we're seeing that gives us pause. And generally speaking, I think that we look at utilization softening throughout the year and approaching kind of where we expected in pricing to be a good thing.

Perfect. Perfect. That's helpful. And then is there some -- if there is some sort of compromise that extends the enhanced subsidies, what should we be looking for that would create a more stable reenrollment process? What mechanisms do you think would be helpful for consumers in getting their insurance for 2026?

Josh, I think a couple of points I would make. First, we have been very careful with our plan design and their strategies to create $0 goal plans, $0 bronze plans and have spent a lot of time with the broker community helping educate them on the types of products that they can move people to. And we're seeing good activity on that in the early innings of the open enrollment period.

Secondly, if enhanced tax credits are extended, we don't think there will be any real meaningful way to change prices the longer it goes. And I think we're probably beyond that now, but we shall see. But I think there are a couple of things that could happen. One is that we have this minimum MLR in the ACA market. And then a minimum MLR would require us to rebate if the plans made "too much money" based on having lower MLRs. And we would see that as a positive thing for the community and for our members to get a rebate back from their plan as a result of having these enhanced tax credits continue. We don't know what the price effect is until we know what the plan is and quite frankly, how it's going to fit. But that's how we think about enhanced premium tax credits.

Our next question comes from the line of Jessica Tassan from Piper Sandler.

I was wondering maybe if you could talk about the enrollment in 2025 in diabetes, asthma, COPD specific plans. Maybe just remind us of the increased risk adjustment visibility and favorability of MLR in these plans, if any, and then the extent to which these plans were expanded for 2026 and whether they've got better retention or different metal mix.

Jess, thanks for the question. So the thing about these plans is that we create them to draw into the plans, people who are interested in managing their conditions, and it allows us to have really better-than-average engagement with those members, which helps us to manage costs for them and for us. So that's why we really think that these are both creative to help people manage their specific conditions. We continue to roll out new ones because we do see success with retention when we have people with these conditions. They have a high NPS on these plans. So it's still not a large portion of our membership, but it's an important part of our membership in terms of our ability to attract and retain members.

Got it. And then just maybe do you have any early thoughts on how Oscar's morbidity in 20 -- I know it's five days in, but how Oscar's morbidity in '26 might evolve relative to the market? Or maybe just anything in your pricing or product design or commercial strategy that you'd call out that would give you maybe more control over your morbidity relative to the market?

Well, on the first point, we have priced as if premium tax credits are gone. '25 impact of morbidity, '26 potential impacts on morbidity given the shrinkage of the market, which we think is anywhere between 20% and 30%. 20% is the lower end without a number of these things, 30% being the highest, but that has an impact on our morbidity and program integrity efforts as if they were implemented. And we stack those in our pricing. We did not look for any duplication. And so we believe we're well covered depending on whatever happens next year relative to the morbidity in the market. Anything to add on that, Scott?

No. And I think it's too early to say much about '26 morbidity. I think that when I look at the core performance of the company this year and I strip out kind of what happened with the impacts of market morbidity shifting higher this year, we're really pleased with the underlying trends, right? We're seeing an MLR when I strip out kind of the impact of what was happening with market morbidity, the MLR -- underlying MLR is pretty consistent with the guidance that we gave at the beginning of the year in the low 81% range.

And so when I step back from that and look at the dynamics in the company, our ability to influence what's going on with our medical expenses, we feel like we're really well positioned to continue to navigate this marketplace. And as Mark talked about, we feel like our pricing captures the risk. We feel like the company is getting ever better at delivering our services. So we feel really well positioned for '26.

Our next question comes from the line of Scott Fidel from Goldman Sachs.

First question, and I understand it's still very early into the OEP here. But could you maybe just sort of walk us through the initial intelligence and feedback that you're getting from all your channels? What -- how that may inform the -- how sort of enrollment may be or sign-ups may be tracking relative to the industry expectations and then the expectations, Mark, that you just mentioned around that down 20% to 30%. Obviously, very early here, but just curious on sort of the initial indicators that you're getting from the OEP.

Thanks, Scott. We have seen a lot of activity more than we thought we would see at this point in time. However, you have to look at the structure of bonus programs and the broker network and all the education we did, and we are not banking on anything based on what we've seen in the first five days, quite frankly, that we'll be willing to leverage off of and say we expect our enrollment to be x for 2026. And so we're pleased with the progress so far, but we're not banking any of it as a future perspective on what our enrollment will be -- in the beginning of the year.

And Scott, I'd just add, Mark talked about this, but I think it's an important thing. We did a significant amount of preparation with our brokers, training, mapping members. So we went into open enrollment with a pretty sophisticated game plan about where do members who are going to lose subsidies map to. We've got -- brokers have all of the information about people who may lose subsidies. So should the enhanced premium tax credits get extended. We know who the members today are who would be impacted by that. The brokers know who they are. We would certainly be able to quickly outreach to them and try to bring them also into the marketplace. So the early days are certainly showing that the preparation and the work we did is proving successful.

And also, I would add that we had in November or late October, it was auto mapping on the plans that are leaving the market, and we received the share that we thought we would receive.

Okay. Got it. And then for my follow-up question, curious to what extent just as you've gotten the latest Wakely data and has shown variation in morbidity and sort of your positioning around risk adjustment in different states. How much were you able to, I guess, sort of factor or inform your pricing and your positioning strategy for 2026? Just curious around how much that may have sort of fed into your go-to-market strategy for '26 to try to sort of operate against some of those changing morbidity dynamics?

Yes. Well, as Mark said, we're expecting the market is going to contract by 20%, 30%. We actually -- our best estimate is towards the lower end of that range in terms of impact, but we price towards the high end of that range. So we think we've got some -- the potential for some buffer already in there. Based on the way that we built the pricing for '26, Mark went through that we didn't attempt to look for overlaps in the way we measure. We think that creates some natural cushion in terms of the ability to absorb the change that we've seen. So net-net, I think that we continue to believe that our '26 pricing is resilient against what we've seen so far and it positions us well to return to profitability and see margin expansion next year.

Our next question comes from the line of Stephen Baxter from Wells Fargo.

I guess the first question would just be trying to dive into the competitive dynamics a little bit more for next year. It seems like maybe some of your large peers have rate increases that are at or maybe above your 28%, but then maybe some of the not-for-profits could be a little bit lower. Just to kind of boil it down, like is there any kind of metric you have where you kind of have an analysis of what percentage of your markets you're going to be in a low-cost position, either just in the silver market or maybe across all your markets and how that compares to 2025? And then I have a follow-up.

Steve, so when we think about competitive position relative to last year, first of all, all these increases in prices, you've got to start with last year's price position where last year, we were only, I think, in 15% of our markets, we were the lowest or second lowest silver price plan. This year, that's moving up to 30%. We still think that, that's less than some of the other large competitors that we see in the marketplace. So while we're competitive, we're not as competitive as some others. When I think about that relative price position, we think we can grab share in several of these markets. We think that the average price increase nationally is around 26% based on research by the Kaiser Family Foundation. So we think that we've done a nice job of putting our pricing into the market in a way which is competitive, allows us to grow margin, but also is disciplined and allows us to protect ourselves as well.

And one more point, Steve, because we believe the enhanced tax -- we priced without the enhanced tax credits being in place. Our metal strategy is fundamentally different than where we were last year. While we still think we'll have a lot more -- we'll still have the majority of our people in silver plans, we have priced gold and bronze plans that fit certain profiles in certain markets based on our underlying provider networks that allow us to have differential pricing from our competitors that are hard to compare by looking at average rate increases.

Got it. That's very helpful. And then just two quick numbers follow-ups. I guess, first, the risk adjustment, as you spoke to, is now 17% of direct premiums year-to-date, just making sure that's the right way to think about the full year at this point. And then what is cost trend running at this year? And what are you assuming cost trend is next year?

Yes. So Steve, I think that the 17% risk adjustment year-to-date is probably a reasonable estimate for the full year, plus or minus. And with respect to cost trend, I won't go further than to -- than I did in terms of my discussion of utilization and what we're seeing in that and kind of it's slightly above our pricing expectations for last year. We have for 2026, assumed a trend increase that is higher than what we've seen historically. And so we are expecting, at least in our pricing to see trend, and this is excluding the impacts of all the market morbidity shifts, but just core cost trend that would be higher than what we've seen in the past.

I think that last point is an important one because we stack these things and our morbidity includes a lot of these program efforts and the impact on the population as a result of how risk adjustment came out. So that's separate than the pure underlying trend of our relationships with providers.

Our next question comes from the line of Jonathan Yong from UBS.

I guess under the premise of a possible extension of the enhanced subsidies and whatever it may or may not include, how are you thinking about operationalizing this? And what may or may not be included in G&A at this moment, if anything? And what kind of step-up would you need if it were to occur?

I think the SG&A piece is not relevant to the enhanced premium tax credits, it's really around growth. So we look at both our fixed cost leverage and our variable cost leverage. We manage the variable cost leverage very close to membership, and then we impact fixed cost leverage, we actually already have going into '26 and expectations for '27. And that's part of what we're doing with our AI capabilities. In the end result, how we're going to operationalize it, we think we're in a good place I mean we look at this every day. We actually met on it yesterday to go over how do we have to think about growth up or down based on our projections. And I think we have the right tools in place with BPOs, for example, and other capabilities that we can use to meet the needs of the people we have on board or to pull back if we need to.

Okay. Great. And then I know, again, it's early on the enrollment period. But in terms of the members that are kind of showing up, are these kind of the typical members that would naturally have a 0 -- effectively not be paying anything and kind of for the members that are losing their enhanced subsidies, are they trying to downgrade? Or are they just kind of leaving the market altogether? What are you kind of seeing and hearing with respect to that?

Way too early to tell. We don't have that level of detail yet. We will get it, but it's going to be long.

Our next question comes from the line of Andrew Mok from Barclays.

You mentioned that your competitive pricing was in line with expectations and that you expect to take market share next year. Can you help us understand that strategy a bit more? Why is taking market share the right strategy in 2026? And do you think that is more likely or less likely to hurt from an adverse selection standpoint?

Taking market share really means taking advantage of people who priced way out of the market. And I think there's a subtle difference here between the group market that I hope you all understand. Given the risk adjustment mechanism and the way it works, it's almost impossible or just not -- it's not worth underwriting the members in the network. It's about the network itself and underwriting that provider network. And so some of our competitors who have priced way out of the market or left the market, we're using commercial networks at commercial prices where we have been using narrow networks in every market. And in the individual purchasing decision, people at the local market have the opportunity to buy their network and the plan design that works for them versus having an employer offer them a broad area of network, which costs more and a benefit plan that doesn't meet anyone's needs specifically. And so for that reason, we believe that looking at taking share from people that are pricing at 30%, 40% higher, we have an opportunity to take that share, put them into our networks and our underwriting and make it work better and effectively for us. And that's how we price. We're pricing off of the underlying cost of the network because we get covered on the risk adjustment side.

And I'd just reiterate something that Mark said earlier. We think this is -- what we see is evidence of a very rational marketplace, right? So it's -- we don't think that there's been anyone who's tried to do a land grab and price dramatically lower. We feel like we're right in the pack. So from an adverse selection perspective, that's not something that is at the top of our list of worries.

Great. And if I could just follow up on membership. I think last quarter, you said that you expected membership to trend down in the back half of the year. It looks like 3Q membership was up about 90,000 members or 4.5% sequentially. So I just wanted to get more color on what's driving that change versus your expectation and the implications of that higher membership on 4Q MLR.

Yes. I appreciate that question. So membership was stronger than what we had expected in the third quarter. A good portion of that was driven just by lower churn. And so that is a positive that helps, obviously, with the MLR dynamics. We did have SEP member additions as well, but that ended as of September in terms of the continuous SEP, as I said in my comments. So overall, we continue to expect MLR to drift up in the fourth quarter. You can obviously do the math. We give you the full year guidance of MLR, so you can figure out what the point estimate is there.

But we build -- when we reviewed our guidance for the year, we looked at all of the trends that we're seeing. We're looking at the details of is there anything that caused us to believe that we needed to increase the full year guidance of MLR, including the SEP performance. And we just haven't seen anything in the details that makes us concerned and we're able to reaffirm our guidance.

And one more thing I'll add is that we are very supportive of the program integrity efforts and the things that happened this year in program integrity had less and less impact on us as an organization than others because we spend a lot of time validating as much as we can the membership that comes into our plan. And if we see what we see as potential fraud, we sideline those brokers and those members and evaluate whether or not it's appropriate to bring them on board. So given that, when we received our dual eligible information, it was low double-digit thousands, very low double-digit thousands versus the headline report put out by certain people in the press of 2.4 million people. And so the obvious impact to us was a lot less than we thought it was going to be because we had done the homework upfront. We think this is a key part of making sure risk adjustment works well is that everybody uses these same tools to make sure that the people we're bringing on board belong on board, not because somebody else was able to get commission.

Our next question comes from the line of Craig Jones from Bank of America.

So a follow-up on the fraud comments there. There's been a lot of talk about the -- out of the current administration around the various ways to root it out. So if you were advising Congress on maybe what they could do with a negotiated deal on the enhanced subsidy extension, what would be some of the most effective tools that could be implemented for 2026, maybe during a special enrollment period alongside enhanced subsidy extension to help root out some of that fraud?

Again, we support all the program integrity efforts that were put forward this year. We were prepared and we have priced as if those were in place. We have kept that pricing in place because we expect some of them may come along through regulatory action by CMS throughout the year. We want to be prepared to handle that. Of course, we would prefer that the industry get the opportunity to work with CMS to do this within the pricing cycle so that we're having all of these impacts fit and that we aren't disadvantaging our members as a result, disadvantaging working Americans as a result of having to have these huge morbidity jumps because we did it in the middle of pricing. So if we could do it before we price and work together on it, we're more than happy to support the program integrity efforts put forward by CMS.

Our next question comes from the line of Steven Couche from Jefferies.

Is there any way you can quantify what you believe your cost advantage is from your narrow network strategy versus peers?

Yes.

Look, I think, obviously, we're not going to get into the details of our competitive positioning on that. And we think that many of the -- of our competitors do have particularly the more successful competitors have similar strategies around narrow networks. What's most important is really making sure that you have the right network, you have the right providers, you have the right systems in the markets where you're trying to grow. And we think that's one of the important reasons why we can have similar cost, but grow above the market average because we do spend a ton of time in making sure that we curate our markets and that we have the right set of doctors, the right set of hospital systems that are attractive in those markets.

Great. And then is there any way you can help us or share what your assumptions were for the impact of the program integrity measures because we've seen estimates anywhere from sort of a de minimis impact to something quite meaningful. And then are there specific program integrity measures that you think are going to have the most impact?

Well, look, I don't think that we'll get into the specifics of that. We do think that the state program integrity provisions would have been in place, had an adverse market or an adverse impact on the total size of the market. So we built that into our expectations, as Mark talked about, for pricing, but we'll have to see how those things play out, but we are prepared in terms of the pricing and for '26 that they may come back into practice at some point during the year.

There are no further questions. That concludes our question-and-answer session. That also concludes this call for today. Thank you all for joining. You may now disconnect.

Good morning. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oscar Health Second Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us for our second quarter 2025 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar's Chief Financial Officer, will host this morning's call.

This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website at ir.hioscar.com.

Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our annual report on Form 10-K for the period ended December 31, 2024, and the quarterly report on Form 10-Q for the period ended March 31, 2025, each as filed with the SEC and other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended June 30, 2025, to be filed with the SEC.

Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the second quarter earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2025 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable, without making unreasonable efforts to calculate certain reconciling items with confidence.

With that, I would like to turn the call over to our CEO, Mark Bertolini.

Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar announced second quarter results, which are consistent with the preliminary results we released on July 22. We reported total revenue of $2.9 billion, a 29% increase year-over-year. MLR increased 12 points year-over-year to 91.1%, primarily driven by an overall increase in average market morbidity.

Conversely, our SG&A ratio of 18.7% improved 90 basis points year-over-year. Overall, Oscar reported a loss from operations of $230 million, and the adjusted EBITDA loss was $199 million.

In the first half of the year, earnings from operations were $66 million and adjusted EBITDA was $129 million. We are also reaffirming our updated 2025 guidance, including revenue of $12 billion to $12.2 billion and a loss from operations of $200 million to $300 million. Scott will walk through our financial updates in greater detail in a few moments.

Now I want to share our view of what we are seeing in the individual market and why we believe the market will stabilize in 2026. We continue to believe in the long-term importance of the individual market for millions of consumers and employers. Let's start with recent market dynamics. The latest risk adjustment data from Wakeley, which includes claims data through April 30, indicates a meaningful market-wide increase in morbidity in 2025. This morbidity shift is impacting all carriers, increasing by mid- to high single digits across Oscar's markets.

We attribute market morbidity increases to consumers entering the individual market for Medicaid redeterminations and healthier, low-utilizing consumers leaving the market in part due to program integrity efforts.

Oscar is taking several actions to drive value and mitigate the impact of current industry-wide headwinds. We resubmitted 2026 rate filings in states covering nearly all current membership to reflect morbidity increases. Our engagement with state regulators continues to be productive. Our initial rate filings already reflected program integrity changes and the expiration of enhanced premium tax credits. We expect the market will have double-digit rate increases next year. We believe these overall rate increases will address the current morbidity pressure and the effects of program integrity efforts for 2026.

We also see potential upside with growing support to renew enhanced premium tax credits in the upcoming continuing resolution. Oscar is a leader in the individual market with a 12-year track record of navigating dynamic markets. We are focused on what we can control. In addition to repricing, we remain disciplined in our expense management. Our team is rightsizing the cost of the business in the back half of this year. We continue to harvest technology and AI-driven efficiencies to optimize our operations and drive several medical cost affordability initiatives.

The team is also reducing fixed cost headcount. We expect these actions will eliminate approximately $60 million in administrative costs for 2026. We also improved our 2025 SG&A guidance by 50 basis points at the midpoint compared to initial guidance.

The individual market is experiencing a reset moment, but the market is resilient, and we see significant opportunity for long-term growth. The individual markets' fundamental characteristics, combined with ICHRA will drive a growing and stable risk pool over the long term. Oscar is at the center of building this future and is creating a competitive health care market for many more consumers and businesses.

We are announcing several strategic steps to power ICHRA and further diversify our business. We acquired important early-stage assets with capabilities to help us build the consumer marketplace of the future. These assets include an individual market brokerage, a direct enrollment technology platform and a consumer education website, healthinsurance.org.

We are also launching a new ICHRA product with a well-known consumer brand in the Midwest, Hy-Vee, Inc. Our new ICHRA assets will give us capabilities to meet and exceed the expectations of consumers and employers. The technology platform, INSXCloud, is a fundamental asset of the marketplace as it is one of only 11 CMS-approved solutions, creating a digital storefront for all health products.

The brokerage, IHC Specialty Benefits offers individual medical and supplemental health products across carriers in all 50 states. The brokerage will allow us to offer consumers the supplemental health products they typically buy with health insurance. While the acquisition will not have a meaningful impact on our near-term results, we believe these capabilities are important building blocks of our long-term strategy.

Hy-Vee is one of the most trusted brands in the nation with 570 grocery and convenience stores and 270 retail pharmacies. Hy-Vee and Oscar are introducing a new Hy-Vee health branded ICHRA plan. We are initially launching this product for employers and employees in Des Moines, Iowa for plan year 2026, subject to state approval.

The plan offers superior benefits, including concierge medicine at an affordable fixed price through Hy-Vee Health Exemplar Care clinics. Our partnership is an example of the innovation we intend to drive with other employers, provider systems and consumer brands in the United States. In summary, Oscar is well positioned to manage through the market reset in 2025. We believe the market will stabilize next year, and we expect to return to profitability in 2026. Oscar's track record of disciplined execution, strong management processes and a highly skilled team will continue moving us toward long-term growth.

The individual market has greater long-term upside and is the future of health care. It is a market powered by individual choice. Choice drives a competitive market where consumers direct the innovation they want. Every American and American business deserves high-quality, affordable health care that fits their needs.

I want to thank the Oscar team for their leadership and hard work. We continue to execute against our strategy, stay responsive to the consumer and harness AI to move faster than the market. We are a company built on great technology with an exceptional member experience that will change health care.

Now I will turn the call over to Scott to discuss our financials in more detail. Scott?

Thank you, Mark, and good morning, everyone. This morning, we reported our second quarter financial results and reaffirmed the updated outlook we provided a couple of weeks ago. There is a market-wide shift occurring in the ACA marketplace, shifting towards higher average market morbidity. While we are now projecting a loss for 2025, we are taking corrective actions to ensure we are well positioned to return to profitability next year.

In the second quarter, total revenues increased 29% year-over-year to $2.9 billion, driven by higher membership. We ended the quarter with more than 2 million members, an increase of 28% year-over-year. Membership growth was driven by solid retention, above-market growth during open enrollment and continuing SEP member additions.

The second quarter medical loss ratio was 91.1%, an increase of 12 points year-over-year. The second quarter MLR was impacted by an incremental $316 million increase to our risk adjustment payable for 2025, driven by higher ACA marketplace morbidity that increased by more than our prior estimates. We recognized the year-to-date impact of the risk adjustment change in the second quarter. Applying the revised risk transfer accrual consistently across the first half would have resulted in an MLR of 80.7% in the first quarter and 85.1% MLR in the second quarter.

With regard to the final CMS risk report for 2024, it was approximately $23 million favorable to the accruals as of the first quarter of 2025.

Turning now to utilization. Second quarter utilization moderated meaningfully as compared to the first quarter. We saw sequential softening in utilization each month in the second quarter. Inpatient utilization remained elevated compared to our expectations and was partially offset by continued favorability in pharmacy. Outpatient and professional were largely in line with our expectations.

Switching to administrative costs. We continue to deliver improvement in the SG&A expense ratio. The second quarter SG&A expense ratio improved 90 basis points year-over-year to 18.7%. The year-over-year improvement was driven by lower exchange fee rates and fixed cost leverage, partially offset by the impact of a higher risk adjustment payable as a percentage of premium.

In the second quarter, the loss from operations was $230 million, a decrease of $298 million year-over-year, and the net loss was $228 million, a $285 million decrease year-over-year.

The adjusted EBITDA loss was $199 million in the quarter, a decrease of $304 million year-over-year.

Shifting to the balance sheet. Our capital position remains very strong. We ended the second quarter with approximately $5.4 billion of cash and investments, including $205 million of cash and investments at the parent. As of June 30, 2025, our insurance subsidiaries had approximately $1.2 billion of capital and surplus, including $579 million of excess capital.

Let me spend a moment on uses of cash. We expect the majority of the expected losses this year to be absorbed by the significant excess capital position of our insurance subsidiaries. With respect to quota share reinsurance, we expect our ceding percentage to be just under 50% for 2025.

Turning now to 2025 full year guidance. We are reaffirming the updated outlook we shared with the preliminary second quarter results. We expect total revenues in the range of $12 billion to $12.2 billion in 2025, an increase of $850 million at the midpoint compared to the prior guidance range.

Our improved outlook is driven by better-than-expected retention and higher SEP member additions. We expect SEP member additions to moderate in the back half of the year as continuous monthly SEP for those at or below 150% of the federal poverty level ends September 1. The revised guidance assumes risk adjustment as a percentage of direct and assumed policy premiums is in the mid-teens range and largely consistent year-over-year.

Shifting to the medical loss ratio. We expect a full year MLR in the range of 86% to 87% with the increase driven by higher average market morbidity. The revised outlook contemplates higher market morbidity, the continuation of our first half utilization patterns with a modest increase in utilization in the fourth quarter as members may seek additional care if the enhanced premium tax credits are not extended.

On administrative expenses, we expect a slightly better SG&A expense ratio in the range of 17.1% to 17.6%, driven by greater operating leverage and variable cost efficiencies.

We expect a loss from operations in the range of $200 million to $300 million and an adjusted EBITDA loss of approximately $120 million less than the loss from operations. As Mark mentioned, we are reducing our workforce in the back half of 2025 with run rate savings starting in 2026.

In closing, we are taking appropriate actions to return to profitability in 2026. Our 2026 rate filings reflect the higher market morbidity in addition to having contemplated trend, impacts from program integrity efforts and the expiration of the enhanced premium tax credits.

We know how to successfully navigate dynamic markets. We will continue to execute against our strategic plan, and we expect to deliver meaningful improved financial performance next year.

With that, I will turn the call over to the operator for the Q&A portion of our call.

[Operator Instructions]

Your first question comes from the line of Josh Raskin of Nephron Research.

Appreciate the comments, Scott, on the uses of cash. But can you provide some guidance on 2025 free cash flow, understanding the strength in the first half and then the outflows, I assume, in the second half?

And then on the risk adjustment payable, I know there's a lot of moving parts there, but I think the total on the balance sheet is about $2.65 billion. I think 2024 balance was $1.65 billion. It sounds like there was a small change there. So maybe there's something around $1 billion for 2025. And then I guess my question would be, why would the payable as a percentage of revenues be lower in '25 relative to '24?

Yes. Well, Josh, let me start with your question about cash. So as we talked about in the prepared remarks, we feel like we've got a very strong capital position at this point, $5.4 billion of total cash and investments, $579 million in excess capital and $205 million of cash at the parent.

The vast majority of the cash and investments are in our insurance subsidiaries, which more than covers the risk adjustment payable as well as our required capital, and that's where you end up with the excess capital. We think that the bulk of the remaining losses that we're forecasting for this year are going to be absorbed by that excess capital position.

And so you saw that our excess capital decreased by about $300 million from last quarter, and that was the subsidiaries absorbing the losses in the second quarter.

And with respect to parent cash then, I do think that parent cash will decline in the back half of the year, largely due to us making some additional capital contribution to the insurance subsidiaries where we don't have as much excess capital. But we feel confident that parent cash is going to be at levels that remain more than sufficient to cover the cost of the holding company and the things that we need. So we feel really good about where our capital position was going into this change in market morbidity and are confident that we've got the access to funding that we need to continue to run this company.

Okay. Okay. That's perfect. And then just if could follow-up. How should we be thinking about your previous long-term targets for 2027, specifically the 5% margin and the $2.25 of EPS?

Well, we're not changing our longer-term forecast at this moment, but 5% is still our target. We need to get through this pricing season, see how the membership is going to develop as we then look at '26, '27 and '28, we'll revise as necessary. But at this point in time, we're not changing our point of view.

And Josh, I'm just going to add that -- Josh, just to add that with respect to your questions about the risk adjustment payable. We're putting a table in the [Q] that shows you all the risk adjustment payables by year so that it's easier for you guys to navigate that. And I would just say in terms of the risk adjustment payables, the adjustment that we recorded, obviously, from the market morbidity is hitting the current year risk adjustment payable, and there's really nothing about the prior year risk adjustment payable that changed other than the true-up I spoke to.

Your next question comes from the line of Michael Ha of Baird.

So last year, when you set your '27 EPS target, $2.25, I saw a number of multiyear upside levers from the hundreds of basis points of opportunity on fraud, waste and abuse, the PBM renegotiation, provider contract renegotiations, upside from ICHRA that could drive considerable earnings upside well above $2.25. So with everything happening this year, the risk pool volatility, I was wondering if you could elaborate on what you view as multiyear earnings levers that may have been more longer dated that you may have had in your back pocket, but you could also pull forward and accelerate if needed? Like how large and tangible are these opportunities?

Mark here. We are continuing to accelerate wherever we can across the board, particularly around medical costs. So I would say that we still have opportunity, plenty of opportunity to do better. You saw the effects of our administrative cost reductions through AI. We're now deploying Agentic AI in the clinical space as we look at ways of directing people and helping people find the right care at the right time. And so all of those things are coming to play. And we still, Michael, believe we have a lot of opportunity, and we are pulling all levers as we can now to set up '26 and beyond as profitable years.

Got it. Just my follow-up question. Looking ahead to the back half of this year, your updated guide, I just wanted to hear your thoughts on, is there a chance that the risk pool could deteriorate further? Like any additional potential shoots that could drop? I guess, 4 things that come to my mind are, number one, FTR rechecks. I know you're fine, but I'd be concerned if the broader market needs attrition.

Number two, at the end of the year, SEP, if that drives more growth, how that could affect profitability? Number three, the duplicative membership CMS identified. And number four, the preemptive utilization in the fourth quarter. Just wondering these 4 items and if there are any others that might factor into your updated '25 guide?

Yes. Thank you. So let me start with FTR. So on FTR, we've been telling you that we see little risk to us from that particular initiative. And just to double-click into that, we had an initial list of members who had failed to file and reconcile, which was around 27,000 members. And a portion of those members have already lost their subsidy. And we saw the remainder of those that had failed to reconcile lose their subsidies as of August 1.

Importantly, though, 60% of that group actually did complete their file to reconcile process, which I think is compared to some concerns that, that might be a very significant portion of people that are unable to file and reconcile. So for us, and if that's indicative of what others may see in the market, we feel like that's pretty positive news.

On dual eligibles in terms of Medicaid and ACA, what we've heard from CMS is that for us, that's approximately 2.5% of our membership or just under 50,000 members. We don't know exactly yet which way those members are going to go, whether they're going to land in the ACA or Medicaid. But our understanding from the FAQs is that the member will have to take affirmative action in order to retain their ACA premium tax credit.

So on balance, I think that would suggest that we would see more of those members tending to go back into Medicaid and away from the ACA. We've also heard from CMS that the 2.5% that we've seen in our book is consistent for the market. And so I think that they gave a press release previously that I think was based on '24 information, looks like the '25 information is less significant in terms of those dual enrollments.

And so we think this is a smaller exposure than maybe some have feared in terms of its exposure to losing that membership. And frankly, when we look at the utilization patterns of those individuals, they are higher on average than our book. And so there could be a little bit of benefit to morbidity if everyone in the market has seen similar patterns and those folks move from our books back into Medicaid.

And with respect to the other things that you listed out, look, I think that SEP is moderating into the back half. We do have a fourth quarter increase in utilization. We think that, that's possible, but we're -- we've pulled some levers that we think will offset the effects of that in our guidance. And so overall, we feel very good about that we've factored all those risks into our pricing for '26 and feel like we're on the path to return to profitability next year.

Your next question comes from the line of Jessica Tassan of Piper Sandler.

So I guess maybe first, can you just help us understand kind of the assumptions around returning to -- first of all, assumptions around market stabilization in '26, around returning to profitability in '26? And then just how do you kind of think about fortifying the balance sheet in the event that next year -- next year's expectation for profitability kind of surprises to the downside or is subject to adversity?

Yes. Look, I would say that for 2026, we -- as Mark talked about in his prepared remarks, we have built in, I think, fairly conservative assumptions about the impacts of program integrity, the impacts of this market morbidity shift, trend. All those things have been baked in. When we access information that we're able to get in terms of what does the competitive pricing landscape look like, we see higher -- very conservative rate actions from the larger carriers.

And those -- we've all been more competitive historically, but we are certainly seeing very significant increases in prices next year to capture the impacts of the things that I just spoke about. So we feel like the pricing is contemplating the risks that are out there. So that gives us a strong expectation that we'll be able to both improve our margin from this year, obviously, and return to profitability.

And then your question with respect to what happens in a down scenario from a cash and capital perspective. I would just say this, we feel like the company right now has a strong capital position. We feel like if we are at need to access capital that we'll have access for additional -- we have virtually no leverage in the company. We feel like we could add additional leverage, and we believe that we would have access to capital as needed.

Got it. And then I just have a follow-up. So we understand there was a large issuer that submitted data late -- risk adjustment data late for 2024. I don't think that other issuers will be penalized for that late submission, but just curious if the data in that submission had been contemplated in 2024, would your risk adjustment payable as a percent of premiums have been larger and make '25 look smaller as a percent of premiums on a relative basis?

Yes. We did see that true up. It was single -- small single-digit millions. It really didn't have any impact.

Your next question comes from the line of John Ransom of Raymond James.

I know things have changed, but when you were forecasting the market without enhanced subsidies, your number was about 21 million people. I mean we've seen some other numbers that say the marketplace might shrink by 40% or so. Kind of where do you stand in that debate as we sit now?

As we look today, John, we believe that our 18% that we projected in our long-term guidance is the bottom and that it will probably be higher. Again, we need to see how the rates play out in the marketplace. We have a good handle on program integrity efforts and that impact, but it will be higher than the 18% we had originally projected.

So what do you mean by the 18%, I'm sorry, just to clarify that.

We had an 18% reduction in the book as a result of what was going to happen with -- right. And so we're still projecting in our numbers, no enhanced subsidies, and we were projecting 18%. We believe our number will be larger than 18%, but we haven't pegged it until we see rates and market competitiveness by market.

Okay. I got you. And then just secondly, if we assume the MLR comes in line and you're going to accrue at about 15.5% for risk adjustment. So that implies that your medical margin is down about call it, 600 basis points this year over last year. As you think about next year, how much of that margin do you think you can recover with pricing actions? And when you talk about profitability, is that EPS profitability, EBIT, EBITDA? Just some clarity on that would be great.

Yes. Thank you. When we kind of working backwards, when we talk about profitability, we're always talking about earnings from operations and earnings from operations means that adjusted EBITDA will also be positive. With respect to the MLR, the comparisons are impacted by looking at year-over-year, there was a 630 basis point year-over-year increase on the first half.

And as you think about the second half and what that means, last year, we had a significant amount of SEP growth in the second half. And this year, we're expecting membership to basically trend down to the back half of the year. And so we think that as we look at kind of adjusting for the relative growth in the book last year to this year, we would expect MLR trends in the back half of the year to -- the MLR is going to increase sequentially from the adjusted MLRs that I mentioned in the call. But we think that, that trend is going to look a lot more like '23, maybe '22 than what it was last year because last year, we had so much growth that really drove that.

Your next question comes from the line of Stephen Baxter of Wells Fargo.

Just a couple of quick follow-ups first, I guess, on the second half MLR commentary. I guess, first, there's an announcement from CMS about potential scrubbing of duplicative enrollment. I guess I would be curious to get your guys' perspective on what you feel like the impact from that might be? And if you're assuming anything for that in this guidance? And then on the second question, the fourth quarter provision you mentioned for some additional utilization. Can you help us think about the magnitude of that? And then I have a couple of quick follow-ups.

Yes. So on the dual eligible enrollees, as we talked about, we know the membership. We know the number. For us, that's less than 50,000 members that potentially could end up moving back to Medicaid and losing their -- or losing their subsidy. I guess they could pay out of pocket, but they would lose their subsidy if they can't validate that they're no longer eligible for Medicaid or other Medicaid programs.

I think it's important to note that we understand from CMS that the 2.5% that we see in our book is also the similar number in the marketplace. So probably a smaller exposure than what many had feared. So we factor -- we think that regardless of the outcome of which direction those members end up moving, we're well within the range of our guidance. And so that's what I would expect on that component.

With respect to the fourth quarter increase in utilization, I won't dimension it specifically other than to say that we are -- we did build that into our guidance. We think that a lot of the levers that I talked about last quarter around what do we do when we see increases in utilization, we've been working those levers, things like leaning into some fraud waste and abuse investments that we can make, ensuring that we are fully and correctly applying our provider contracts.

There are issues that we know where in our systems that we may not be -- we may be overpaying in spots. And so we are working to always address those. I think that's common for all insurers, but we see opportunities there. So we leaned into all those things which we think will help to moderate some of the back half pressure that we've otherwise built into the outlook.

Got it. Okay. And then just to hopefully add a little bit of clarity to some of the repricing and refiling discussions. So appreciating that I think in use, the vast, vast majority of your membership is now refiled rates for. Have you gotten assurances or any kind of clarity from the states about what they're willing to accept? Like have most states said like we will accept what you will submit? Or are you still expecting there's going to be a significant amount of scrutiny around the assumption changes that you're making? I want to just get a sense of how confident you are that the request changes you've made will actually end up going through.

Yes. Thanks, Steve. We have filed and we have had good conversations with the regulators. They have been accepting of our point of view and actually have been pushing in a few places to say, are we all priced properly. They don't want their markets to fail. That causes them to have to move membership, which they don't like to do. So they're very interested in making sure that we're priced properly.

As you know, subsidies change with those kind of rates as well. And so we believe for individuals, it won't be as dramatic a change for them. But we believe we have pretty much received all the right messages from regulators that we're fine with our pricing models. And we believe everybody else is pricing rationally as well. I know there's some data out there from yesterday. It's not complete. There are a couple of markets where we've already filed where they have not updated the files online. So we are confident and our pricing includes everything we need to include.

Your next question comes from the line of Jonathan Yong of UBS.

I just wanted to go to your commentary on getting back to profitability in '26. I guess as you kind of think about where your peers are kind of shaking out at your pricing, their pricing, is there a level of enrollment where perhaps they're leaving a lot more enrollments to be left to the rest of the marketplace and where perhaps you absorb perhaps too much enrollment? Is there kind of a breakpoint where you just say, okay, this is just way too much. Can you frame that for us?

Yes. We have been very careful not to create adverse risk coming into our pool from others. And so our pricing has been very careful on metal levels, types of products. We have a new strategy, a couple of new strategies we've exercised in markets that are not the traditional strategies you've seen in the markets to avoid the things like adverse selection or adverse retention on the other side. So we believe we have picked the right spots by market at this point, and we are very aware of that issue. It was a constant part of our conversation. We've had multiple pricing meetings, probably more than anybody would want to actually attend, but we have to make sure we're in the right place.

Okay. And then as we kind of think about the G&A reductions that you're doing to set yourself up to '26, kind of can you talk to like where exactly these are kind of taking shape in terms of those cost reductions? And then I guess, similarly, is that $60 million the needed level to get to the level of profitability? Or is that -- if you didn't do this, would you actually hit that?

Yes. I appreciate the question, Jonathan. And I would just say, the action we take is just as we've seen the losses that we're now projecting for '25, we wanted to make sure that we just solidified our profitability position next year. So we just view this as one of the levers that we're pulling to ensure we hit profitability and have meaningful margin expansion next year.

So with regards to the nature of the savings, we are having a reduction in force, which is roughly half of the savings were projected for next year. The other half is driven by a mixture of closing some open roles that we had planned as well as reducing some vendor costs. So the majority of those savings will roll into '26, but we will see some of that in the back half of this year, which is part of the improvement in our SG&A guidance for the full year '25.

And the focus has been on fixed costs. We assume there may be variable cost changes depending on where membership ends up, and we have not taken those actions yet.

Your next question comes from the line of Andrew Mok of Barclays.

Can you help us bridge the $907 million of excess capital at Q1 to the $577 million of excess capital you quoted today? I think the earnings revision was $500 million. The risk adjustment payable accrual increased and minimum capital is presumably increasing with a higher premium. So I just want to understand what's getting better in the capital bridge and what the capital commitments look like for the back half of the year.

Yes. So in terms of the decreases in capital, I would just point you to the loss that we recognized in the second quarter as being the biggest driver of the decrease in excess capital. We always have cash that's going back and forth between the subs and the parent. So for example, parent cash increase in the second quarter, that was due to some tax sharing payments that moved from the subsidiaries up into the parent. That also affects kind of the amount of excess capital at the subs. So that's the picture of where we are.

As I already spoken to, with respect to cash and capital, we are very comfortable with our current position. We have a revolver that's expiring at the end of the year. So we're actively working towards extending and improving that facility. And overall, we feel very confident that we will have -- we have the right capital and should we need, whether it's for growth reasons or otherwise, to increase our capital position. We have a fairly unlevered balance sheet, and we think that we would have ready access to be able to improve our capital position as necessary.

Great. Can I just ask a few follow-ups on that? One, can you give us the level of minimum cash you'd like to retain at the parent? And two, just a follow-up on the risk adjustment. It looks like the year-to-date accrual is running around 15.5%. Is that a good number to think about for the back half accrual as well? And can you help us understand why that number wouldn't increase more year-over-year if market acuity is increasing?

Yes. So on the parent cash levels, we have internal targets that we maintain. I would say that currently, we are well above our internal targets and are comfortable with the cash position at the parent even through the second half of this year. With respect to the risk adjustment, I think that the first half is reflective of the change in market morbidity.

So it is now consistent. It's a good proxy for the back half as well. We had seen elevated claims and expected that we would see some risk adjustment offset for those. Obviously, now we know that we're not going to see that full offset. But at this point, we are -- we've adjusted for the market morbidity change, and that's fully reflected in the amount of risk adjustment that we're projecting in our guidance.

Your next question comes from the line of Craig Jones of Bank of America.

So when you're thinking about where you end up among your peers in each state in terms of the rate increase requested for 2026, as you refile in each state, there's a pretty wide range of rate increases requested. So are you targeting getting towards the higher end of rate increases in each state to be more conservative in 2026 with the risk pool potentially changing so significantly? Are you sort of more -- are you plenty comfortable in the mid- to low end of rate increases and are just confident in the rate that you've requested?

Yes. So as you might expect, we start with what do we believe we need to do to put ourselves in the right position to ensure that we are confident that we are covering the changes in market morbidity, the impacts of subsidies expiring, enhanced subsidies. And so we build up our price first just based on our own detailed modeling. That gets us into double-digit increases and significant double-digit increases in some of our biggest markets.

When we look at how our price position looks compared to what we're seeing with competitors, we think that we're very competitive in some markets. We're less competitive in others. On average, we feel very comfortable that our price change is going to be comparable to some of our larger peers and that we have covered off the risk that we see.

Okay. Great. That makes sense. And then just to clarify, when you say double digits, is that between 10% and 99%? Or what's -- can you narrow that down for us a little bit?

I would say that you are correct in terms of that number could be any of those. But I would just say that we would expect that in '26, we'll see rate increases that will be multiple times what we saw last year.

Your next question comes from the line of Dave Windley of Jefferies.

I wondered if you could talk to the membership shifts that you are seeing. I think from the beginning of the year, your membership has obviously held up better than the original expectation. In that gain, are those SEP like new signees? Or are they switchers from other plans? And what do the -- what is the profile of those members that are switching to -- or are shifting to your book, one way or the other?

Yes. So I would say part of the improvement in membership is actually stronger retention and lower lapse. So it's not all from new membership. We do have growth in SEP. We see a good portion of that growth is in $0 plans. I think that many of the dynamics that have fueled growth last year continue to persist this year. We are comfortable that the members that we've added have MLR profiles that are consistent with our historical expectations that they'll be modestly higher than what we see for the full book, and that's kind of what we've seen thus far in '25.

And as we talked about with utilization, we have seen that settling down to levels that are approaching our expectations for what we should see for the risk in the book. So I don't think that we see any kind of signals that these members that we're adding this year are driving some types of adverse selection or increased risk for market morbidity.

Okay. Got it. My follow-up question was going to be on the very last part of what you said. So it seems like better retention or switching of perhaps price-sensitive members to you, helps to perhaps maintain the risk profile of your book, but perhaps to the detriment of your peers' books that are losing members aren't in benchmark position, et cetera. Bottom line seems like the issue for assessing the market here, particularly for price leaders in the market is not so much your own book, but everybody else's book.

And so I wonder how you get comfortable with that pattern not persisting through the balance of this year and further into next year in terms of just market morbidity continuing to deteriorate away from you as people get swept out of the market with the enhanced integrity. You've addressed a lot of this, but I just wondered if we could put a finer point on it.

Sure. And I would just say this, the increased program integrity rules have already been put into place for '25. We think that's been -- the effects of that have already manifested in terms of what we see in the first quarter change in market morbidity.

With respect to the population of low to no utilizers, we just really haven't seen much of a shift in our book. We've seen actually quite consistent percentages of those members in our book consistent with last year. In fact, it's been consistent with a number of years. So we're not really seeing anything in that, that gives us great pause and concerns about kind of what's going on with market morbidity.

I read, I see what others are saying in terms of the potential shifts there. We acknowledge that, that could be a source of pressure and part of the driver of market morbidity. But we don't see anything in our statistics through the second quarter that caused us to think that there's another leg that's going to drop in terms of market morbidity.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.