Oscar Health, Inc. 2026 Third Quarter Earnings Conference Call - OSCAR HEALTH INC

Financial Performance:

• Q3 2026 revenue reached $5.1 billion, a 70% year-over-year increase driven by rate hikes and membership growth.
• Q3 earnings from operations totaled $178 million ($307 million YoY improvement) with an operating margin of 3.5%; adjusted EBITDA was $207 million.
• Full-year 2026 net income for the first nine months was $1.2 billion ($3.59 per diluted share); earnings from operations were $1.3 billion.
• Medical Loss Ratio (MLR) improved 450 basis points YoY to 84% in Q3; full-year 2026 MLR guidance raised to 80.5%–81.5%.
• SG&A expense ratio improved 350 basis points YoY to 14% in Q3 (historical low) due to AI efficiencies and fixed cost leverage.
• Risk adjustment as a percentage of premiums was 11.8% in Q3 and 17.2% year-to-date; full-year guidance lowered to 17%–18% (previously ~20%).
• Balance sheet held approximately $9 billion in cash investments; insurance subsidiaries reported $2.3 billion in capital surplus.
• Received a $250 million revenue benefit from updated risk adjustment data reflecting favorable market morbidity relative to Oscar's book.

Guidance and Future Outlook:

• Raised full-year 2026 earnings from operations guidance to $850 million–$950 million (previously $650 million–$750 million).
• Full-year 2026 revenue guidance raised to $19 billion–$19.3 billion; expected year-end membership of 2.5 million.
• Projected 2027 weighted average rate increase of approximately 14%, driven by high single-digit medical cost trends, higher market morbidity from program integrity, and margin expansion.
• Expect 2027 ACA marketplace membership to be stable relative to year-end 2026, while targeting market share gains via new products and competitor exits.
• Long-term goal remains at least $4.00 earnings per share by 2029; current performance suggests achieving 2024 Investor Day commitments one year ahead of schedule.

Business Segments and Product Lines:

• Membership reached 2.7 million at end of Q3, up 27% YoY; footprint expanded to 713 counties including new entry into South Carolina.
• Total addressable market expanded to ~10 million consumers across 21 states.
• Launched "RetireEase" targeting 2.5 million early retirees with set prices for preventative and joint care; introduced bundled dental/vision benefits in hundreds of plans.
• Partnership with Allstate Health Solutions provides low-cost supplemental coverage for Bronze members to manage out-of-pocket costs.
• "Hy-Vee Health with Oscar" (concierge model for small business/gig workers) expanding to Nebraska, Missouri, and Kansas following success in Iowa.
• "HelloMeno" launched off-exchange to serve women across the workforce.
• "Lucy" AI platform projected to sell 800,000 policies in 2027, matching consumers with plans across major carriers.

Market and Competitive Landscape:

• ACA marketplace viewed as a rapidly developing foundation for individual market growth driven by gig economy and career flexibility trends.
• ~850,000 lives entering the market due to competitor exits, creating share acquisition opportunities.
• Employer demand growing fastest in healthcare, technology, construction, and manufacturing sectors.
• Pricing strategy balances disciplined rate increases with competitive positioning; not the lowest-cost option but competing on product quality and service.
• Market morbidity trends remain moderately favorable to expectations despite Program Integrity initiatives removing non-utilizers from the risk pool.

Risks and Challenges:

• CMS Program Integrity initiatives and enhanced eligibility reviews (including Social Security verification) leading to disenrollments and potential enrollment friction in Q4 and 2027.
• Administrative complexity in synchronizing eligibility data between CMS and plans creates operational friction.
• Elevated outpatient utilization, partly attributed to shifts from inpatient care due to affordability initiatives, though net cost impact remains favorable.
• Uncertainty surrounding the 2028 policy landscape, specifically regarding auto-enrollment restrictions and potential changes to enhanced subsidies post-midterms.
• Seasonal Q4 step-up in SG&A ratio due to open enrollment ramp-up, risk adjustment operations, and Q1 2027 growth investments.

Management Commentary and Tone:

• Management expressed strong confidence in 2026 as the "strongest year in Oscar Health's history," citing record profitability and operational discipline.
• Tone was optimistic and forward-looking, emphasizing AI-driven efficiencies, product innovation, and the ability to navigate regulatory changes.
• CEO Mark Bertolini highlighted the strategic opportunity to expand the ACA into a competitive marketplace supporting a resilient economy.
• CFO Scott Blackley noted the company is "walking into good news" while maintaining a prudent stance on morbidity risks.

Analyst Questions and Answers:

• SG&A Drivers: Strong Q3 SG&A performance attributed to AI deployment and fixed cost leverage; Q4 step-up is seasonal due to risk adjustment chart collection and OE ramp.
• Market Share: Share gains expected to come from new geographic expansions, niche products (RetireEase), and displacing competitors exiting the market.
• Utilization/Metal Mix: No specific utilization anomalies by metal tier; outpatient elevation linked to affordability initiatives and care rotation; MLR expected to rise seasonally in Q4.
• Policy/Midterms: Management anticipates 2027 membership stability despite Program Integrity; 2028 policy changes (subsidies, auto-enrollment) remain uncertain and subject to legislative negotiations.
• Pricing Breakdown: 14% rate increase composed of high single-digit trends, market morbidity impacts, and a component for margin enhancement.
• Risk Adjustment: 2026 risk adjustment ratio of 17-18% is book-specific; next year's ratio will depend on 2027 membership mix.

Other Key Points:

• Disenrollments from CMS eligibility reviews were in line with expectations, with a smaller second review expected to cause minimal additional Q4 churn.
• Allstate partnership and Hy-Vee expansion demonstrate success in targeting underserved segments like Bronze members and gig workers.
• Technology platform "Lucy" is central to distribution strategy, enabling brokers to navigate complex eligibility rules efficiently.
• Oscar supports Program Integrity as a means to stabilize the risk pool, despite acknowledging the operational complexity of dispersed eligibility responsibilities.