Oscar Health Stock

Welcome to Oscar Health's 2026 Investor Day. Please welcome Chris Potochar, Treasurer and Head of Investor Relations to the stage.

Good morning. Welcome to Oscar Health's 2026 Investor Day. It is great to see so many of you. I know it's conference season. So thank you for joining us this morning. We appreciate you taking the time. I'd also like to welcome everyone that's joining from the webcast this morning as well. Thank you for joining. For your reference, all the materials that we will present today will be available a little bit later this morning, and you can find that on our Investor Relations website at ir.oscarhealth.com.

As a reminder, any remarks Oscar makes about the future constitute forward-looking statements within the meaning of the safe harbor provisions of 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 most recent annual report on Form 10-K and other filings with the SEC. These statements are based on our expectations as of today, and we specifically disclaim any obligation to update them.

Okay. So before we begin, I just want to hit on and briefly walk through today's agenda. First, Mark Bertolini, Oscar's Chief Executive Officer, will share our vision and strategy, including how we are building the premier consumer health care company. Following Mark, Scott Blackley, our Chief Financial Officer, will discuss our financial outlook, including our updated 2026 guidance and longer-term financial targets. We'll then have a quick break. And then when we come back into the room, Janet Liang, President of Oscar Insurance, will discuss how we are strengthening our leadership in the individual market. Then after Janet, Mario Schlosser, Oscar's co-founder and adviser to the CEO, will discuss how Oscar's scalable technology and applied AI enables durable earnings power.

So that will wrap up the presentations for the day. We'll ask all the presenters to come back up to the stage, and we'll do a question-and-answer session and then to close the meeting out. Mark will provide some final remarks. And then for those in the room, we will have lunch available. We'd ask that you would stay for lunch if you can do that. So good agenda for the morning. We're excited to get started. So with that, it's my pleasure to introduce Oscar's Chief Executive Officer, Mark Bertolini.

Please welcome Mark Bertolini, Chief Executive Officer, to the stage.

Thank you, Chris. Good morning. Thank you for coming. It's always so nice to see some of the smiling faces at an investor conference, so try smiling. The information will come back a little -- come across a little better. We're going to discuss our vision and our strategy today, but I want to make a few comments about what strategy really means. Strategy is not buying an asset. Strategy is not coming up with a good idea. Strategy really is finding fundamental capabilities that differentiate the organization and applying those to unmet needs in the marketplace. So the journey we've been on for the last 3.5 years has been very much about creating those differentiating capabilities, those insights.

We bought an asset along the way, but it was all part of having fundamental capabilities that meet upcoming changes in a market where unmet needs have not yet been met. So we're going to talk about that a little bit as we go through the discussion here. 50% of consumers feel that health care fails society's needs. We have $200 billion in active consumer medical debt across the United States today. Unacceptable, I would think, in the 21st century as a norm.

And our mission is to empower consumers to build health care around them. They will drive innovations and better value and quality. The whole stream of consciousness here is to think about getting to a place where we're going to have consumers through curated pricing, be able to make value-based decisions that matter to them like every other piece of their household budget. Health care, as #1, is the only place where they can. They don't get a bill -- they don't know what they're paying until they get a bill later on. And so if we can create that ability in consumers, they will do the fundamental work longer term of reducing the cost and driving out high rents in the health care system as they've done in every other market that they've had that opportunity.

So our 2026 earnings, we raised them this morning to $600 million to $800 million. Our SG&A expense ratio is the same. We improved our MLR for the year based on what we're seeing in our underlying medical costs -- sorry. Wrong Slide. First -- sorry, good stage direction. We have a deep bench. This is a gallery of rogues, but we have a deep bench, and we have the A team.

And the 1 thing I want to say about this group is that this group gets up every day thinking about this business. They're not worried about other parts of the business. They're not worried about capital allocation between businesses, they're focused on the ACA. And that results in every employee in the organization being focused on the ACA.

And one of the amazing things I found when I joined the company in 2023 is every employee in this company is engaged in a mission to make health care better. We have employees that have been with us the whole way and they're continuing to be involved. So this leadership team is a pleasure to work with. They would lead great people who every day work really hard.

Now guidance. So guidance is up $600 million to $800 million from $500 million to $700 million. Our SG&A ratio, same range, MLRs improved, $18.7 billion to $19 billion in revenue, not much change there as well. But what it's done is it allowed us to make investments in other parts of the business and the new stuff that's coming along. We'll show you some numbers today. Scott will go through them in more detail. Those numbers for 2029 don't rely on a whole lot of what we do in the new businesses. But the investment in those new businesses is part of those projections.

Those investments are the hard work that we need because you never really show your work until you actually can prove it works. And so all of the investments that we've been making over the last 3 years, what we'll make over the next 3 years, we'll prove to change the American health care marketplace and allow individuals to purchase their own health care the way they want. Three years ago, 2.5 years ago, we gave you these commitments. At the time in '24, we had $9.2 billion of revenue and a 0.6% operating margin. Since then, we've had a 43% CAGR, which exceeded our 20% CAGR, and we've had 260 to 360 basis point improvement with a commitment which we are reaffirming of at least 5% in 2027.

Here are our long-term key strategic objectives: to become the #1 consumer-preferred AI-native carrier through our strategic ACA advantage. And the point about this -- the issue around this point is we are not spending billions of dollars like the rest of the industry, health care industry, rationalizing platforms and cleaning up our data. From the very beginning, this company built a platform that was single-threaded, cloud native, with one version of the truth, which has allowed us to implement AI at scale with significant bottom line results to the company.

And Mario will come up a little bit later and talk a bit about that. Second is to unlock the full potential of the individual market to support health care needs for all Americans. We do not believe that the ACA is the last place for this company to be. The TAM is not big enough. The market opportunities aren't great enough, the competition would be too fierce. So our view is, is that we need to continue to expand the market opportunity for individuals to have the same opportunity that people in the ACA have in having to pick their network and also to pick their product. And then finally, build the leading healthcare place to serve people's health and financial goals in a larger individual market. It means more than insurance. It means GLP-1s. It means all the supplements that people buy, it means all the lifestyle things that people buy in order to impact their health and live a healthier life and enjoy life. That's what the Lucie marketplace is all about. And I'll show you some of the statistics around that a little bit later.

So let's talk about the future of the consumer health care marketplace. The era of employer health insurance is ending. 94% of employers are looking at -- looking for a new solution for their health care costs. I talked with the CEO of a large multi-state company with 40,000 full-time employees, and he says, I can't buy health care economically any longer. My rates are going up on a self-funded basis, double digit. There has to be a better solution. And on top of that, we want to be able to build the leading payer-agnostic marketplace for health benefits, products and services through Lucie. So the secret behind what we built is not that we built it for us. We built it for everyone. We're making a market. Lucie with all of our competitors engaged, all having access to the same technologies including some of Oscar's technologies, think about the new +Oscar. They will be able to use those tools to compete in the marketplace, and they will pay rents on that capability.

So the Lucie marketplace becomes a place where all competitors can build a broader market. And it takes me back to the early '80s when 4 friends of mine and I started an HMO in Detroit, and we got together with all the other HMOs and said, how do we take all that business away from the big carriers, we have all the money, all the distribution. And by the time, 10 years later, all those big carriers. Other than Aetna, we're out of the health insurance business for all intents and purposes.

So this is our opportunity, create the market for the better good of the whole industry and all Americans and then compete within it. So currently today, the ACA market has a total TAM of 49 million individuals. There are 19 million in the ACA, and there's still 30 million uninsured individuals. That's our target. You can see the rest of it, and we'll talk about it as we progress through the presentation, but the opportunity goes to all 350 million Americans. The far right column is 100 million Americans in public programs. And today, we're already having conversations with state-based exchanges and governors about doing demonstration products in Medicaid that get them out of [ MMAP ] and allow those Medicaid members to buy through their local state-based exchange.

Governors are tired of waiting for the federal government to come up with a complete solution, they're starting to take their own action. And we've actually made regulatory changes in those markets for ICHRA to make that happen. The average American changes jobs 13x. So the other thing that's going to happen and people are going to be moving to the right on this spectrum, AI is going to displace the workforce or cause people to be more gig workers or more part-time workers and there isn't a simple solution for those people today. And we need to find a way to do that. And ultimately, the 1,000-plus employer market will come along. The 2 complaints they always have is how do I know my employees will pick the right plan? And secondly, how do they get the right network. And what I've told them is because all of our competitors are on the Lucie marketplace, when an employee goes to defined contribution, they can buy any one of the networks from any one of our competitors. And those networks are generally narrow networks.

So we have the best PPO in the country at narrow network rates. That's a fundamental difference than where we were before as just the ACA. But we'll talk a bit more about that in a minute. So the ACA has proven to -- it has improved access in a meaningful way. 73% of individuals in the ACA rate their experience is positive. I can't say that for the rest of commercial insurance. The foundation of a more modern consumer-driven health care system is the ACA marketplace. Not everything about the ACA works, but I believe the network model and the way we underwrite the network to price versus underwriting the members because we can't underwrite them and the risk adjustment mechanism that we use to level out the risk across all carriers at the end of the year creates a very solid and stable market over the long run.

And when you get to 200 million, 250 million, 350 million Americans, morbidity changes don't impact the model. It becomes a very stable marketplace. The ACA today, here are the people that are in it today. 27% of U.S. farmers and ranchers rely on the ACA. 17% of gig workers rely on the ACA. 48% of enrollees are from small business owners, entrepreneurs of their employees, where the small business has just given up on insurance and their employees have gone into the market to get products through the ACA. It's the backbone of the U.S. workforce.

And by the way, these populations represent more than 50% of the GDP of the United States. And they have the weakest support system in the United States. So it's essential to the U.S. economy. We've taken almost to half the uninsured in America since 2014. We're instrumental reducing economic burden, $245 billion worth of uncompensated care has been avoided from '14 to '25. And we continue to address national issues of 28 million Americans are still uninsured, still haven't found their way.

And being in the hospitality business that I'm in now, I can see it because the employees that we serve as that work as waiters in our restaurant, they don't know how to get the ACA. They didn't know they could get it, the part-time employees at Hy-Vee supermarkets, 34,000 of them, more than 80% could get subsidies, but they didn't know it. So the whole idea of helping people understand how to access the system with products that matter to them is going to get at that 28 million uninsured. It's the fastest-growing market of any other segment in America, 9%, and we expect that to continue. It has more choice than any other market in America.

If you work for a large employer, which a lot of you do, 2, 3, plans and it has greater combination. More and more people have entered the market, while some of the big carriers have left the market in large part because they can't manage their networks effectively to get to a narrow network model. It has created great price stability in employer premium in 2020 through 2025. So here's our first projection, 2029, 23 million lives in the ACA. 2 million will come out of through Program Integrity. We're in the middle of that process now as a lot of you have heard with CMS in spite of what's going on in the legislative side through regulation, so to get at some of the concerns they have. But we still believe that 36 million Americans will grow into the marketplace, 3.4 million new members under the ACA in 2026.

CHOICE adoption is increasing to 2.5 million in 2029, 200,000 new independent freelance workers market -- enter the market every year, 900,000 new individuals in the ACA due to unemployment each year. So there's a basic underlying growth that occurs in this marketplace. And so we're calling for 6 million growth over the next 3 years for a total of 23 million lives in the ACA in 2029.

But how do we lead the ACA market? We have a seasoned leadership team. We have a culture of product and network innovation. I'll give you an example. In 2025, we bought a product out of Connecticut, a company that had 3 assets. It had an EDE, it had an agency, a brokerage agency, and it had the second largest lead generator in health insurance, Healthinsurance.org. We bought that company for a relatively small amount of money. It was even within my authority as the CEO of the company. And so the result was when we bought that, people said, "Well, what are you buying that for?" Some of our board members had the same question, "well, why do you need that?" Well, that EDE has become the rail for ICHRA for the whole industry.

We created an EDE called ICHRAx. All of our competitors are on it. The fees are cost-plus unlike the $4 they're paying to other EDEs in the marketplace. It does both ACA and ICHRA. But more importantly, because they're all on the exchange, all on our ICHRAx, when an employee converts from defined benefit to defined contribution, they can pick any one of those networks as their product. It doesn't have to be Oscar. And this EDE became the genesis for Lucie.

So we believe -- and what we did back in 2025, is while everybody believes that somehow the federal government will come to a conclusion that they ought to extend enhanced subsidies, we created a plan where we knew they weren't. We advocated but we didn't see the highway to get it done. And what we created for the brokers was a vault that allowed them to take their members. We gave them all of their members that were affected by the enhanced subsidy going away and product alternatives for them to move those members into. And the ability to make that action before open enrollment because brokers work on one simple principle.

I want the highest level of earnings associated with a joule of energy. And so we did the work for them. And when others didn't, they went to those other carriers and moved those members to us. That was the secret of our growth. Because while they had all their other members ready by November 1, push the button, they all loaded into the system. Our line of growth went straight up. They were out taking other carriers business and moving it over to us. That was that EDE. That's why it mattered. And that same EDE today is working on program integrity efforts and DMI efforts for those same brokers with tools to be able to do that.

So again, building capabilities ahead of meeting expectations of unmet needs in the marketplace. So we believe we have a clear path to achieving 18% national market share by 2029 with Oscar and better positioned to lead a market than our peers with differentiated set of capabilities and a single focus on the ACA, just in the ACA, and Janet will talk a lot about that when she gets up. But the most important part is that we believe these tools set the stage for ICHRA and build a platform for ICHRA to be able to make that market a seamless move. And by the way, a few weeks ago, as Mehmet Oz got on stage and talked about the new CHOICE plan that the administration wanted to develop. We have been working with them for a long time on that including the idea of having a separate wallet that has KYC capabilities that ensures eligibility instead of CMS having to build their own program integrity efforts. So we're committed to building new experiences in the health care consumer.

This is another part. Our NPS score is now 71 today in an industry that averages 0. We are launching products every day about multicultural needs, clinical needs and lifestyle needs. And you can see sort of the TAM in 2026 associated with a number of members who think of these kind of products. And by the way, in these products, we have as high as 89 NPS. And so our retention is higher than the industry average. And so we have a less of a hole to fill every year when we're managing our growth. Reshaping the traditional insurance experiences requires delivering better experiences with less administrative burden, faster payment and more issues resolved on first pass. So we're doing a lot of programs around eliminating provider and member friction. And it doesn't have to have -- be perfect when we launch it.

We're talking about the progressive elimination of failure. If we can impact more and more populations as we go in implementing our new tools, we're advantaging our customers every day instead of waiting for a big bang. So we don't have an announcement deadlines. We're implementing and again, Mario will talk about this, we're implementing AI every day. It's not a different department inside of Oscar. It's part of teams inside of our technology and business groups where we have a business person, a technologist. We have a product management person and somebody who understands AI, all working on improving each of our systems, which are owned by the owner of that business or of that process.

So we're looking at reducing lag time from service to payment on 100% of office visits and lab tests. And we don't do that today, but the industry does it today for pharmacy, why can't we do the same and deliver superior experience with 24/7 AI member support for 90% plus of member issues on first pass. And where we do have tools implemented that we're testing, we're seeing as high as 82% first pass resolution from members. So there's a lot of hope in the kind of things we're developing for the platform. That has been driving down our administrative costs that has created the kind of SG&A ratio that was only an idea in '27, but we have exceeded it already. So I talked a bit about AI. We have very fast AI value adoption. We have unified real-time data sets, modular scalable architecture, we have an AI-driven automation process, the way we ideate, test implement. It's very important to the organization and how we roll this out.

We've seen a 33% improvement in operating leverage from 2024 to 2026. And we've already seen $3-plus billion in total medical cost savings in the same time period. we are applying AI against medical costs. And we have a team that meets almost every day. We report on it every month on the scores that we put out for our team to be able to get the numbers below the trend that we put into our pricing. So expanding the individual market, unlocking the potential of the individual market, the tools that we built to make health care more important for all Americans.

That's part-time workers, gig workers, 1,000 less employees, 1,000-plus employees in other government programs. I think Medicaid will happen before Medicare. But that's the next chapter of the ACA from our perspective. And it's part of what the administration offered back a few weeks ago called CHOICE. So I'll start using choice from here on out because ICHRA is a terrible name. So here are the number of opportunities that we see in 2026, 0.5 million lives in CHOICE. We think it's 2.5 million lives by 2029. Small, midsize employers are leading that CHOICE growth market, but we see large employers also adopting it, sort of a barbell. So this is the opportunity. We think there is a tipping point here somewhere we don't know where it is. But when it happens, we're ready.

It's the way we think about it. We can't tell you exactly when. We haven't put a lot in the numbers other than these and so from our point of view, when the tipping point happens, we're ready to handle the volume, we have the capital to do the work. Employers need innovation solutions for the changing workforce. 73% of American -- 73 million Americans identify as gig or independent workers. They changed their job on average 13 times that may represent some of you in the room, maybe not. And employers don't want to manage their own health care risk.

62% of large employers are exploring active or actively planning to shift to CHOICE. 91% of CHOICE adopters say it was the right move for the company. Now they're early adopters. Here's how we think about the network. And I talked a little bit earlier about the network being the largest PPO. 73% of active physicians participate in an ACA marketplace plan network. 57% of local PCPs are included in the average single employer network. So the difference is huge. It's a big opportunity. And there's greater purchasing power for the employee. And this is a little complicated math, so I'll try and describe it for you.

Currently today, an employee pays 15% of their premium, and they pay all their out-of-pocket costs out of their own pocket. With the transition to defined contribution, the employee actually gets up to 26% savings of the employer amount they're given because they get to pick their plan because they get a narrow network and narrow networks are cheaper than the networks employers offer. And that 26% can then be used to actually pay out-of-pocket costs instead of having to borrow for it.

So it's a net gain for the employer in a number of ways. And these are some representative numbers. But it's a huge difference and it's a difficult thing to explain, but the wallet for employees get better when they have a defined contribution plan. So we have united our competition around a shared industry technology structure. Now we built that together. They're paying cost plus, which is less than $1 per member per month versus $4 for other platforms they could use.

They get that as part of their joining our group, but they also then get the opportunity to lean in to Lucie where we have over 70 other carriers available for them to partner with. And I'll show you a list of those in a moment. So scaling Lucie.'s leading marketplace platform for carriers, brokers, employers and consumers unlocks this consumer power to be able to use -- to be able to use curated pricing to make better decisions about what they buy and have some people like hospitals stop selling things like certain meds or retail meds that could be bought cheaper or DME, durable medical equipment. So unbundling health care from funding is the big idea here.

So I grew up in Detroit. If you want into an auto dealership and said, "I've got $350 a month for a car. What can I buy?" You're going to get cheated. It's the way it works in Detroit. We love people like that. But if you go in and say, how much does this car cost, these are the issues, these are kinds of attributes I want? How much is it? And I'll tell you how I'm going to finance it later, that gets to a better purchase decision because you now have made a trade-off on value with your own money, giving consumers a health care wallet that does LSA, HSA, HRA and HSA all on 1 wallet, maybe even a credit card something to think about. Wouldn't it be great then I get to decide how I spend that money.

And if my situation changes, the people funding my bucket of money changes, not my plan, not my network. So the opportunity to keep members for life by letting them keep their network and change their product as they age is the bigger idea. What is the value of the lifetime value of a member and their ability to keep their network and to change their plan as they grow older. Young immortals, some of you in the room, young families, older families, empty nesters and then seniors like me, all of our plan difference -- all our plan requirements are different. Wouldn't it be great if not only my health insurance, but all the supplements I buy, all the things that I buy to keep myself healthy, the gyms I belong to, the coaches I have, we're all -- they are all available for me to purchase through a marketplace where I can trade off value.

An agnostic marketplace where all of our competitors are working to get the best cost for everybody. So we're working with state and national policymakers to establish, the right regulations to make this wallet happen. And we think that's an essential component of delivering on CHOICE. Talk a little bit about reshaping the marketplace. Today, Lucie, a payer-agnostic health care platform is the premier place for brokers consumers offering ACA and supplemental plans.

We will expand the platform to offer broader health and wellness products to employers and most consumers, and we'll have guided experiences through AI that empower consumers to take control of those health care decisions. We already have a couple of those, one on pharmacy and one on imaging where people can shop to find the best solution for them from a convenience and a quality standpoint. So here's the marketplace.

It's all of them, 350 million Americans. Even people in Medicare and Medicaid can take access -- have access to this marketplace. Today, on the platform today, we have 70-plus carriers. You can see some of the names there. We have a broad supplemental product ecosystem. These are just a few. There are others on there, Aflac, Allstate, Cigna, Pivot Health, and we have consumer shopping and decision support. Those all exist in the marketplace today. Where we're going is to frictionless setup for consumers and brokers because we believe that brokers are the important second step for employees after their employer moves to defined contribution, helping with using benefit selection tools to get employees into the right plan does 3 things.

For the employee, it allows me to get extra cash to pay my out-of-pocket costs, or extra cash to buy other products or services. For the employer, it stabilizes the defined contribution over time when people are in the right risk profile. So we'll have personal AI guidance for broker support and new health products with broader consumer choice. You can imagine them whatever comes along. And we're talking to all sorts of people like Eli LillyDirect and others who want to get on to the platform and have direct relationship with consumers. We're talking to supermarkets who want to have a section for a healthy food and healthy eating. So it's an interesting new way. And on this system, everybody pays rents. I'm going to see.

So the #1 marketplace we have by '29. We expect 2.6 million ACA in specialty products sold in 2029 and 28,000 active brokers on the platform. It will include retail peptides and GLPs and -- which today is 48% cash pay, lab and diagnostic services, consumer wearables, lifestyle and wellness goods and services. Lucie will turn CHOICE into -- chaos into CHOICE with clarity and transparent guidance. And we have a video here to show you next.

[Presentation]

One of the pieces in there you missed was the -- you import your medical history and to help -- will help with this analysis in guided buying.

Now the next slide is a dimensioning slide for you. And it's a dimensioning slide because we don't know how quickly these marketplaces take off. We already have 800,000 policies for open enrollment coming through the supplemental carriers already for 2027. So we're not sure how quickly it will happen. But in the ACA supplemental enrollment, there's $30 billion in revenue opportunity. That's the total available market. In CHOICE Enablement Services, moving employers from defined benefit to defined contribution is $125 billion of total available market, and that's an important part of the pie that we believe we need to be engaged in and involved in. And then Consumer Health and Products was $500 billion for a total available market of $650 billion.

Over on the right, we dimensioned for each 100,000 members the total available purse, $60 million for ACA supplements and enrollments, $60 million for Choice Enablement Services, $30 million for Consumer Health Products per 100,000 members and the margins of 35% on the first 2 and 80% in Consumer Health Products. That's the economic opportunity.

Question is, is when does it tip? How fast does it move? But the reason we made these investments in this marketplace is we believe this will actually be the more dominant part of our capital structure and our market cap in the future. This is where we really make a difference because when we unleash Americans on health care, with curated pricing and information like you've just seen, which is available, we can then turn around and we can reshape the cost of the underlying health care system and get better costs under control. We can chase out excess rents. So we're building the new consumer health economy. We're scaling the #1 consumer preferred individual market. We are today. We're unlocking a larger individual marketplace by looking at CHOICE and Lucie. We're creating a leading health marketplace for consumers, brokers and employers for the industry.

And we believe that by 2029, we will continue to deliver on our 20% plus revenue CAGR, a 5% to 7% operating margin depending on how we invest in capital and price our products and a $4-plus minimum EPS by 2029. So with that, the man with the numbers, I'll turn it over to Scott.

Please welcome Scott Blackley, Chief Financial Officer, to the stage.

Good morning, everyone. I'm Scott Blackley. I'm Oscar's CFO. It's a pleasure to get the opportunity to stand up here before you today and talk about some of the great results that this company has generated both over the past and, more importantly, what we expect to be able to deliver going forward. So this is one of my favorite slides. I -- whenever I'm having a bad day, I pull this thing out and take a look at it because this is really the evidence of what this team has been able to deliver. Revenue increased 7x over this horizon since our IPO. During that period of significant growth, our medical loss ratio has just been dropping. We've done that through disciplined pricing and through affordability tactics. And in being able to do that, we've been able to offset trend and drive margin. Lots of people told us that you wouldn't be able to grow a business in health care and have dropping MLRs. I think these slides conclusively prove that we've been able to do both. And we've always believed that our technology would allow us to drive efficiency as we scale the business.

AI is further powering that opportunity. We'll show you the clear evidence of that. But our expense -- our SG&A expense trends have been cut in half over this time horizon. I mean really a breathtaking amount of improvement in that ratio over the short time horizon. So we're incredibly proud of these results, and we think they position us well for what's ahead. So all the trends that I just talked about are culminating in a strong 2026 performance, where many of the KPIs that we are achieving are actually approaching or beating what we had expected to be doing in 2027. So today, as Mark talked about, we're improving our 2026 outlook by $100 million to a range of $600 million to $800 million of operating earnings, which is double our original guidance. And with 8 months of experience under our belt, strong underlying utilization trends. We're also improving our full year MLR guidance by 80 -- or excuse me, 50 basis points to 81% to 82%. And the remaining guidance that we have for the year remains unchanged.

Let me give you some color on the trends that we've observed through August. First off, overall utilization through August is favorable to our plan. Secondly, on MLR seasonality, this year is tracking according to our plan. We anticipated a more pronounced step-up in MLR from Q1 to Q2. We saw that. That was driven by the mix of new members and lower SEP than what we experienced in prior years.

Third, we've been closely tracking the progression of member cost shares given the change in our mix year-over-year. Importantly, what we are seeing on that metric is that members who are reaching their maximum amount of pocket costs are in line with our expectations. And from here, we typically see a very consistent progression through the end of the year.

Given where we're at, at this point, we feel like we've got good visibility that, that will continue to move in line with our expectations. And then finally, I want to give you an update on what's going on around market morbidity and specifically the CMS 1 million member program. So CMS has completed their industry-wide review of 1 million members in the ACA. We received our member termination list, and we have processed that from that program.

All of what we saw through that termination process was consistent with our expectations. And we have processed all of those terminations that will be reflected in our second -- our third quarter results. We do expect that there's going to be a second smaller CMS program later this year. We think that will cover something in the range of approximately 500,000 ACA lives across the entire marketplace.

The CMS reviews are really focused on eligibility, making sure that they are removing unauthorized enrollments based on things like missing social security numbers or other data matching issues. Just want to make it clear that we have fully reflected the impact of these programs in our -- the guidance that I just walked you through. And we feel like we've got good visibility into the remaining performance through the end of the year.

So as we look to next year, we are positioned to increase our market share and drive top line growth. Our performance to date in 2026 sets a strong baseline for revenue growth and for margin growth. We're encouraged by the rational pricing environment that we're seeing in 2027. Our low teens rate increases are largely in line with national averages and should position us well to take and exceed on gaining market share. And turning to the market, what are we expecting for the market in 2027.

We're projecting the overall ACA market in 2027 will be very stable. Specifically, we expect by the end of 2026 that the market will end up at around 17 million lives in the total ACA. And then we expect that the market will stay at around those levels through the end of 2027. So going back and talking about a little bit of the successes that we've had and last time I stood up here, we talked about targets for 2027. I'm here to give you an update of how we're doing against that -- those targets.

I told you last time that our 2027 targets were ambitious but achievable, and I'm very pleased to say that our strong performance to date and our current view of next year suggests that we are on track to broadly exceed those targets. So specifically, we anticipate that our revenue CAGR will be, between '24 and '27, will exceed 20%. We now expect that our 2027 operating margin will be greater than 5% next year. And we expect that our 2027 EPS will be greater than $2.25 a share.

Just as you're doing your models in math, we expect that our 2027 effective tax rate will continue to be in the mid-single digits. So all of this is being driven by our differentiated strategy and our market focus. And that is cumulatively producing these strong results. I look forward to giving you specific guidance on 2027 at our investor call next February.

All right. So let's talk about what '29 is going to look like. As we look out over the next 3 years, we believe our earnings will be materially higher than where they are today. First, we're targeting revenue CAGR of more than 20% through 2029, driven by a growing individual market, expanding our footprint and increasing our market share. We expect that revenue growth as well as an improved MLR and SG&A ratio will help us to achieve a 5% to 7% operating margin by 2029. And then finally, we see a clear path to achieving EPS of greater than $4 per share by 2029. This assumes that by 2029, we will have a tax rate that is at that time in the mid-20s and that our diluted share count will grow at around 2% to 3% per year from today's levels.

Let me go through and outline a little bit of how we're going to achieve these targets in more detail, and I'm going to start with revenue. So with revenue, we're obviously keenly focused on growing the top line by more than 20%. We certainly worship at the house of scale and know that the larger we are, the more we can leverage our AI and technology innovations to drive efficiency in our business.

Our underlying revenue assumptions -- underlying our revenue assumptions is an assumption that the ACA market grows from 17 million lives at the end of 2026 to something around 23 million lives by the end of 2029. During that time, we'll be expanding our market share and increasing our footprint in our existing regions. And those are our largest growth opportunities.

We estimate that those growth opportunities will drive between 17% and 19% growth per year. And on average, Today, we have a 30% in market share in these regions. And so there's plenty of opportunity for us to continue to increase in our footprint. We also have a large expansion opportunity in front of us in terms of both entering into new counties as well as entering into new states. We typically enter into new markets, with a 5% to 7% market share, and then we grow from there, which translates to around 2% to 4% revenue growth through 2029.

And then finally, we anticipate that new CHOICE and Marketplace products will create revenue growth vectors that can compound over time. And while we've not specifically called out this in this waterfall, I'll note that cash and investments now generate a significant investment income that's included in our overall revenue. We expect that NII will continue to increase through 2029 at a rate of around 10% to 15% per year.

Let me turn to margin. So we've made really meaningful progress on our path to achieving our 5% margin target for 2027. From today's level, we have a clear path of getting to up to 7% operating margin by 2029. We will continue to maintain our disciplined approach to pricing and we're going to price to cover rising cost trends. We believe that the inflationary environment that we're currently in is going to remain over the next several years. And so that 5% to 7% trend is higher than what we've seen historically in the 3% to 5% range. We think that, that will continue over the forecast period. And while pricing will play a part in driving margin, medical cost management programs will be a key to driving and increasing our margins. A big part of what drives our margin improvement is the continuing leverage and scale from efficiencies in our tech platform and from an AI-enabled process improvements.

For example, AI has helped us to automate reviews of things like prior auths. It's improved our claims processing time and it's increased the accuracy of our risk adjustment submissions. All of these things are collectively small parts of the business, but when we aggregate them and track them and make sure that we deliver on the commitments what we're able to do is to offset trend and drive margin year in, year out. And so I'll go through the next few slides with a few more details on these topics.

So as you saw in my first slide, we've made significant improvements in our MLR over the past several years really. And we're beginning to approach our target of 80%. The key levers to improving our MLR include disciplined pricing. You'll hear that from us over and over again, but also through medical cost management and doing things like perfecting our network performance, improving the core operations and creating clinical innovations.

Technology obviously plays an incredibly important role about -- in that process. You'll hear from both Janet and Mario some further examples of how AI is today reshaping the cost curve for us. particularly in areas like claims automation and fraud, waste and abuse. And the benefit of all these efforts is that as we see rising cost trends, if we can drive down costs through these affordability initiatives, we can really pass that on to our members and make sure that the product that we're selling is affordable for them, too.

So we've made significant progress on SG&A. We're not done there. I think we've got a long ways yet to go. Many of the factors that have driven our historical success will continue to do so in the future. First, we've seen significant operating leverage that compounds as we scale. In fact, our fixed cost base has gone from 30% back in 2024 to around 25% this year. Our technology and AI have already enabled savings in our cost structure that's been allowing us to drive down variable costs, improve our operational workflows, and we expect that this trend is going to continue. And I would just note that a lot of these enhancements and improvements are serving us well by driving down costs, but we're also being able to create better member experiences.

So this isn't just an effort to remove costs out of our system. It's an effort to improve the experience for our members and realize value for ourselves as well. So let me pull up on Lucie. Mark talked a lot about the opportunity that's in front of us. The first thing I want to point out is that our greater than $4 of EPS in 2029. That target assumes a modest contribution from Lucie. We're not relying on that new business to hit our targets. Secondly, the economic opportunity that we see for Lucie is very significant.

So right now, today, Lucie is allowing us to capture new fee-based value pools. 70 or so carriers that are currently able to sell ACA and supplemental products through the Lucie marketplace. And as Mark talked about, if we're able to capture 100% of the potential value across Lucie's platforms, for every 100,000 people that transact in those -- each of these 3 buckets. In total, that's a $150 million revenue opportunity per 100,000 members. So that's the size of the prize that we're working against.

Now we don't expect that we're going to get 100% of all of the fees that are running through this entire marketplace. But the magnitude of that spend is so significant that if we're successful in getting a portion of that, we think this could be a significant business for us and one that's very meaningful to our results. I just mentioned that this business has several desirable financial traits.

Number one, it's a service business, so it's very capital efficient. Number two, it has at-scale margins that are 5 to 6x greater than our core insurance business. And then lastly, this is a technology business. So we think that we can power it with AI and that we'll be able to scale it very efficiently.

So let me turn to the balance sheet and our cash profile. So today, we're certainly operating from a place of strength. We've got $460 million of parent cash and more than $10 billion of cash investments in total as of the end of the second quarter. Our insurance companies are well capitalized. We've got almost $1 billion of excess capital at this time. The plan that we've outlined today is expected to generate significant amounts of capital in the range of $4 billion to $4.5 billion across the parent and our insurance subsidiaries. And so what are we going to do with all of that capital? Well, our capital priorities start with organic growth, reinvesting in the business. These are the highest returns that we can generate on the capital investments that we can make.

We'll also continue to optimize our quota share reinsurance programs. These programs are a cost-effective way for us to manage our entity level capital requirements. We expect to continue to use them. We also expect that over time, we will use them to a lesser extent.

We would anticipate that around 60% of our capital generation will stay within our insurance companies, 40% we would seek to have that sent to the parent as dividends, and that capital that comes up to the parent would allow us to do things like pursue opportunistic M&A and manage share dilution.

So I'll leave you with a few takeaways. Number one, we have already demonstrated that this company has durable earnings power and that we can grow revenue by more than 20% a year.

Number two, we're well on the way to realizing that 5% target margin that we set for 2027, up to 7% by 2029 and generating $2.25 of EPS or greater next year and that we have an achievable path to getting to $4 of EPS by 2029 or greater. So overall, this plan is going to generate strong cash flows. We think that we have plenty of opportunities to put that capital generation to work to improve shareholder returns and improve the future performance of this company.

And the targets that I just described to you are based on the business really as it stands today, and we can see significant incremental opportunity beyond the scope of these targets if this Lucie marketplace picks up and gain speed over time.

And so with that, I think we're prepared to take a 15-minute break at which point, we'll welcome you back to the meeting. Thank you.

We'll now take a short break. Please be back in your seats by 10:25.

[Break]

Please welcome Janet Liang, President of Oscar Insurance to the stage.

Welcome back, everyone. Now Mark started off this morning, kicking us off talking about Oscar's vision for the consumer marketplace and how it's a model for our country's health insurance system. And then Scott followed up with our strong financial performance and positive outlook going forward. I'm really excited to share with you the expertise and the execution model that is led by our teams at Oscar to deliver the results that you see today. I'm Janet Liang, President for Oscar Insurance. Now the ACA is the fastest-growing segment in the health care system in our country. And we are singularly focused, right, on leading and growing in the consumer marketplace. Oscar has significant runway to expand our reach and set the pace for innovation in 3 really important distinct areas: products, network and technology.

And these 3 assets are specifically designed for a marketplace where individuals can choose the plan that they want to belong to. So I'm going to start back at our Investor Day in 2024, where we have, and I can show you that we have delivered on the commitments that we made to you 2 years ago. So we have a track record of profitable growth that reflects superior disciplined execution. We have nearly doubled our membership. We have doubled our in-market share and doubled revenue in 2 years, right? And this is all in a context, I want to take you back, it's all in a context where there was tremendous uncertainty in the marketplace, right? We had the expiration of the enhanced premium tax credits. CMS was issuing new guidance for payment integrity and eligibility, right? And we also saw a rise in market morbidity that became -- everyone became aware of towards the latter half of 2025. And the entire industry, all carriers were impacted by this, right?

And so in a year of great uncertainty, we had a choice to make and we chose to meet that moment. And let me tell you how we did that, right? So we deeply understand this marketplace. So individuals were losing their subsidies and/or seeing significant increases in their cost share. And they needed options. Otherwise, they were going to have to drop from health insurance completely.

So we took a step back, and we designed affordable bronze and gold plans that they could move to, plans that were priced with discipline, that generated margin and helped us grow. The second thing that happened was because of all this uncertainty, carriers literally exited the marketplace and/or raised their prices so that they could take a step back because they weren't sure what was happening in this marketplace and instead we leaned in, right? And brokers at this time were very confused because they had large books of business that they had to move. So what we did was we said, okay, we're going to reach out to these brokers. Some of them who had never signed an Oscar Life before, right? And we said, Look, you're looking for a stable carrier partner dedicated to the ACA, then that's Oscar, right? And because of our early outreach and early education we grew our distribution by 60%, right, unheard of 60% growth in our distribution of people who wanted to now sell Oscar Insurance.

So this strategy gave us a first mover advantage during a major market reset, right, resulting in year-over-year 60% membership growth, 60% revenue growth and 7 points of margin expansion all in 1 year, right? Today, like we are a stronger organization because of it. We now have the scale to operate with much greater efficiency and have much greater influence in the markets in which we operate. Combined with this pricing discipline, we have shown you that we can expand margin and that we can grow membership at the same time. And I'm here to tell you, we are going to continue to do that going forward. Okay. So we're really, really excited.

As we look ahead, we see a 65% growth in our addressable market, with Oscar reaching national share by 2029 of 18%. Now Mark walked you through the tailwinds that will grow the individual market to 23 million lives, right? And that's the CHOICE adoption through a growing gig workforce and changes with AI driving labor shifts in our economy. But within that, our TAM sits at 9.6 million today and is moving to 16 million. This reflects our footprint for Oscar, right, within that national 23 million. So by 2029, we'll have a TAM with 16 million. And there's 3 important ways that we're going to get there, right? Three. So number one, we are -- we have an existing footprint and in that footprint, we are going to mature our market share from 30% to 35%. And that's going to bring 2 million -- add 2 million of addressable lives to our market for us.

Second, we're going to expand into an additional number of counties, roughly 400 to 600 new counties. We actually expanded 150 counties last year. So we're going to double that each year in terms of a growth rate and expansion, and that will add 3 million lives.

And then lastly, we are accelerating our CHOICE options and our CHOICE strategy, right? To add another 1.3 million lives in our footprint. And I'm going to double-click a little bit on CHOICE because CHOICE is a new growth avenue for Oscar and new for some of you in this industry. So this year, I just want to share with you that we are already seeing 2x increase in membership from last year. And also this year, we've been busy. We refreshed 250 products for off-exchange where employers and employees can find their CHOICE options, right? So that means that by 2029, right? We anticipate that we will be at 3x market share in CHOICE. And our focus is going to be in high-priority markets.

So we expect to get to 20% share in these high-priority markets. So what's a high priority market. A high priority market has 3 attributes, right? Economic attributes. The first is that the state has passed favorable legislation in terms of tax credits for employers who are moving to CHOICE. So tax credit, immediate savings, right?

The second is that there is a very obvious difference between the average premium on the exchange and the average premium an employer may pay. That is -- That represents a substantial discount when you move from your current insurance into the marketplace. So there's an attractive savings for employers.

And lastly, we look for markets where there is a good mix of employers from small local employers, but also large employers with multistate footprints that have a diverse workforce from part-time to hourly workers, to full-time exempt office workers. When you have that sort of mix in your population, you can quickly take advantage of CHOICE to take a slice or category of your employee base and move them into CHOICE without having to move your whole group to give you some early experience. And so there's early adopters willing to try with certain groups of their employee workforce.

So together, right, this offers us an opportunity of a new TAM in our future. CHOICE is growing today. It's -- I know we talk about it as a future opportunity, but it is growing today. As we talk to our employer consultants, we talk to the chambers, we're meeting with HR employee councils, we are hearing that over 62% of large employers today are already exploring a shift. Our quotes for CHOICE options has doubled from last year. There is more quoting activity and more employers interested now that they're aware of where the real benefits to move for both their employees and employers, right?

Our value prop delivers the CHOICE that they expect with significantly more products at affordable fixed prices for themselves and for their employees. So I just went over 2 things: One, right, our execution generates profitability; and second, we are growing our TAM, right, in market, expanding and through CHOICE. Now let's talk about 3 really important assets that we have that are unique at Oscar. And I believe that these 3 assets put us on track to become the #1 consumer-preferred individual market carrier and those 3 assets, and you hear them from a lot of carriers, but you're going to hear why it's different at Oscar.

That's our networks, our products and our technology, okay? Very different approach when you're designing for individuals in a consumer marketplace. So let's start with our networks. So we were fortunate that Oscar was forming at the time the ACA was forming, right? So we had the opportunity to build our networks from the ground up, understanding the ACA, right? And making sure that we were addressing the needs of the people in the ACA. Unlike other carrier competitors who had already had very large, wide commercial networks for all their different lines of business, and they had to retrofit those networks for ACA, right?

So the ACA gives us a very broad supply with 73% of providers in the country participating in the ACA offering ample choice for any individual who needs their care needs met. So when you overlay CHOICE, this level of choice with Oscar's advantages, right, it helps us to cultivate the kinds of partners that we're looking for in terms of providers that are going to work with us for the needs of the individuals and the ACA. Now together with our partners, our technology, our expertise, our understanding of this consumer segment, we were able to deliver $3 billion in affordability during the last 2 years, right? $3 billion in affordability that goes directly to margin expansion and competitive pricing.

And we do -- when I talk about a high-performing network, this is what you're going to see, right? So you're going to see that we have improved the financial accuracy of our claims payments and timeliness, and we've reduced friction for providers by simplifying prior authorizations and really focusing on anticipating care needs with patients, for their patients, our members and to take the guesswork out of what's going to be covered, right? That's what you see in a high-performing network that drives affordability.

The second thing you're going to see is that we have care teams and care guides and our Oscar Medical Group, providing navigation, helping you find the doctors in your network, helping you to get care now. We are there to help you stay healthy and to make sure you're getting to the right care at the right time in the right setting. And lastly, right, what we depend on in terms of driving affordability is going to be our technology and our AI insights, our data platform.

We have AI-driven insights that help to prompt whether it's an automated prompt or whether it's an AI agent prompt, whether it's a human being calling to prompt, like, we help our members, like, understand your benefits, use your benefits, ways to save money, right? And also, again, we want to make sure coverage is predictable. So we are really focused on how do we integrate the care that you need with the coverage that you get and make that a seamless experience. So these high-performing networks, here's what the great news is, that these networks, right, have produced this level of affordability. And these networks we built for the ACA, it's the same chassis that's built for our CHOICE products off-exchange. So what does that mean? This means that this design strips 20% of the waste that comes from large generic employer plans and employers and employees can stop paying for breadth that nobody uses, right, and can use these dollars to customize benefits and plan options, right?

So that leads me to our second asset, our products, right? So now we have these networks that are core, right, as a foundation for our products that allows us to put money into product design. So we customize our products for high-growth segments that we want to attract through a new category called lifestyle products. And I'm going to walk you through what that means. So many of us are offered.

We think of products as I have a PPO, I have an HMO. I have an HSA with my high deductible self-funded plan, right? And if you're in the ACA, it looks like I get a bronze, a gold, silver CHOICE, maybe platinum, but not usually, right? And so we're here to say that we really understand the individual customer.

And I want to tell you that individuals want their plans to resonate with what their needs are at the time in their lives, right? And our lifestyle products, you can see this, have a Net Promoter Score of 71 versus an industry average of 12, an industry average of 12. Guess what? People don't really love their health insurance, but I'll tell you they love our lifestyle products.

And members saved nearly $1,000 on average each year on out-of-pocket costs. If they choose one of these plans that's tailored for them versus if they bought a generic plan. And I'm going to give you 3 examples of products that do just that.

So what we're really good at is zeroing in on what are the health patterns that people experience, what are preferences that different cohorts have, right? And what are buying behaviors of consumers for each of the cohorts that we serve. And then we build benefit designs, care navigation and rewards, right, around those distinct needs.

Now we have targeted 4 high-growth segments for our product pipeline, 4 high-growth segments. And last year, 3.4 million new consumers came into the ACA. So when people say the ACA is not growing, not true. 3.4 million new consumers came into the ACA. And many of those new consumers are individuals that fall in one or more of these categories. So the ACA is growing with consumers that we want to serve, right, a great match for us.

So what we do is we take this knowledge of how we want to grow, right, where are segments that make sense for us and who's coming into the market, and we build solutions around that. And so I want to talk to you about 3 of them. And you know our Buena Salud, those of you who have been with us, our Spanish-first experience and product and also our condition-specific products, one of which is diabetes. But 3 new products for you, just to give you an example of how we have really risen the bar on how we think about consumers and how people buy health insurance.

Number one is HelloMeno. So HelloMeno is our very first life stage product, right? And this is for women navigating menopause. So we take our core medical benefits, right, our core medical coverage. And we put on top of that for $0 out-of-pocket, let me say, $0 out of pocket. Any care that you need that's related to accessing a menopause clinician, hormone replacement therapy, bone density scans, insomnia medications and anything else that's common and related to the treatment of menopause, right? $0 out of pocket, we take the barrier of money away so that you can get the care that you need.

If you're somebody who says, "I have menopause," and that's my primary focus right now. Now because of the stigma associated with talking about menopause for women and for their broker distribution channel, we use social media and influencers to reach women directly. And guess what? We saw a 2.5x increase in direct enrollment versus our traditional plans. That means unaided by a broker, right?

So the good news is we understood there was an unmet need, and we met that need. And we were rewarded by it, right? Win-win for everyone. The second product I want to talk about is Hy-Vee Health. This is an example of our signature CHOICE product designed for the employee marketplace. Hy-Vee Groceries, if you don't know who they are, they are a very large, kind of, grocery, regional grocery leader in the Midwest with over 40,000 employees and over 500 stores.

And they happen to have a very strong health division where they own their own primary care clinics, they have pharmacies, they have dietitians and a lot of different clinical services for their customers. We partnered with them and we work with them so that we created a medical product where essentially 90% of the care that you need, which is primary care, right? 90% of the care needs that you have. If you go -- if you use their concierge primary care facility, it's 100% $0 out of pocket.

Again, seeing your doctor, basic labs, basic prescriptions, right, any time, unlimited access to your primary care office, $0 out of pocket. This combined with, sort of, what they're really good at, which is discounts in groceries, access to their food as medicine programs as well as just -- they have local dietitians, so they're all available to the members in this product, right? Great example of a partnership that expands our reach and also a great brand for Oscar.

The last product that I want to share with you, is super excited, and this is our focus on creating, again, affordability and options for people that are buying health care, that are buying -- are the health care consumer. So you'll see this product in -- it's filed and it's ready to go for sale in 2027. And we have partnered with Allstate Insurance to create this new bundled products or product bundles, right? So it takes Oscar medical insurance plans, combined with Allstate's supplemental cash benefit plans. And together, they really help individuals, mix and match, sort of, how they want to take their risk and their cost shares and their deductibles.

So greater flexibility, greater coverage depending on how you know you're going to utilize health care. And this new partnership gives Oscar access to their distribution network of 38,000 brokers, right, who have not -- some have heard about 20% overlap with our distribution. So about 30,000 new brokers who have not written Oscar medical plans previously, right? So this is a big win for us in terms of both offering affordability to our members in the marketplace, but also to expand our distribution reach. Now all of this is not possible without technology, sort of, the third asset that I talked about earlier, right? So technology, it's in our DNA. It's in our founding DNA, it's who we are.

Oscar was formed because we believe that technology and an integrated tech stack could reduce friction in the hassles on the American health insurance system, right? And we are doing just that. And it makes sense that we're an early adopter of AI, right? So -- because we are a technology organization. So at Oscar, technology really underpins every business transaction right? It drives our intelligence platform.

And now with generative AI, right, we're enabling automated solutions and workflow at scale. We are essentially operationalizing AI. So I want to give you an example. We have and we are building a very dynamic member profile. And we -- because we have our own tech stack, right, we have all of the information, real time from providers on all the activities that they're driving for a member, all the utilization, right? We also have our 24-hour -- 24/7 AI agent, Oswell, where members are querying from symptoms to coverage for how to find help and resources. We have all of that information as well, right? We track your prescriptions. We know what benefits you've used. We know the plan you selected, so we know what you're interested in, right?

And we take all that information, it's a living profile that's updated instantly. And that profile and that data helps us to develop prompts. Prompts for you to -- you should go get care now, right? We need to help you navigate to a lower-cost setting to help you save money, right? We're going to help you maximize your benefits because we noticed you're not using some of the out-of-pocket $0 benefits like your annual wellness visit, right? If you're a diabetic, your $0 insulin program, right?

And of course, Above all else, we want you to stay healthy, right? So we are hyper personalizing experience at scale. And in addition to that, we take that feedback, right? And we use that to update and to design our future networks, our products and our tech, right, capabilities.

So I am incredibly bullish on the business value that gets generated with an integrated tech stack and the model that we have at Oscar. And Mario is going to talk about more of that with you shortly. But I want to say from the business side, the way that we work together is unlike anything I've ever seen in my 30-plus year career in health insurance and in care. It is truly phenomenally in advantage.

So together, we have -- remember what I said, network, product and tech advantage. So in summary, I just want to share with you that we are on a clear path to deliver profitable growth with 18% national share by 2029. And the 3 key drivers. We have an addressable market that is growing by 65% to 16 million by 2029. So contrary to what you may hear from other industry analysts, we are growing and the market is growing.

Number two, networks, our networks are on pace to deliver continued affordability, right, gains. And we are going to continue to provide exceptional provider experiences at the same time.

And lastly, we are going to win new customers because of our relatable meaningful products that deliver real value. Our expertise and commitment to the consumer choice is unmatched in this industry. And we are on the path to become the #1 carrier in the ACA by 2029. Thank you. And Mario will now take us through our technology platform.

Please welcome Mario Schlosser, Co-Founder and Adviser to the CEO, to the stage.

Thanks, Janet. Excellent to be here. I am Mario Schlosser, the co-founder of Oscar and adviser to Mark on technology matters and other matters. I had -- I was sitting here in the front, I had to take a picture of Scott standing in front of his now-favorite charts. The improvements of Oscar performance since 2021. And it really is astounding to reflect on how far the company has come, how well I think we've done the work of becoming just a top-notch insurance company and health care company. And that is really -- was really the original founding vision for the company that's building a unified technology platform will enable us to deliver higher margins at scale.

It's exactly, I think, what we've seen here. Of course, it's a team spirit and team efforts to make that happen. But that is something we have been able to show in the last couple of years here.

Before I even jump into this, I have -- I just realized this morning, I've been writing code for almost 40 years at this point, which is a crazy number to say. And I have never seen anything like we've seen in the last 10 months now. The way in which agentic coding has entered the bloodstream of companies or should be entering the bloodstream of the companies is totally insane. One thing I'm going to try to do here is to give you a real visceral idea of how we're using -- leveraging that at Oscar and how you have to have a very different mentality as a company, and a different technology platform as a company to even make use of all the stuff that's happening on the AI side.

Okay, why are we able to make use of what's happening in the AI side? Well, we have 1 platform, quite simple, claims service, clinical workflows and experience. It's all the same cohorts, the same foundation, the same mono repo. That is a big reason why in the last couple of years, we have often been the first, I believe, to launch certain AI tooling with the first launch, what we like to call, super agents, benefits chatbots. We're the first to launch Oswell. Janet just mentioned him or her, actually don't exactly know how the anthropomorphize. I should figure that one out, Her, let's just call it, which is the clinical chatbots. And that just works because we have this foundation, we can leverage over and over again. Within Oscar, the health plan, that will continue to lead to more operations efficiency, network efficiency, things like that, better member experience, better navigation, lots of ways the insurance folks can make use of that.

Outside of Oscar on the Lucie side, that we're going to apply these techniques to better shopping, better comparison of information across the industry and things like that. This is a bit of a grounding chart, I though I'd throw on here. What does it mean? What do we look at when it comes to the peer group of how we benchmark our technology and AI efforts versus others. The peer group isn't other insurance companies, you might not be surprised here, that's the peer group really ought to be for all of us for enterprises nowadays, AI-native companies, companies like the Foundation Labs, for example, that really, at this point, say my engineers don't write code anymore. It's all agent-written, things like that. And to really live that kind of AI application, you have to have a different environment.

And the environment is shown here. You're going to build code and build agents and so on one foundation, really one repo and things like that. You put that all inside of expert design guardrails. If you have -- if you deploy your agents in that way, you can then just watch them work and watch and produce results. You get feedback from real outcomes as quickly as you can, and you feed that then back right into building something better. Here's is a very nice example for how we've been applying that theory in a sense in practice in the last year or so. When we launched Oswell last year, midway through last year, I think we had the first alpha members in using it, the clinical chatbots. It's a multi-agent architecture. So there's a pharmacy agent. There is a medical record summarization agent and so on. These have to all be laboriously fine-tuned and get the instruction written and things like that and then test it over and over and over again. That architecture are the points where we know so much about what goods delivery of experience looks like that we have so-called evals all over the place, that let the agents modify their own prompting.

So there's almost a living system now that improves on itself as it goes along. Of course, again, within expert design guardrails. Our clinicians are there to watch this. Our operators are there to watch this. But that's really what you want. We went as an industry from agents that are in some workflow a year ago to agents that can write code and maybe even themselves. Now to increasingly agents that can improve themselves.

And we got to ride that ladder, climb that ladder up further and further. If you don't have that foundation, you don't have that mindset, AI is just going to be another point solution for you, you're going to hire a bunch of vendors. They will stitch you something together. It's not all that exciting, I think. That's why you're eking out some gains, perhaps a lot much more.

If you have this mindset foundation, that's how it becomes a part of how the business operates really. And so yes, this is how we build Oscar really from the very beginning. We like to call ourselves the full stack health plan on the top right, and then a little bit of health plan down here. You got products, creation, network, billing, claims, care, all in that one platform that gives you a lot more insights into what's actually happening on the platform.

Pretty much, I would probably say every operational metric stream now has some agent looking at it and I'll have a slide later on where you see what that means. We have a pharmacy agent that just watches pharmacy claims and can see spikes that we should be looking at. And with some humans involved as well. And health expertise encoded, I think, is the next frontier here, and I will have some videos for you by the way later on as well. One of those videos, if you hold that thought for a second, will be about one of our claims operators, not one of our engineers, one of our claims operators who rewrote the software tool he is using to take claims. And that's really the promise of AI, I think agentic coding that you can have non-software engineers build software very, very quickly.

And then four, of course, you have to put that in this closed loop and keep improving things. It now took us a couple of weeks more recently to replace a vendor we used to have. That's a so-called itemized bill review for us. So bill comes in as a rule basically gets supplied, but complex rules. You want to pull that in-house. And really in a couple of weeks, we can do something like this now.

Benefit is, of course, we save some money on the vendor cost, but we also get much more information in real time as to which rules fire how and what does that mean for providers, what we have to manage going forward and things like that. So that's the kind of platform you would want that we have been investing in from the very, very beginning. That's what's exciting about the company.

A little bit about, again, software developments here with AI. AI is changing the calculus of how you think about tackling which projects. There are all these -- I always like to say Oscar was ever bottlenecked by ideas, ideas were always flying around more than we could handle really. Maybe that was in the early years, a little bit the problem as well. So we focus on also having good numbers. And -- but it was always in the execution. You had to actually somehow figure out what to do next in agentic coding, one thing you can certainly now do is you can check much more quickly if an idea is a good idea. You can build a prototype more quickly. You can get it out there, get it connected. Almost any tool we will now build, we'll have several clickable prototypes that get put together very, very quickly and leads to better design from the very beginning there.

On the engineering side alone, and this, by the way, also shows the insane speeds that the world is changing at right now. At the beginning of the year, only about 16% of the code that was shipped in the production systems was written by AI agents. And now that number is almost up to 2/3s of all the lines of code written by coding agents. That is astounding to me, as I said at the beginning, I don't think I would have thought that we would just, sort of, hand off this craft, we've been honed over decades as humans to AI agents and be better off for it.

And that gives us also about a 2 to 3x faster time to market. Health care is not known, I think, for its time to market. Insurers are even less known for time to markets. So many more of these plans design ideas that Janet had, so many more of these ideas around the actuaries have around what should we look at, how should we rejigger the costs here now become possible because this now really works quite well. This is a bit of a service slide, I thought. We always like to -- in every earnings call, insurers now I can talk about the AI use cases they have going left and right, kind of, see through that a little bit. And what I always listen to is, do they also talk about things that they try that didn't work out.

That's often a good sign as to whether what you say worked actually did work as well. There are plenty of things that don't work. And so we're going to have to continue to be on that journey of figuring that out and learning that for ourselves. Here, just a couple of examples. Provider data is an old bane of insurance companies, getting that right, right phone number, right specialty, right provider for the right time. The models are good at if we have several sources that sort of agree, but need some nuance in the interpretation in giving you that nuance and interpreting that. That the models can do quite well.

And that's one reason why we've been improving our provider data accuracy in just the last 12 months as well. They're not very good at sparse data and making that up. There's still a lot in health care, which I think is a bit of a metaphor this is for, where you have to go into a practice into a hospital and figure something out in the physical space in the real world. So that's where models need to get better. Fraud, waste and abuse is an area where we benefit a lot from very systematic, very deterministic application of rules, again, not really what the models are that good at. And so when we experiment with fraud, waste and abuse, often we see get -- build a model that is -- or build a system that is rules-based, not one that is, sort of, have the agents try to apply interpretation in the moment in time.

And the final one, incredibly important as well, a nice example here with Lucie. We've been experimenting there with how do we get -- best get people the best information, recommendation. And when we test this with our brokers, right? We have so many brokers that love working with Oscar. We use them as a sounding board oftentimes. Then we realize they often like simple, clear search drop-down fields more than, sort of, Blackbox AI recommendation because that makes them -- themselves feel like they can stand behind this. And it just really matters for the transfer of trust that they then deploy towards the prospective members as well.

Now that is going to keep coming back. How you build AI tools, people actually like using enormous craft. I think we're ahead of the curve there in healthcare, certainly in health insurance. Obviously, those are not failures, those are really good learnings as long as you can work them back in into what you do next. Listen to the user and then scale reliably when it makes sense.

Okay. We're at the first video here. One thing I would say ahead of time is this will run fairly fast, fairly quickly here. We're going to share these videos out separately. I hope I'm not overpromising here. I'll tweet them out. And after the talk and what we have -- can we pause one second actually? I start talking anyway. So Teddy, one of our guys who's been with Oscar for 12 years, I think, at this point, started on the phone, then went to the claims team, runs one of our claims queue. He runs the provider disputes claims queue. So obviously, provider experience matters a ton for Oscar. He built a tool now for himself started over a weekend saying, "I have to look at too many different systems here when I challenged -- when I look at disputes and providers. I want to build a new one." What you saw happening here just now is him popping into our coding agents, saying what kind of tool he wants. That agent then goes through and builds all this. This is now the real tool here. We really reenacted this, okay?

This is not made up. And in that tool, you see the tool pull together all these various documents that go into the resolution of the claims disputes and nicely put this together here. Again, quite fast. We're going to show it to you afterwards again. Of course, when you build something with the ground up, you can build data visibility right into it. And so for free, so to speak, you now get all this dashboard stuff here that tells you about, tells Teddy about how his queue is now working.

Now he pops back into the coding agents. Again, coding agent here, going back and forth saying, I'd like this difference, I like that difference. And what he's building now here is even more mind-blowing. It's an AI within the AI. So the coding agent built a tool for Teddy. And now he built himself bots that looks at all the same data, where he can now talk to that bots or his folks on his own claims queue team can now talk to these bots and the bot starts interpreting data differently here.

Again, an AI agent built within a larger AI coding agents. All this stuff is only possible because we have an environment that's production, of course, with our production data and in the same environment with lots of synthetic data behaves the same way and Teddy can go against this synthetic environment and test all this as if it was the real world. And so you can see him nicely go through here, pull together all kinds of different PDFs and different instruction manuals that he would have had to otherwise, or his folks, to look at manually and curate manually here, and we did speed up the coding agent working here. You saw that text come pretty quickly here, but that was him reenacting how this works. And this was the real tool that then came out of it.

Now it took the engineering team another probably 2 months or so to take that tool that he built over the course of starting on a weekend and another 2 weeks or so. So there was a lot of, kind of, connecting of the dots and things like that, but that's just enormously much faster than it would have been otherwise. This would have been, I would estimate a 6-month project with 10 engineers or so in the past and product managers around it and everything else. So enormous speed up in actually building this. And on the other hand, this was literally one of the people who's adjudicating these disputes every day doing it. You cannot get any better at getting this expertise from the front lines into tooling than if you have it work in this kind of way. I think that is the absolute future, both of Oscar and of industry overall. And you got to have that's kind of set up to really be able to deliver that.

A few more examples. This is now starting in operations. I mentioned before, we got all these operational queues we can look at. One of them is pharmacy claims, and we just have an agent look at these claims every single day and say, is there something here in some configuration that looks strange. There's an example here that popped up a few weeks ago where in just one thing that looked strange that the investigation team looked at as well, was able to confirm about $28 million or so in drug costs that we probably shouldn't be paying for. So that came directly out of this real-time enumeration here. Prior authorization, a great example, of course, as well. There are hundreds of CPT codes in the Oscar prior auth base where we do completely automated approvals. We don't do automated disapprovals ever, right? That is always done by human beings, but automated approvals are better for everybody. Provider gets it more quickly. Our team is less frustrated. And so some of the highest volume CPT codes we have, high 90s on approval right now because AI can collate medical records and things like that.

So quite a bit more in terms of leverage we can get there and earn. This is member experience. And you can look a little bit on the right side there as well. This is a bit of a video of Oswell, and we have another video coming in just a second, so we don't have to parse us through too much here. Oswell now solves about 30% to 40% of all member messages it receives right of the bats. And Oswell very purposefully clinical and nonclinical. And AI analyzes 100% of every interaction we have. So last year, we had some -- it turns out that we -- people were calling us about changing PCPs because it was confusing on the ID cards. That stuff, you've got to realize very, very quickly. And it's small enough for people to not realize they just look at dashboards, but it's big enough to really matter to folks. And so AI can help with this. This change in the role of care guides, right? What's the role of the human and all of this?

Well, care guides have a different job. Their job becomes more about empathy, about some handling very complex judgments required questions, advocacy matters more, things like that. But we can automate so much routine work when the answer is clear and bringing the right person when the decision requires judgments. Clinical finally, and then I have 1 more video for you here as well. On the clinical side, one thing we do quite a bit, and we have a large team of nurses doing it is we reach out to members proactively about issues they might currently have or might face before they go to a hospital for surgery. When they come out of a hospital, we don't feel like they have a good PCP, they sort of, catch them when they come out.

It takes a while to do the research on a member for a nurse, about 20 minutes. You have to look at medical records. You have to look at discharge documents, things like that. That's a great AI application, of course. And on the right side here, you see a tool that's live, where the tool just looks at all these documents. You might have seen the footnotes there a second ago, 6, 7 different PDFs. The nurses don't have to read anymore, gets all put together in one place and nicely compiled. And this preparation time goes from about 20 minutes or so down to less than 5 minutes, which gets amplified by the fact that you don't reach every member every time.

So you really per member you reach, saves so much time in preparation and the nurse is so much more educated about the member, just quite a bit of opportunity here in managing our clinical affairs much better as well.

Okay. One more video here. I'm going to roll that in a second. This is a workflow we're putting together at the moment there's a mix of things we've already launched and things we're launching, knee replacements, okay? That's a prior authorization. Oftentimes, insurers do this thing where they approve that little thing, but it's a step in a bigger process. What we're now working on here over the next few months at the moment already launching in the next few months is let's take that journey and authorize it all the way out and say, okay, you will need that surgical procedure, but you will also need medical equipment, nursing care, outpatient physical therapy, things like that. When we authorize this, in a sense, we earn the rights as well to then guide the member to the right place at the right time. So he got the physical therapist now. It's all real stuff. We get these pictures. I don't even know where that is here, but oh, yes, in Florida, of course.

And then we can route you to these PTs that have capacity much more easily. Along the way because Oswell is there in a helpful manner, you can ask even clinical questions, right? Maybe your knee is hurting still 3 weeks after. We won't shy away from answering these clinical questions because we have the confidence that we know enough about the members and about these conditions and build these agents well enough that they can actually do this reliably, Oswell can pop back into the original care workflow we authorized. It can look at that. It can pull in discharge notes from the various physicians you encountered.

And this is multimodal, so you can upload pictures of your knee there as well. And of course, ideally, we are the connector, not just the deliver of care. So we can get you back in with a physician that shows up in our data as a really good physician for these kind of issues and for you as a member there. So really quite astonishing to see how much more of ability I think there will be in the future already is in the current Oscar system for having us orchestrate your care and not putting that burden back on the member, right? Way too often members are asked to be the advocates and the managers and the accountants and whatever of their own care, we need to be able to take that away from them, and I think have and that's a big reason why brokers love us, why Oscar grew and out retains and outgrows other insurance companies.

Lucie marketplace, so much more to be done here as well. Separate from Oscar, as we talked about before, we don't mingle data. We don't mingle sort of recommendations there. But we do know a bunch about how to make members feel comfortable with, again, with AI and with technology and things like that. And so we have a team in the company is building a great tool here. We saw the numbers spike as we started talking here. So it looks like people really need to buy better health insurance. Lucie is -- the experience of building towards there is one where you will tell us what your health care needs are, we can upload medical records, right? Interoperability is getting a bit easier now. I think we're at the forefront of that as well. Get these medical records in, reason over them, compare across the marketplace what works best for you as a member that does not have to be Oscar very, very clearly, right? There's so many other good health plans out there. I love the statistic of 75% of all doctors in an ACA plan, but 57% are in just 1 plan. Hey, you got all this choice.

You just got to pick the right plan for you and your family. That really is an algorithmic problem we ought to be able to solve. And then, of course, bundling this with GLP-1s, bundling this with all kinds of other things is incredibly powerful. Forgot we have another video here, do we? Okay. It's me that's showing these videos here. Yes, enormous opportunity here still, I think we've just gotten going to have gotten to this point with a platform that is not scattered that is not vendoring out all kinds of stuff and fragmented, is very powerful. I think we've held on to that to throw agents in the mix has been powerful already in the past 2 years. It's really taken off, as you saw from these technology numbers here just in the last 10 months, that will keep layering on itself.

There's growth and margin opportunities. We can do much more member experiences and retention and things like that. There's medical loss ratio opportunities clearly in care navigation and actuarial insights, affordability programs. And there's tons SG&A opportunities as well still, greater automation, self-service, human interventions. So again, it's a team sport to have gotten these kind of results here in the bottom left, but the team is incredibly aligned in how they're able to use that technology across the board. And that is, for someone like me, incredibly powerful and fun to see, and I'm looking forward to so much more of this. And now we are at the Q&A. Thank you.

Please welcome Mark, Scott, Janet and Mario to the stage for Q&A. [Operator Instructions]

All right. So we are ready for Q&A. Who wants to ask?

Andrew Mok from Barclays. I appreciate all the color this morning. When we consider your comments on stable 2027 industry enrollment alongside your targets on revenue growth and market share this morning. It looks like you're expecting industry ACA growth to accelerate to very high single digits, if not low double digits in 2028 and 2029. One, is that right? And can you break down the components of that industry growth, including how much CHOICE is reflected in that?

Scott?

Yes. We reflected on the fact that we have seen 3.5-ish million new lives coming into the ACA this year. A lot of those trends that are driving that, we expect to continue. Things like more and more people who are working multiple jobs they used to be in an employer-sponsored plan. Now they're in working part-time in 2 jobs. We see more and more evidence that, that is continuing.

We think AI is going to continue to accelerate that. We think that just a core gig economy, individuals who are not part of a large organization, that's going to continue to grow. We see evidence that, that's been a big driver of recent growth. Expect that to continue immigration, while maybe not as high as it's been in the recent past will continue to be a driver. We see that as a fundamental.

And then CHOICE, we talked about the acceleration that we're seeing in that marketplace. I think, as Mark talked about this, that's a market that's kind of doing a little bit of a drip, drip, boom. And I think what we're starting to see is the real acceleration of the J-curve with CHOICE where more and more companies are exploring it, and we are confident that, that's going to lead to more and more of those companies joining in the market. So I would say -- we're not going to go through each one of those as to the specific drivers, but those are the cumulative factors that are driving growth in the ACA through '29.

And there are 2 sorts of phenomenon. One is employees getting displaced for a part-time job or whatever and ultimately going to work -- going and getting their own ACA plan because there isn't any structured way to do it. But one of our anticipated approaches is to create an hour banking system within a wallet so that if I work for multiple employers, the notion would be the employer puts so much per hour work into that pool. This is something we used to do back when I was a union organizer back in college, create our banking opportunities for people to amass the money based on multiple employers and then go buy their policies.

So there isn't a structured way for people to get it, but we now believe we can build structured ways for people to get coverage that are displaced by the employer-sponsored workforce.

Great. And just a follow-up on the CHOICE. You mentioned that there would be a tipping point at some point even though unclear when. What are the barriers today? And what do you need to happen to unlock that growth.

Janet, do you want to cover that one?

Barriers. Well, I think CHOICE -- what we've been talking about is to actually address and sort of build the, I would say, the highway for employers to come on to the marketplace, right? So when Mark talks about Lucie and what we're doing, it's in fact, to address some of the friction for employers, just simplifying administrative connections between the employers, employee list, the ability to do the selection and buying for their individuals and to ensure that the payment transactions work. So there hasn't been an elegant solution in the industry, and that is what Lucie is about, creating that marketplace and putting together the infrastructure and also the coalition that we formed with ICHRAx in order to agree to standardize some of the connection points and integration, so there's interoperability.

So it's really been understanding CHOICE, I think, is the first part that it's an option for employers. And the second is how do you make it easy for the employers to make the switch?

There are 2 major barriers in the thinking of employers and in consultants and brokers. Employers are worried about network access. Will all the people that work here have access to a network. We solved that with ICHRAx.

The second is, will my employees be able to keep a competitive plan that doesn't have me left with just figuring out what defined contribution is every year and having that as the argument. And again, using the broker community to get people into the right plans based on their current lifestyle needs stabilizes the underlying risk of that population.

On the consultant and employer side, broker side, brokers hate the ICHRAs because they lose the commission on the group. But what we've designed is the wholesale sale converting the employer and then turning all the employees over to the broker to convert them and getting paid commission by whatever carrier they place them with, gives them a lot more opportunity, giving them the tools to do it easily.

The consultant side, I think, is going to be a fight over time. I think it's extraordinarily expensive for consultants to convert an employer. It's up to $80 per employee per month. We think there's a cheaper way to do it. we're investing any opportunities to do that. But that will be hand-to-hand combat. And obviously, they're going to advise large employers to stay where they're at until they can figure out how they make money from this.

Yes. And the truth is when inflation becomes a point where it just becomes too great of a burden for employers, they're going to make the switch, very similar to the change from pensions to 401(k) plans. It was not easy for employees to decide to give up on pensions for their employees. There was a sense of what they needed to provide and when long-range balance sheet impacts. They said, we got to make the switch, right? And it's been successful. It's been healthy. It's burned the whole industry. Very similar, I think, very similar path.

Go ahead, Steve.

Steve Baxter from Wells Fargo. Thanks for the questions and all the information. Just to come back to Lucie and the economics like you gave us that slide that had the helpful framework on like the per 100,000 economics and the margins you're thinking on that. I guess how much of those economics are, sort of, known today, contracted versus kind of have to be borne out in the market over time?

I think they're known in their current state. So the commissions that supplemental carriers pay as a result of building of connecting people together. The parts that we're pricing out as we speak is the rents on the actual marketplace itself. And we're negotiating those carrier by carrier or having conversations. How much does Lucie get when we create these connections and allow them to traffic through the site.

And then I know that the commentary, I think, was a modest contribution to the EPS target. Like any general framework you kind of want to offer beyond that? And I guess, how should we think about how you might report this business over the next couple of years, we can kind of keep you honest on all these targets?

Yes. I'll start with your -- the end of that question, which is we don't expect to have significant amounts of Lucie specific disclosure until it becomes a larger part of the business. As we think about how it contributes to the $4, I would just say this, if that business is not successful, we still believe we're going to be able to deliver more than $4 of EPS in 2029.

It's Michael Ha from Baird. So on CHOICE, as employers move employees from group coverage into CHOICE, how do those members compare with Oscar subsidized individual members on morbidity, risk adjustment and retention, acquisition costs, margins in general? Does employer sponsorship structurally improve the risk pool for individual marketplace? Or does it create some adverse selection by carrier.

I think that one of the things that we observe is when we see new people come into the ACA regardless of where they come from. After a short period of time, they all start to -- we can definitely see that the performance normalizes and looks very consistent and similar. So we believe that bringing more lives into the risk pool actually stabilizes the risk pool for the remainder of the population. So we do think that if we have the ability to create 2 opportunities to engage that member, one in Oscar Insurance, where you could be a member of Oscar Insurance, if you happen to have a provider and in a network that is in our footprint, we would love to have you be an Oscar member. But if you move and you go somewhere else and you need a different network and with a different employer, with Lucie then can capture that life and retain you.

So the whole business that we're looking at and trying to tackle this individual market is about extending our relationship with members, both through Oscar Insurance and as well with Lucie. And we think that by using both of these 2 vehicles, we're going to be able to have significant duration and significant lifetime value from those members.

And on the ill employee side, so if you have a sick employee that moves over as part of it, we have the risk clearing mechanism in the ACA to amortize that over larger numbers of lives. So it's just part of the normal routine. We wouldn't want groups putting their sick employees in and keeping their healthy employees on a self-funded or partially funded plan.

Got it. And Mario cited 33% improvement in operational efficiency since 2024. I mean with further efficiency still ahead, how much has that shortened the J-curve for your new market cohorts, both in time to breakeven and mature contribution margins, how do those cohorts launching today compare with those, call it, 2 to 3 years ago? And how could Lucie drive further improvement through acquisition costs, retention and admin leverage?

Well, as I spoke about, the goal here is to extend lifetime value. That obviously is a -- gives you more opportunity to incur potentially even higher upfront acquisition costs if you have a longer-term relationship. We don't necessarily believe that that's the outcome where you end up with higher acquisition costs. We think we can have very efficient ways of bringing lives into the Lucie marketplace.

Just to pull up on how is AI influencing the business. Hopefully, from the presentation today, you have a sense of the pace of how change is happening at Oscar.

And when I look at how many more projects we can be doing with the same amount of headcount, right, like just the -- our ability to deliver significantly more throughput in changing our systems and delivering more agents with the same amount of people. That is the efficiency that we're seeing. You hear others talking about spending billions of dollars to try to increase their AI performance. We're actually spending the same amount of money and getting massively more out of the teams that we already have.

I think that's important about the types of -- the quality of people that we have in this company and our technology organization. So your question about the J-curve, I would just say this, we see an acceleration of profitability on all members. And so it gives us more confidence in our ability to enter into new markets to hit the margin targets that we've got for those targets. And we see the evidence of that every day that what we're building is working.

One more comment before I turn it over to Kevin to ask his question. The other part of this is AI is not just a cost reduction. AI is retentive and allowing people to get serviced quickly and get things done. So on the growth curve, we've had a lot of volume and scale growth. And part of that is because of AI and the way we manage customers, onboard customers and service them.

Kevin?

Kevin Fischbeck, BofA. My understanding is that the plans that you offer in the CHOICE market are basically the plans that you offer on the exchanges. Is that -- if that's true, do the plans in the CHOICE market have risk from legislation? Like did the pricing go up a lot on the CHOICE market this year when it went up a lot for the broader market? And I guess, if that's the way that it works, how do employers think about that regulatory risk as they think about moving people on to the CHOICE market?

We are doing both on- and off-exchange products. So we price it out based on what we think the mix will be.

Okay. So the off-exchange being more stable, you would say -- and so that gives the employer then visibility.

Literally, what the employer does is they take what they're spending on health care less the employee premium gain share and they divide it across their employees and everybody gets the same amount. That's pretty much the standard approach.

But Kevin, if you look at the performance of the ACA on trend, I think the trend over time in the ACA has been more favorable than what we've seen in the commercial space. And so yes, there's been some near-term pressure on rates in the ACA. But we think that with a stabilizing market going forward, we'll see a more consistent profile. We think that's going to be better than what we will see in commercial. So I don't think that the short-term headwinds in pricing that may have happened over the ACA in the last year or so are an impediment for CHOICE to continue to grow.

Okay. And then you kind of touched on the answer to the previous question, but I guess, Mario, you said that the first part of making AI really successful is having one platform. Can you give some examples about what that means exactly? What are your -- like when you look at something, I couldn't possibly have done XYZ if I was on multiple platforms or it would take me twice as long or it would cost X amount. Like, how should we think about what those barriers are that maybe others are hitting that you're not hitting? And just maybe some way to quantify it.

Yes. And I think if you take that Teddy workflow, right, the claims provider disputes queue tool that we built there, that is the kind of thing that in a normal insurance company would probably hit different systems and even different vendors potentially. You have a vendor that might be giving you some data of a provider or whatever, might then have another vendor that does part of the bill review there and stuff like that. In our case, it is all in one place, Teddy can sit down, say, "Write me this tool that does this all automatically." And the agent will know what to look internally without having to go to other vendors, leave the cloud we're in, things like that.

So I don't think you could build something like this if you didn't have one unified platform. Oswell is a great example as well. One of the things we've been doing with Oswell is to give it more and more of a chance to act proactively. So for Oswell to go out and say, "I'm going to send you a message now, I'm going to approve something proactively," things like that. And that means adding more and more endpoints to it, where it can act, where it can really invoke our internal systems. Again, if we didn't control these internal systems, if we had to step outside of one system cloud to go to another system cloud or whatever else, right? Or mainframe even, it would be very difficult to do.

And so the speed of putting this to market and the ability with which we can rewire, I think, is that.

And overall, I would say, it's always been somewhat difficult to pin down exactly what part of Oscar's performance is technology-driven versus not. And I think that's basically impossible to do. But if you look at -- this is why I also like Scott's favorite chart, if you look over the last 5 years, it is so clear that I think we've outperformed pretty much everybody in the ACA or in health insurance, broadly speaking, from how every one of these metrics improved -- and that, to me, wouldn't have been possible if you didn't have both competent operations and leadership in there and then also the technology subset in which this works. And so that will just keep being the case.

Sarah Conrad from Goldman Sachs asking on behalf of Scott Fidel. Can you clarify the MLR guidance dynamics that you provided on Slides 45 and 46. On Slide 45, you showed your operating margin targets where you're pricing to anticipated cost trends. So both pricing and cost trend are increasing 5% to 7% annually. But then on the next slide, you showed that MLR should increase by 150 basis points through 2029. Can you just clarify the drivers of the 150 basis points of MLR improvement?

I wish that I could remember the slide what was on Slide 45, but I'm just going to say that I'm drawing a blank on which one Slide 45 exactly was. So I would just maybe answer the question more generically to say, we expect continued progression of the MLR from where we are today through 2029, approaching 80% is our target. We do expect that trend is going to be 5% to 7% a year. What we always do going into the year is we have a list of affordability initiatives. Every month, we look at that list. Every month, we have -- we set and adjust the targets for the performance of what we anticipate we'll be able to remedy in terms of throughout our system on affordability.

And that is how we -- even if we just price flat to trend, we think we can create margin. The example that Mario showed with that pharmacy item, that's a perfect example of something that 2 years ago, it would have taken a team of actuaries 1.5 months of intensive data analysis to find that specific thing. Now our AI agents are finding that in real time. The speed to closing what looks to be a Fraud, Waste and Abuse issue is happening in weeks versus months. And those are the examples of the kinds of initiatives that we have. And we have those that sit in network. We have those that sit in operations. We have those that sit in Fraud, Waste and Abuse. And they're refreshed every month, as I said, as part of the management process of the company, and that's how we claw back on trend. And how we -- why we expect to get to an 80% MLR by 2029.

And then I just have a quick question on metal mix trends. Do you expect that the mix shift to Bronze is likely to continue in 2027? Or are you anticipating a different scenario?

Stable. I can take that. We see it as stable. It's after this big shift that happened, it's essentially going to stabilize at this point going forward. I think that unless there's another big event that's not organic to the ACA, it should -- it's kind of reset now.

Jess Tassan from Piper Sandler. Maybe one for Scott first. Can you just elaborate on where the 50 bps of MLR favorability is coming from in the revised '26 guide?

Yes. It is really -- Jess, I'd start with some of the comments that we made in the second quarter call. We've just seen consistent performance in utilization that is favorable to our expectation. At this point in the year, looking at the results through August, we feel very comfortable that we've got the visibility into the full year performance. So that extra couple of months since our call really allowed us to say, "Let's go ahead and lean in and bring that favorability into our guidance."

I talked about some of the fundamentals here, utilization that is favorable. Member cost share progression, which is fairly linear from this point of the year forward. We've seen that very much right on what we would anticipate. There's really nothing happening structurally where you would expect a spike in utilization with those members. So we really believe that we will continue to see performance that's consistent with our expectation there. So it's all those fundamentals that is allowing us to improve our MLR guidance by 50 basis points.

Got it. And then maybe for Mark, can you just give us a little more detail about some of the Medicaid demonstrations you were describing? What does the state need to do in order to allow their Medicaid beneficiaries to purchase coverage on the exchanges? What's the time line there? And then just how do you reconcile kind of benefit differences, Medicaid versus CHOICE? How is the funding administered? Just any detail on how exactly that gets operationalized?

Okay. The very last part, still in process. We're not anywhere near operationalizing it. I met with the National Governors Association and gave a talk on health care reform and the development of Lucie and other things. And what -- governors are like CEOs. They actually have to run an organization. They're in charge. They're in charge of the budget versus what goes on in Washington. And they're frustrated, a lot of them, that Washington has not been able to resolve all the Medicaid issues, particularly the FMAP, the federal exchange.

So actually, interestingly enough, a lot of the state-based exchanges have been started in red states because they're just sort of disgusted with the whole process. So as we talked about this idea of CHOICE, they very quickly glommed onto, well, wouldn't that be good for Medicaid as well. And so we have a number of conversations going on, on how that could work. They obviously would need a demonstration project relief from the federal government in order to do it, and we're still early in that process.

Jonathan Yong, UBS. I guess as you think about the near term and medium term here in terms of enrollment, how are you thinking about the competitive dynamics, especially as it seems one of your key peers is a little bit more aggressive in pricing relative to how you're shaking out, particularly in Florida? And then how do you think about retention as you think about towards '29?

I can take that. So we are priced very competitively for 2027. So when you look at our footprint, we're essentially at 14% rate increase and the competitors are on average of 15%. So I would say we're very competitively priced, particularly in Florida. So where we want to grow. And I just want to emphasize again, we disciplined pricing. So we price for margin, right? Our operating income and then we price for growth. So we are -- we have a great track record. We're really confident in both our growth numbers and our margin for next year.

The other thing I would just say is pricing is such a local thing. And so we're talking about national averages because I think it gives you a sense of, on average, we are in a competitive spot. I think that as we look market by market by market, in the markets where we're really looking to grow, when I look at the price there, I feel like we've got very competitive pricing. We have very strong distribution programs and plans. So the market is -- it's competitive. Pricing is competitive, but I think it's rational this year. And based on our position, we feel confident about our ability to grow.

And by the way, there was -- the price differential in and of itself is not enough to move some of our customers.

Okay. And then as we think about '29 and getting to the 5% to 7% margin, you're talking about 80% MLR below 15% G&A. What do you need to happen to get to that below 15% G&A? And is it more levers that you're going to pull? Or does something else need to happen to get there?

Scale, AI. We'll just keep doing it. I mean it's -- we have in process AI projects all the time. We don't view it as a different thing done by a different group. The groups that work on each of the platforms consider AI an important tool in helping get the project right.

Okay. Great. I guess I'm next, Dave Windley at Jefferies. So I wanted to first ask in what percentage of your markets are your lifestyle products? How much growth or expansion in footprint is available there? And are those products -- do you target higher margins? Or do you more favor passing the savings of the customization to the member and target margin?

Let me take that in general. In general, our lifestyle products today represent about just under 10% of our total membership. And we don't offer every product in every state. So within a state, it's probably a higher share of the membership depending on which state we're looking at. And all of these products are priced for margin and they perform really well. And they're our fastest-growing segment of products that we have.

The beauty of that product as well is that it has -- because it's so customized to the individual's needs, it can generate a favorable margin for us, but at a lower cost for the member. Like that is the perfect relationship. It also has extraordinarily high retention. So once we make that connection with that member, we have higher retention in that cohort than we do for an ordinary plan.

Yes. It's not a loss leader. Like if we could, it would be -- we would continue to grow the percentage mix into the lifestyle product.

Sure. Great. And I wanted to make sure we're zooming out on broader market numbers. I want to make sure I followed some numbers. So you said -- you mentioned a couple of times, the 3.4 million new members to the exchange market, I believe, is the number that you're referencing. And then the overall exchange market, I think, in total, is declining this year from 23 million, I think you're saying 17 million by the end of the year, which suggests like over 9 million in dropouts in churn, which is remarkable. And in that context, you're lowering your MLR target.

So very interesting. If you could perhaps talk about what you -- I don't think your churn experience is quite what that market number would suggest, but what are you seeing? And is the -- are the dropouts basically in line MLR with the stayers? Is there not a significant morbidity shift from that? Do you think with this massive amount this year that that's basically over? Just kind of understanding what impact that 9 million dropouts has on the profile of the market thinking?

Yes. So Mark spoke about this. We planned for this event where we would see the change in enhanced subsidies creating a situation where we expected a lot of dropouts. And so we have seen that. We expected that CMS program integrity efforts would also have the effect of moving some people out of the market. We priced for a market that we expected to contract by 30%. So that was built into our pricing, built into our reserves. We think that the market has actually performed better than that.

So overall, I don't think that -- based on the levers, the performance that we've seen to date tells us that our estimates of what market morbidity was going to look like were pretty much spot on. And the fact that we've seen utilization performance against our pricing, all of those things are working well for us.

Yes. I think maybe just a brief comment on how we build our plans so that people understand them. When we build our plans, we build a 3-year strategic plan, we add a third year every year. And when the third year becomes the first year, it's the operational plan. So it's all linked together. And every year, we reevaluate each of those positions. But our operating plan is never different from our strategic plan. But more importantly, when we get to the operational plan, we develop a set of risks and opportunities. What could go great, what could go wrong, and we value those.

And we like to make them 50-50, so we know we have a 50-50 plan. We then create for each risk and opportunity a lever so that when that risk or opportunity happens, we're not scratching our head going, what happened and why. We actually know what lever to pull. So in 2025, when everybody had their big happy summer notice from Wakely and 2 of our major competitors withdrew guidance and had to figure out what happened. We didn't. We were -- we had a plan in 2 days. 48 hours, we knew what our new numbers were. So we didn't withdraw guidance.

And so the whole idea is that when you build the plan, it's wrong from the moment you start. But when you have an assessment of all the good and bad that could happen and you have a plan for each one and you have a management process that brings the numbers down every month, which is what we do. We get together for a week and we go through the whole plan front to back, we know how to operate the business to meet our commitments to all of you. Our commitments are built on all those risks and opportunities.

Lance Wilkes from Bernstein. So a question on the SG&A opportunity. And if you could talk a little bit about maybe within Oscar Insurance, what are the major categories where you feel like you can keep -- rinse and repeat with AI, keep taking the cost out? And maybe what are some of the categories that are stickier? Thinking of, like, maybe...

I'll take one of the examples, and then Mario, maybe you can name a few, the dispute resolution one. When I showed up in 2023, we had in provider disputes almost $300 million in backlog. We're getting into our reinsurance arrangements, which we had a lot of, and we're getting into our risk adjustments. So think about all the economic impacts of having AI do it and figure these things out and know what's right or wrong. That's -- so it's more than just a cost -- an operational cost reduction. It's a revenue enhancer because now we have the ability to make sure that our risk adjustment is right and that we're getting our fair share when we submit it.

We're also getting our reinsurance recoveries, which show up in our numbers. So it's multifactorial when we think about the -- all the economic -- it's like tentacles going into the organization, providing good news in a lot of different places. What you're seeing in the SG&A number as crude as it is and as crude as it's always been, is just a calculation. But I would argue it's not just cost reduction. It's a lot of these tools that make what we do easier, which does result in cost reduction. But I would argue that SG&A number is down as much by scale and growth, which was driven by a lot by AI itself. So it's hard to dimension it in just a pure calculation, Lance.

The other thing I would just comment on SG&A, about 10% of our SG&A is structural to the ACA. Think of that as taxes, exchange fees and distribution. Very hard to change the curve on those things. We're always talking to regulators about the fees and how those fees just are a headwind to affordability. Our opportunity is to basically bring those variable costs that sit above those kind of structural expenses down. So I think that at our absolute best day, we will have nickels of costs on top of those structural costs.

Got you. And then just a quick question on the vision with respect to Lucie. And where I was interested there is if you become that marketplace, it would seem that you could be the consumer interface as well and your product and capability would disintermediate certain components of carrier products and things like that. As you do that, how do you do 2 things? How do you balance where it's too costly to go further because maybe the amount of integration you've got to do with claim systems of carriers or things like that? And then how do you pace the investment you're going to be making as you kind of build out this business?

Well, the last part of the question is the tough one because you have to have buyers and sellers. And so as you're pacing the changes, you have to have somebody that wants it, right? And so we have to -- that's where the unmet need is met by capability we build. And so that's going to be the trade-off. And quite frankly, I mean, we're looking at senior people that have built those kinds of markets before to come and help us do that because that's a calculation that even my brain can't get my heads around as it moves as fast as it could move. And so that's an important -- so the team that we put together around this and are putting together around this critically important.

But I think the way I like to put it is, I said to Janet when we were building -- talking about this marketplace 9 months ago, 10 months ago, I said to her, when we get into this space, all of your competitors will have access to the things you will have access to. And how you compete is going to be entirely up to how we view, how we differentiate as an organization as a result. And I think that's fair to everybody that sits around that table. And we may disenfranchise some people, but it's part of the competitive framework. It's not by icing them out.

One last point on Lucie. We have built a significant amount of cost into the plan to support the -- our aspirations there. So I feel like we've got a balanced plan that has a significant amount of expected spend there. And again, we will be targeting the $4 of EPS regardless of the performance of Lucie. So while I think that, that business has a huge opportunity to grow, we would only increase spending if we're seeing more opportunity arise there. And again, we would expect to hit the $4 target in 2029 regardless.

One last question. Bueller? That's it? Great. So I will stand up here. These chairs are impossible to get out of. All right. So these are some of the awards we've won as an organization in our health care innovation journey. They're comforting, but they're not -- they don't tell the true story. The true story is in our retention and the customers that like what we do for them. And so when you hear in our Buena Salud, our Latin programs that we have an 89 NPS, it's a big deal. And we think that, that's huge on this journey towards having customers for life.

So I think that's -- this is good, but it's great when we see it in our customer base and our growth and the kind of service that we're providing to people. So just as a reminder, we are the leading new consumer health care company in the health care economy that we believe is shifting. We have a proven track record. We believe we're accelerating CHOICE. Our engagement with the administration and the talking points you heard over the last few weeks coming out of CMS were in large part due to our government relations people and all the work that we've been doing with them over the past 1.5 years. We believe Oscar will be the -- is the individual #1 market maker in the individual market, and we believe Lucie really has opportunity.

We don't have Lucie in the numbers because if we would have put them in there, we would have scared the hell out of all of you, including us. And so what we want to do is we want to have to be a joyful celebration when the tipping point happens and all of a sudden, it starts happening. And I think we've seen that in every marketplace that's developed in our economy and the biggest companies in our economy today. So I really appreciate the time. We have lunch in the Hamilton Hall, which is right down the stairs. Please join us for a bite to eat. And I want to thank you for your time and attention. And obviously, our team is available to all of you for any further questions that you have as a result of your time here. Thank you.

Thank you for joining us for Oscar Health's 2026 Investor Day.

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 Second Quarter 2026 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 second 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, and the quarterly report on Form 10-Q for the period ended March 31, 2026, each as 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 June 30, 2026, to be filed with the SEC.

Such forward-looking statements are based on our 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 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 second quarter 2026 results with significant year-over-year improvement across all core metrics. Oscar delivered record profitability for the first half of 2026, generating $1.1 billion in earnings from operations -- and $1 billion in net income.

In the second quarter, revenue grew 70% year-over-year to $4.9 billion. MLR improved 12 points to 79.2% year-over-year with utilization moderately favorable to our expectations. Our SG&A expense ratio improved 450 basis points to a record low of 14.2%, reflecting disciplined expense management, technology-driven efficiencies and continuing operating leverage.

Earnings from operations increased by $619 million year-over-year to $389 million. Our performance demonstrates superior execution against the fundamentals of our strategy. Disciplined pricing, differentiated consumer products and a scalable technology platform work together to fuel individual market growth.

We are raising our full year 2026 outlook based on the strength of our operating performance and our model built for long-term profitable growth. Now I will share our view on trends in the individual market, then I'll dive into our business highlights. The individual market is vital to our nation's economy and was built for the labor market now taking shape.

The market is expanding coverage for people outside of traditional employer plans, including a growing number of entrepreneurs, gig workers, part-time employees and early retirees. Over the past decade, the market drove down the uninsured rate and prevented billions in uncompensated care. Over the next decade, its role will only grow as people move between full-time jobs, contract work and retirement at twice the rate of prior generations.

AI will accelerate that shift. Our nation's leaders should promote policies that put the next generation of American workers in charge of choosing their health care. Oscar is leading the charge with portable coverage and experiences that meet the expectations of the people powering our economy.

The future of American Healthcare depends on a durable individual market, and 2026 trends reinforce our conviction in its long-term strength. Total ACA membership stands at 19.2 million, down 12% year-over-year, tracking favorable to our pricing assumptions and reflecting continued consumer demand. Wakely's first claim-based report of 2026 market morbidity is also favorable to our expectations, suggesting potential upside to our outlook.

We expect further market contraction and remain cautious with only 4 months of morbidity data, but we expect both trends to remain favorable to our pricing assumptions. Looking ahead to 2027, we anticipate a rational pricing environment with rates that reflect the effects of CMS' program integrity efforts. Now I will review our business highlights. Oscar ended the second quarter with 2.96 million members, up 46% year-over-year. Membership reflects above-market open enrollment growth and solid retention.

Our consumer products designed around clinical, lifestyle and cultural needs are driving higher member satisfaction, and we continue to launch features that help members find high-value care and manage costs. We are also building momentum in ICHRA with steady growth in demand from small businesses in the health care and professional services industries. Our technology continues to differentiate the member experience.

This quarter, we piloted a radiology program with our Oswell Agent. Oswell uses our members' claims history and clinical interactions to initiate their next step for care. It confirms coverage, guides members to high-quality providers based on cost, location and availability and shows estimated savings from switching facilities.

1 in 4 members choose Oswell's recommended site of care and save $75 on average per appointment. We will expand this capability to additional procedures using care standards from leading centers of excellence. AI is powering operations across benefits, billing, claims, clinical care and member support. Our claims platform delivers 98.7% first pass accuracy and processes most claims in under 48 hours.

We are also deploying AI in medical economics programs to identify cost signals early and act before they become trends. Pharmacy is a clear example. Our models analyze pharmacy activity alongside utilization, provider, broker and member data to flag outliers. Root cause analysis identifies the drivers so our teams respond with precision. We expect these capabilities to generate tens of millions of dollars in annual savings.

Oscar's technology is transforming the economics of the business. The team is embedding intelligence into all core workflows across our platform, making it smarter and more efficient with every deployment. As membership grows, we can serve more members without adding headcount at the same rate. That scale fuels operating leverage, expands margins and bends the medical cost trend for us and for our members.

In summary, Oscar delivered a strong second quarter and record profitability in the first half of 2026. The fundamentals of the business are strong. Our performance is favorable to plan, and our improved 2026 outlook reflects that momentum. We are entering the second half of the year from a position of strength with the technology, scale and operating discipline to deliver profitable growth.

The ACA is the only health care market where private insurers compete directly for the consumer. Our job is to give consumers real choices, real price transparency and reward what they value. When that happens, the competitive market does what it does best. It drives out inefficiency, accelerates innovation and lowers costs. Oscar is defining that future.

We are replacing one-size-fits-all coverage with solutions that make health care as easy to use as any other consumer product. Our results reflect the team's focused execution across our products, platform and strategy. We will outline how we translate that performance into durable growth and long-term value at our 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 second quarter results, and we are raising our full year 2026 outlook to reflect our operating performance. Through the first half of the year, we delivered record profitability of approximately $1 billion of net income or $3.16 per diluted share. The fundamentals of the business are strong, and our results are favorable to our plan.

Let me now turn to details on second quarter performance. We ended the second quarter with 2.96 million effectuated members, an increase of 46% year-over-year, driven by above-market growth during open enrollment and solid retention. Total revenue was $4.9 billion, an increase of 70% year-over-year, driven by higher membership and rate increases, partially offset by higher risk adjustment payable accrual.

The second quarter medical loss ratio was 79.2%, an improvement of nearly 12 points year-over-year. Recall that in the prior year period, we recorded the entire first half impact of the 2025 risk adjustment true-up in the second quarter. The year-over-year MLR improvement was driven by our disciplined pricing strategy and a strong current year performance compared to the market reset experienced a year ago.

We also benefited from favorable prior period reserve development in the quarter. Now I'll spend a moment on risk adjustment. In the second quarter, we received the final 2025 CMS risk adjustment report, which was approximately $160 million favorable to our first quarter accruals and fully recognized in the quarter.

We also received the first risk adjustment report for 2026, covering claims through April, which showed market morbidity tracking quite favorable to both our pricing and first quarter accruals. With only 4 months of claims in the data, we recognized only a small portion of that favorability, which we believe is appropriate at this stage in the year.

Through the first 6 months of the year, risk adjustment as a percentage of direct premiums was approximately 20%, consistent with our expectations for the full year. Overall year-to-date utilization was moderately favorable to our expectations. By category, inpatient, professional and pharmacy utilization were favorable, while outpatient was elevated through the first 6 months of the year. On administrative expenses, we delivered another record low SG&A expense ratio. The second quarter SG&A expense ratio was 14.2%, a 450 basis point year-over-year improvement and the lowest in the company's history.

The improvement was primarily driven by disciplined expense management, including an increasing impact from technology and AI initiatives, fixed cost leverage and lower risk adjustment as a percentage of premium. We reported earnings from operations of $389 million in the second quarter, a $619 million year-over-year improvement. Operating margin was 8%, a 16-point improvement year-over-year.

Net income was $362 million, a $590 million increase year-over-year. Adjusted EBITDA was $415 million in the quarter, an increase of $615 million year-over-year. Through the first 6 months of 2026, our results reflect disciplined execution and strong year-over-year improvement across all key metrics. Shifting to the balance sheet. Our capital position remains very strong.

We ended the second quarter with approximately $10.2 billion of cash and investments, including $462 million of cash and investments at the parent. As of June 30, 2026, our insurance subsidiaries had approximately $1.9 billion of capital and surplus, including $994 million of excess capital, which was driven by our strong operating performance. Let me now turn to updates on our 2026 full year guidance.

Based on our first half performance, we are raising our full year earnings from operations guidance to a range of $500 million to $700 million, an increase of $250 million from our prior outlook. We continue to expect total revenues of $18.7 billion to $19 billion. We now expect full year MLR in the range of 81.5% to 82.5%, an improvement of 90 basis points at the midpoint from our prior outlook.

On administrative expenses, we now expect our SG&A expense ratio to be in the range of 15.6% to 16.1%, an improvement of 20 basis points at the midpoint. We continue to expect adjusted EBITDA to run roughly $115 million above earnings from operations. Our improved outlook reflects our strong first half performance, including favorable prior period development and market morbidity trends and an expectation of increasing membership churn in the back half of the year as CMS program integrity processes continue.

As I mentioned, the market morbidity data that we received for claims through April was quite favorable to our expectations. Given this early stage in the year, we have not taken full credit for that favorability in our outlook.

If the favorability holds as claims develop, that could present a tailwind to our full year outlook. In closing, our disciplined execution drove strong operating results and record profitability through the first half of the year. We are confident in our improved 2026 outlook and are on track to deliver our strongest performance to-date.

With that, let's turn the call over to the operator for the Q&A portion of our call.

[Operator Instructions] And your first question comes from Andrew Mok with Barclays.

On utilization trends, you noted inpatient and professional and pharmacy was favorable, but outpatient was elevated. Can you elaborate a bit on what you saw there, particularly on the outpatient side and how you're thinking about the pace of utilization for the balance of the year?

Yes. Andrew, in outpatient, I would say that there are a handful of areas that we're paying attention to. Honestly, none of them is particularly outsized. And what I think is most important there is that we're seeing stability in these trends.

And so while outpatient is a bit elevated, as you mentioned, we're seeing the other categories running favorable. And at this point, the trends are stable. And so the utilization looks very reasonable and is favorable to our -- to what we would expect it at this point in the year.

Great. And I appreciate all the comments that AI is accelerating the shift to untraditional employment. I would love to hear what you're observing in the market driving that commentary and how that impacts your view of intermediate-term growth.

A couple of things on AI. First, we don't see the massive unemployment that a lot of other CEOs have painted a very dark picture of. We see a transition to different kind of job groups. And those are in the gig economy that's in part-time work, that's in multiple part-time jobs, that's in early retirees. And in that economy, employer-based insurance doesn't necessarily work well.

There are a lot of people who don't have coverage as a result. And we are now working with some very large groups around that on part-time employees, people who work in multiple places with multiple part-time jobs. So as that market evolves, we see it as a huge opportunity for ICHRA in expanding the total TAM of the marketplace.

In small group and middle-market, there's 115 million lives alone that we think have some -- will have some impact on [ employment ] in growing these other jobs in our economy. As far as AI goes, internally, our investment is not something that we do separately. Every business owner has a platform.

That platform has engineers, product management, AI and business people evaluating how we can advance every one of our platforms every day to reduce friction for our members and for the providers we work with. And it's through those -- that analysis that we fund those projects with expected returns and expected investments. I note that in the press you hear of billions of dollars being spent by our competitors.

And I would just make the point that we have one platform, we have one data set. As a result, we start with a huge advantage in being able to use AI at scale without having to make the investments in platform integration and data rationalization that a lot of our competitors do. And that has been -- that is why we are so far ahead in deploying AI at scale in the organization.

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

So first question is just can you clarify that the 2025 reconciliation accounts for about 80 basis points of the 90 basis point MLR revision at the midpoint? And then just do you mind helping us kind of understand what you're seeing?

I mean, you helped a little bit on utilization or a lot on utilization for this year, but just how do we get comfortable that you all have visibility into utilization just despite kind of the potentially the current effect of higher deductibles? How do we get comfortable essentially with the reiterated or the slightly raised core MDR guide?

Yes, Jess, starting off with MLR and the impacts from PPD. I would say that MLR, excluding PPD in the first quarter was a little bit over 82% -- and MLR comes is impacted by 2 components of prior year development. There's the piece that impacts risk adjustment, which we talked about getting the final CMS report, and that was roughly $160 million. There's also favorable development around claims.

And so when you look at all those things, I consider those core parts of the business, and they give us confidence that the reserves that we're booking our pricing are headed in the right direction. So everything there looks appropriate and stable. Turning to your question on utilization and our confidence in the back half. I would just make a couple of observations. One, at this point in the year, we've had enough time to have a pretty good sense of the risk of the membership that we've got.

I would say that it is consistent with our expectations. As I talked about with utilization, we're seeing trends that are stable. We're not seeing anything that looks to be kind of pushing and running from us. So when I step back and look at all of the components of our operations and our business, I am pleased with the stability and with the clarity and visibility that we have into our current book.

And with the weekly report that we got in the first quarter, it confirms a lot of what we thought was going to be shaping up for this year in terms of -- I would characterize as the reduction in membership that we had all planned for, looks like that's coming in a bit lighter. That results in morbidity in the marketplace that's likely going to be less than what we priced for and could present a tailwind to our full year outlook.

And I would add one more thing, Jess. In our management process and the way we operate the business and our operating plans, we actually create targets for affordability and reducing the actual trend we put into pricing. And we measure the results of our programs that we're developing, including some of the things we talked about with AI today that go against those targets.

And so we're constantly measuring the opportunity and what we call flares where we see hotspots in the utilization, making sure we go after those immediately that we're acting quickly with precision and moving that utilization back to where we expect it to be.

Your next question comes from the line of Parker Snure with Raymond James.

Just curious on how you guys are thinking about the 2027 rate cycle. We're seeing some of the preliminary rate filings beginning to roll through. But just generally, how are you thinking about positioning of your rates within the market and baking in conservatism for all things that could happen?

Parker, thanks for the question. We believe the market so far has been rational. And again, we price by market. So we look at opportunities by market. And so comparing the overall rate filings is probably not a good way of measuring it. Just take a look at what happened in '26 based on our overall rate filings versus our competitors. We've done quite well in spite of what people thought was underpricing. And so I would suggest so far rational. We still have another bite at the apple as we go forward.

And as we look at what could happen with the NBPP or the stay, which we probably don't think will be released at all this year. But in event it does, we have an opportunity to change product and pricing should we need to do that. So we have more time. We're on it every day. We already have plans in place on how to do changes if we need to make them. So we're pretty confident that we're in a good place.

And if I can just get a follow-up. I know it's early, but how are you thinking about the overall ACA market enrollment in 2027 at this point in time? Do you think -- I know there's still some unknowns, but do you think it's relatively flat or you see some more declines or just some general thoughts there?

We think that based on what's already in place through regulation because we are reacting to a few program integrity efforts through CMS that are coming through in regulation and review that absent any dramatic changes to the NBPP, which again, we don't think will happen, that the market -- that a lot of the program integrity efforts have been built into the marketplace.

We think we're through all the enhanced premium tax credits impact from 2026. So we think that the market has opportunity in it. Obviously, we're not resting on our laurels and we're looking at things like ICHRA and other markets to grow our total available market, but we believe there's still opportunity for the market to remain stable or grow and for us to take share.

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

I wanted to follow up on utilization. It looks like medical expense was up 17% quarter-over-quarter, and I think probably 20% on a PMPM basis. Could you give us some color on what's driving that? It seems like a much sharper increase than what you might normally expect.

Obviously, there's a lot of unusual dynamics this year. And then how should we think about kind of either the upward sloping of MLR or maybe medical cost expense PMPM as we move through the balance of the year? And then I have a follow-up.

Yes. Thanks, Steve. I think that in utilization, we're really seeing and translating that into MLR and PMPMs. We're really just seeing the seasonal pattern of the membership that we have this year. And so as we've talked about, we saw some transition in our book from silver into higher deductible Bronze plans. We also have more gold membership.

So I do think that the seasonality that we're expecting is emerging. I would expect that that's going to continue to pick up into the second half as members burn through their deductibles. So MLR from the first 6 months, I would expect it to continue to trend higher quarterly and the seasonal patterns will look, I think, pretty similar to what we've seen historically.

Got it. Okay. And then just to follow up on that. You have obviously a lot of new members this year. You also have like a lot of new members in new products. Can you speak at all to the performance of new members and some of the new products that you rolled out this year, like the new Bronze and the new Gold that you're speaking to?

Yes. I would say that when I look across the book, we're really pretty pleased with the performance overall of the new products, membership behaving, as I talked about, pretty consistently with our expectations. The risk in the book looks very much with what we would have expected. So we're not really seeing any deviations in any particular metal.

It is an interesting situation where Bronze now has a lot of members that moved out of Silver and moved into Bronze. Gold has members that moved out of Silver and now in Gold. So you can't really look at these metals in the same way historically. So we do a lot of -- trying to refactor how these metals are going to perform. And against those adjusted expectations, I would say things are performing consistent or favorable to our plan.

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

First question, just hoping you could maybe just decompress the SG&A performance was quite strong in the quarter. Maybe walk us through that. And then were there any timing dynamics that in terms of expenses that may be sort of played out in other quarters? And then also maybe just talk about as you look towards the rest of this year, how you're thinking about investment spending that may be in SG&A as well?

Yes, sure. So SG&A, I would just say that, as Mark talked about, we've really made tremendous progress in SG&A. And in the -- both in the quarter and in the 6 months, I don't think I would call out anything that is driving the trend.

What I observed there is that there are higher taxes this year, exchange fees that we're experiencing. We're basically offsetting that by efficiencies in our variable costs that are really being driven by a lot of the AI and other technology innovations that we've been putting into place. So I would characterize our SG&A as being -- what you've seen in the first 6 months is a good indication of the rest of the year.

I do think that we'll see the fourth quarter will be the highest SG&A ratio on a percentage basis. That is typically the pattern for us, and that really reflects our investments in future growth and getting ready for '27 enrollment. So from here, pretty stable third quarter and then an increase in the fourth quarter.

Okay. And then I just wanted to ask about just with some of the shifts that you have in the metal mix and with the shift to more Bronze, how that affects the risk adjustment accruals that you're making? Clearly, it seems like utilization is coming in favorable, but at the same time, you also have this -- the metal mix shift, I guess, and now that you've had the Wakely report.

And if I could just layer into that -- into the metal mix question because it's interesting you guys have that perspective, I guess, because obviously, there's a big focus on seasonality in the exchanges with the market mix shift to Bronze from Silver, but you have the perspective of having both the Bronze and the Gold.

How was that seasonality playing out so far this year in terms of -- did you see what would be expected in terms of different type of seasonality around the higher cost sharing Bronze and sort of lower utilization as a result of that in the first half compared to Gold or was there any other observations that you found interesting there?

Yes. I would say that on the metals, against our refactored expectations, again, recognizing that a lot of our members that were historically Silver are now in different metals. The performance there is coming in, in line to favorable with our expectation and the risk is as we would have expected to slightly favorable. Just a comment about risk adjustment. So in general, we're a risk adjustment payer because our members skew younger.

They're healthier. We tend to be more urban than the overall market, and that is particularly the case as we grow. Risk adjustment really is driven by morbidity, not necessarily plan design. I talked about this in the past, but the risk adjustment formula is intended to neutralize the impacts of the different benefit designs by different metals.

That's always not a perfect exact science in terms of how that -- those algorithms work there. But what we are seeing is we're getting what we would expect in terms of claims activity and the risk adjustment benefits from that. So at this point in the year, which we do have now, we're 6 months into the year. So we've got some visibility into this and all things are looking like they're running as we would have expected.

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

Maybe kind of focusing on ICHRA and I guess, yesterday's announcement with a partnership that you are undergoing with ICHRAx. So curious on what type of capabilities that offers to your current platform? And kind of how should we be thinking about kind of the kind of pace going into 2027 for that offering?

So ICHRAx is an EDE that we built off of an ACA approved, CMS-approved Electronic Data Exchange that we purchased last year. We mentioned it in, I think, the third or fourth quarter call last year. And that EDE has a lower cost structure than current ACA alternatives as well as agreements to have all of our competitors as part of that platform.

So we now have the rails upon which to run ICHRA, which has not been the case in the past. How do we convert members from a defined benefit to a defined contribution, how does the employer step aside and allow these people to sign up.

And what happens is because network is always an issue for employers because they have to have wide area networks at higher cost, by the way, than we do in the ACA with narrow networks, those employers want to know how we can get member coverage.

And what we tell them is that we have all of our competitors on the platform and the members can select whatever competitor they want that has the network they need. So all of a sudden, we have the largest PPO network in the nation at narrow network rates. And what that allows those employers to do is to stand down on the issue of is there enough network coverage.

Couple that with benefit selection tools that we're using with brokers to get people into the right plan design allows savings as high as 26% of the employers' cost versus what the employee would need to pay by following this option. So that EDE, that ICHRAx invites all of our competitors to the table. They've all joined.

We all get access to all those members as they convert. And then the real opportunity is on the front end of the conversion with the employer where they spend sizable sums to convert from defined benefit to defined contribution where the revenue is not regulated like insurance revenue doesn't require reserves and has higher margins.

And so that will allow for competition in that market. ICHRAx is then connected to Lucie where we are now starting to have -- we have Allstate Health. We have Aflac. We have a lot of retailers that want to get access to our members.

Mark Cuban is talking to us about coming on board. Other organizations that want to join us to be able to offer retail opportunities to our members once they have to shop for their out-of-pocket costs as members in the program.

Got it. And then maybe as a follow-up, just kind of more on the technical side. I guess, kind of looking at your short-term investments that kind of increased quite a bit quarter-over-quarter. So curious on kind of that underlying dynamic given just the cash kind of being pretty steady quarter-over-quarter. So any color on that would be helpful.

I mean the investment is to get the platform ready. And so -- but it's not sizable. It's not a big, big number. It's a pretty easy-to-use platform and easy to change platform.

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

I guess when you guys think about the pricing that's being put into next year from yourself in the market, do you guys kind of see yourselves getting incrementally better G&A leverage just given kind of your productivity efforts and the pricing that's going to go into the market or should it be a little bit more muted relative to the improvement that you're seeing this year?

I appreciate the question. Look, I think that -- we set out some long-term targets, and one of those was around SG&A ratio, and we're basically getting there a year ahead of plan. I still think there's opportunity for more leverage if we grow the top line faster than our cost structure, that's going to be a positive in terms of that ratio.

So given everything we're doing with AI and focusing on running the most effective and efficient operation we can, I think there's more opportunity for improvement going forward.

Okay. And then I think in your prepared remarks, you said there was an expectation of increasing membership churn in the back half of the year. I just wanted to be sure, is that in line with the previous expectation of that 1% to 2% per month or is it going to be a little bit more elevated than is typical?

Yes. So we ended the second quarter, as we talked about, with 2.96 million effectuated members, which is basically flat in the second quarter. And so the -- what we saw in that quarter basically was significantly better than our expectations. So lapse was quite favorable.

Some of the lapse that we expected in the quarter, we -- is related to CMS eligibility and data issues that we now expect to happen in the second half of the year. So I would expect that churn, we previously thought it was 1% to 2%. It's probably going to be closer to twice that amount.

That's really a timing move and doesn't impact revenue. You can see that we reaffirmed our full year guidance on revenue. So I would characterize that again more as just a delay in those members being unenrolled versus anything more fundamental in terms of the ongoing churn that we would expect in the business.

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

Another firstly, a clarification to MLR. Scott, you mentioned first quarter MLR ex PPD was, I think, a little over 82%. For this quarter, if I exclude the favorable PPD and prior year risk adjustment true-up, I'm getting something around like 85.2%. Is that roughly correct? I know you mentioned utilization was moderately favorable. I just wanted to confirm the 85.2% is what you're thinking about as underlying MLR. And if there's anything to note even on like monthly cadence, was the favorability pretty consistent throughout the quarter, any moderation of trend?

Yes. As I mentioned, my math says that if you exclude the favorable PPD in the quarter, you do get an MLR that's approximately 82%. So we'll have to do some reconciliation with your numbers after the call.

But I would say that we have seen, again -- total favorable prior period development of $164 million in the second quarter. Year-to-date, that's $232 million. So those are the numbers that you should be excluding if you're looking to try to adjust our second quarter or 6-month MLRs.

Okay. And multiparter on risk adjustment. So if I exclude the prior year true-up, I'm getting current year risk adjustment transfer is about, I think, 17.9% of premiums, a lot better than the 20% expectation. So first question, is the implied transfer payable percentage in your updated guide for back half still 20%?

I mean, I guess, for full year? And what does it imply for back half? And Mark, you mentioned the June Wakely could actually suggest upside to your updated guide. Curious if you could elaborate more on that. What does that layer of possible conservatism look like within the guide? How much confidence do you have in the durability of it through year-end?

And also, like what types of, I guess, scenarios in the back half of the year do you think could even pose a threat to full year expectations when it comes to risk adjustment? Is it membership attrition running hotter or something else?

Yes. So on risk adjustment, I would recommend that you look at the first half as the best lens in terms of what's going on with risk adjustment. And in the first half, risk adjustment was 20%, which is -- continues to be our expectation for the full year. So there was modest favorability, as you talked about in Q2 related to the final CMS report that's embedded in the quarter.

But overall, again, every quarter, we're doing a kind of a year-to-date true-up and what our expectation is around risk adjustment. And so the fact that we were at 20% for the 6 months, and we continue to expect 20% for the full year, I think, shows that things are progressing as we expected.

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

Mark, you -- the company invested a lot in working with your sales channel to navigate members between products for 2026. In your earlier answer, you talked about '27 being relatively stable.

I'm wondering if you also think your tier mix will be relatively stable or do you see more of that navigation? And then I think a product like HelloMeno is new to '26. Do you have any plans of similar sort for '27?

Yes, we do have new products rolling out. We continue to innovate and by market. So we expect that there will be more opportunity to move people into better plan designs that work for them and to demonstrate more of our capability of developing these kinds of products, along with the tools like the radiology tool I talked about in our talking points, which goes alongside the pharmacy tool.

We talked about in the last quarter, we have more of those coming along so that it assist people. And our whole idea is can we reduce friction at every opportunity when we invest in the platform, thereby reducing barriers for people to get the care they need when they need it. So yes, we have more navigation to do. It's not as significant as the level we did last year with the enhanced premium tax credits. It's more about delivering on new products in certain markets.

Your next question comes from the line of Kevin Fischbeck with Bank of America.

Just want to try to help bridge the increase in guidance. Obviously, with Q1, you didn't change guidance, but you had $164 million of PPD this quarter, $68 million of PPD in Q1 and then $160 million of '25 risk adjustment this year. So those things all seem incremental to your original guidance, so like $392 million, but you raised the income guidance by $250 million. So can you help kind of bridge the delta between those numbers?

Yes. So first of all, the 2025 risk adjustment of $160 million is the largest part of the total Q2 favorable prior period development of $164 million. So the RA is a subset of the $164 million. As I talked about, there's $232 million of total favorable prior period development through the 6 months.

And we raised guidance by $250 million. We think that the core business is running really well. When we got the first '26 Wakely report, I would say that, that was -- again, it's quite favorable to our expectations. We know that that report is based on early-stage claims, and there will be some evolution there in terms of how that evolves.

And so we're not banking on all that favorability coming through. That's not part of our guide. But I would just say like we feel like there's more tailwinds than headwinds in our outlook, and we're well-positioned to have a strong rest of the year.

Okay. Great. And then I guess one of your competitors talked about the IDR process being a headwind to them. And obviously, that can be a bigger issue that the more narrow the networks are. So just love to hear kind of your thoughts about how the IDR process is working relative to your expectations.

Yes. I mean I think IDR is part of the business. I think we support the ultimate goal, which is to protect members from cost surprises. Those are all good things. But for us, I would say that IDR is not a trend driver.

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

Mark, Scott, you guys have both mentioned CMS program integrity efforts and the impact on second half enrollment a few times during the call, and I want to follow up here. I talked to one of your peers who indicated that in June, CMS sent out a list of 1 million members that they believe might be unauthorized due to a lack of social security numbers and 0 claims.

I'd also heard that about 80% of these members are in Florida and Texas, which I know are 2 big states for the company. So the -- I know you expect some impact here in the second half. So curious if you could share with us how many of these million members were Oscar members? What percentage do you think you can hold on to or save? And what financial impact do you expect the potential loss of the rest of these members might have on your results given lower utilization of these folks?

Yes. I appreciate the question. I would just say we continue to see CMS focusing on eligibility verification. And that is a topic that they have been really focused on throughout the year.

In my comments, I talked about the fact that we expected to see some disenrollments in the second half that we had thought would start happening in really Q2. So that is something that we continue to anticipate. With respect to the financial implications, we don't recognize revenue for members that we anticipate are going to be disenrolled.

We set up those -- the payments that we received from CMS as a liability on the balance sheet. And all of the impacts of what's going on across the industry with payment integrity is baked into our full year guidance.

Got it. Is there any way you could share how big that assumption is relative to what CMS sent you here in terms of the enrollment that they expect might not be correct?

Well, I would put it this way. We're reviewing the file that we received. And there are a number of cases where we know that people were authorized appropriately. There are a number of cases where we've actually had contact with people.

So their list was based on a set of assumptions that they went through on the file. The actual result will depend on our ability to go through those files, and we are going through them actively. And the appropriate accommodations for what we might think being lapsed members are in our guidance that we shared with you.

Yes. And I think we've got good visibility into that. So I don't think this is an area that we see as a risk to our -- to the rest of the 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.

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.