Earnings Call Transcript - OSCR Q4 2025

Operator, Operator

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

Chris Potochar, VP 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.

Mark Bertolini, CEO

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 disciplined pricing, distribution, and product strategy to go after profitable growth as competitors pulled back or exited the market. Our pricing strategy always assumed the expiration of enhanced premium tax credits. Our final 2026 rates also reflected higher market morbidity, elevated trends, 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's stability underscores the priority consumers place on maintaining health coverage; more small business owners, working Americans, and gig workers are entering the market as group insurance fails to meet their affordability needs. The fundamental characteristics of the individual market, 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 healthcare 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, Agentic 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 expiration, 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 specific conditions at various stages of life. These include Hello Menno, the first menopause plan in the ACA, Cuando 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 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's 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 open enrollment periods. 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 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 ICRA expansion; 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 healthcare. 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 for 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 Blackley, CFO

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 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 increased, 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 and 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 credits 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 bronze and gold plans, 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 three 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 three-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.

Mark Bertolini, CEO

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, Operator

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

Joshua Raskin, Analyst

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.

Richard Blackley, CFO

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

Joshua Raskin, Analyst

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?

Richard Blackley, CFO

Understood. Let's begin with our membership and how we project that. I can differentiate our membership into two groups: a large portion consists of renewing members, for whom we have abundant data and can anticipate their future behaviors. The other group includes new members for Oscar, as we have gained market share and welcomed many new enrollees. We have increasingly utilized third-party data to gather clinical information about these new members, which provides us with a wealth of insight regarding their historical usage trends. This information also improves our ability to engage them in managing their care. We believe we now have superior insights into our incoming membership compared to any previous time in our history. These insights are foundational for our confidence in the Medical Loss Ratio projections. Regarding risk adjustment in 2026, as outlined in my earlier comments, we anticipate that the percentage of direct revenues attributed to risk adjustment will rise year-over-year from 25% in 2025 to about 26% in 2026. Notably, we are observing a divergence between plans serving high morbidity populations and those catering to others, as we are acquiring a significant number of young, healthy members, which is contributing to higher risk adjustment rates. We continue to seek ways to gather more outside information, as forecasting risk adjustment remains challenging. We are collaborating with Wakeley to assist with new reporting they aim to introduce in the first quarter, which we expect will enhance visibility across the market regarding membership dynamics. This development should aid us all in forecasting risk adjustment, although it might not completely alleviate the complexities involved in making precise estimates, it should provide us with a helpful starting point.

Operator, Operator

Your next question comes from Jessica Tassan with Piper Sandler.

Jessica Tassan, Analyst

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?

Richard Blackley, CFO

Thank you for the question, Jess. I want to highlight that utilization was slightly higher than we anticipated this quarter. When I assess the MLR performance during this period, I believe it was largely influenced by risk adjustment true-up. Regarding utilization pressure, we expected a slight increase as we approached year-end, since members losing their subsidies would likely seek care. That trend was evident, and we think it significantly contributed to the changes we observed in outpatient and professional services. Additionally, we noticed an uptick in substance abuse disorders and mental health services. These trends suggest that members were trying to make the most of their benefits while they were still available. Overall, this does not raise significant concerns about the potential carryforward impact of these activities.

Jessica Tassan, Analyst

Got it. I know you mentioned that overall market-wide membership might perform slightly better than the 20% to 30% disenrollment you forecasted last year. Can you provide any insights on the overall size of the market after those fluctuations? Also, could you comment on the adequacy of pricing across the market? How can we be assured that all peers are priced correctly and that risk adjustment won't pose a problem in 2026 as it did in 2025?

Mark Bertolini, CEO

From the perspective of effectuation compared to actual enrollment, we believe the market has contracted by 5%. Many individuals have switched their plan selections, and we intentionally provided brokers with specific transitions to assist their members in managing the loss of enhanced premium tax credits. Consequently, we observed that the percentage of silver plans halved while bronze plans increased by nearly 50% and gold plans nearly quadrupled. This indicates a shift towards higher deductible plans among our members. A significant question for the remainder of the year is whether our premiums will align with those of the previous years. Additionally, we must consider how many individuals will actually pay their premiums once they see them. Currently, we expect to see a decline from 3.4 million lives in February to approximately 3 million by April 1. Another critical issue is whether individuals will maintain their coverage after experiencing the out-of-pocket costs associated with their plans, especially given that many Americans have limited savings. This raises uncertainties regarding enrollment behaviors, which will only become clear once individuals start utilizing their plans. We anticipate that by year-end, the market size could decrease to the lower end of our projected 20% to 30% reduction.

Operator, Operator

Your next question comes from Andrew Mok with Barclays.

Unknown Analyst, Analyst

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?

Mark Bertolini, CEO

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

Richard Blackley, CFO

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.

Unknown Analyst, Analyst

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?

Richard Blackley, CFO

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. 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 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 revert to more pre-ARPA trajectories where you see membership decrease throughout the year.

Operator, Operator

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

Jonathan Yong, Analyst

Can you just talk about your mix of metal tiers? It sounds like Bronze and 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?

Richard Blackley, CFO

Yes. I think it will be interesting; we should probably rethink everything we know about metals due to the shift from silver to other metal mixes. I don’t believe we can rely on historical trends. Bronze has consistently been a high-performing product for us, so it's encouraging to see more growth in bronze than in silver, and this transition is something we are entirely comfortable with. Overall, our approach is that our plans need to maintain margins within a relatively tight range, and we expect all of them to contribute positively to the company's profitability. I believe that as we see more movement from silver to bronze and gold, those plans will start to resemble each other more closely. However, bronze has higher deductibles, which may lead to a slightly higher turnover in that group compared to others with lower deductibles. As Mark mentioned, we think this could drive more churn over time.

Jonathan Yong, Analyst

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?

Mark Bertolini, CEO

I'll let Scott talk about the third-party data, but let me just sort of dimension this for your calculation, it's 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 was 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 credits and what plans they 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; they went to other plans that either were leaving the market or had not prepared the broker community or the membership with the right kind of product changes and moved 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.

Richard Blackley, CFO

Yes. Regarding the third-party data, I can say that for new initiations, we have clinical information from third parties that helps us set expectations about their performance. This information is crucial for identifying who we need to engage in managing their healthcare conditions, which is vital for controlling our costs and for enabling early member participation, benefiting risk adjustment as well. Some of our new initiations are new to the market and lack comprehensive information, but we have considerable historical data on similar individuals regarding their acuity. Based on the available data about these members, we aren't observing any concerning characteristics.

Operator, Operator

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

John Ransom, Analyst

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 try to tailor the coverage versus the remaining passive renewals? I think that would be helpful.

Mark Bertolini, CEO

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

John Ransom, Analyst

I have a basic question that might not reflect well on my intelligence. I understand passive enrollment, but you need to pay the first premium to be covered. So, what type of member gets passively renewed, pays the first premium, and then chooses to drop off?

Mark Bertolini, CEO

That is the key question this year in comparison to previous years. Typically, once customers begin paying a premium, they remain with us unless an event occurs that makes them no longer need our coverage. However, in the current situation, as they assess the out-of-pocket expenses related to their plans, they may realize that it's too costly and unaffordable. An important change is that most Americans now view healthcare as the largest expense in their household budgets, even more significant than their mortgages. This has led many customers to fear losing their homes or facing bankruptcy without coverage. The pivotal question is what happens if they cannot afford the deductible and how we will address that issue. We're examining whether this situation will drive enrollment or if people will remain enrolled out of fear of losing their homes or facing financial hardship. We're uncertain, so we are cautious about predicting the degree of disenrollment that may happen as a result.

Richard Blackley, CFO

John, just to add one 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 one 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.

Operator, Operator

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

Stephen Baxter, Analyst

I want to come back to some of the questions on mix. I appreciate you're saying that silver is lower and 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 seems 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.

Mark Bertolini, CEO

Sure. For Bronze, the percentages for the past two years were around 25% and 26%, and now they are at 39%. Silver has remained steady at 71% over the last two years, and this year it’s at 36%. Gold, which was in the low single digits at 3% or 4% for the last two years, has now risen to 25%. There are fairly significant changes. The bronze and gold plans we offered were $0 with benefits that are not very rich.

Richard Blackley, CFO

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 one of the reasons why I discussed that in the call is to help with your ability to project revenue with that information.

Stephen Baxter, Analyst

Got it. No, that's helpful. And then maybe just qualitatively, is there any difference in terms of this MLR guide, how you're thinking about kind of what you're budgeting in for retained 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?

Richard Blackley, CFO

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, which is now over two 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've 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 these 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.

Mark Bertolini, CEO

And the increase in risk adjustment also takes MLR up.

Operator, Operator

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

Unknown Analyst, Analyst

This is Sam Becker filling in for Scott Fidel. I would like to know what your key strategies are for achieving EBITDA profitability without relying on the continuation of the enhanced subsidies. Additionally, what challenges or advantages do you anticipate regarding MLR and SG&A as we look at the period from 2025 to 2026?

Mark Bertolini, CEO

Well, there are a number of them. First, it's growth. So 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 several LLMs on the back end of the business, and now two 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 reduce 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 several hundred basis points every year in opportunities to keep our trend in line with where we think the market should be. 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 to our targets.

Richard Blackley, CFO

And Sam, I just want to make one 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.

Operator, Operator

Your next question comes from the line of Olivia with Baird.

Unknown Analyst, Analyst

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 one 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.

Richard Blackley, CFO

Thank you for the question, Olivia. Estimating risk adjustment is indeed the most challenging task we face each quarter, as it involves projecting our own performance as well as market trends. While we are confident in our ability to forecast our own book's performance, we often encounter surprises due to unexpected market movements. I am hopeful that by collaborating with Wakeley, which many of us in the industry are using as a key service provider, we can gain more timely insights into the market. This is crucial for improving our projections. We are making progress in this area, and while we may not achieve complete clarity in the first report, I believe that with support from various industry players, we can enhance visibility on these estimates over time.

Unknown Analyst, Analyst

And if I can squeeze in one more, please. When I think about healthcare innovation, two 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 the longer term?

Mark Bertolini, CEO

From a micro perspective, we are focusing not only on products to capture membership within the insurance company, but we've also developed the front end of the business to engage with employers and convert them. There are significant revenue opportunities, particularly in higher-margin areas that do not require risk capital, by assisting employers to transition employees into defined contribution plans. Once employees are in defined contribution, we can collaborate with brokers to direct them to suitable plans, whether they are Oscar plans or not. Over time, you will see us reporting two types of revenue: one from the conversion of employers to defined contribution and the associated brokerage work, and the other from membership within our health plan. The ICRA opportunity is much broader than just membership, though our membership doubled this year. Due to recent events in the individual market regarding rates, some employers have been hesitant to participate at this time. We need to demonstrate that we can stabilize the marketplace and attract more members. This outlines the current situation regarding ICRA. Regarding disease and lifestyle products, we believe, as proposed to the administration, in separating investment decisions from financing decisions. Investment pertains to what is purchased, while financing refers to payment methods. There is an opportunity to create HSA Roth IRA-like funds, where individuals can use various funding sources—be it from their employer, personal funds, Medicare, Medicaid, or other ACA subsidies—to purchase qualified health plans and manage their healthcare costs independently. This is the direction of our new Agentic AI tool, which aims to establish a marketplace enabling individuals to use their healthcare funding to buy services in their local market. This approach, featuring narrow networks with adaptable plan designs according to life changes, fosters long-term membership value and an evolved investment strategy for insurance companies managing that membership, which connects to the lifestyle products. If we can support families or individuals throughout their lives by offering innovative designs that facilitate retention within their networks, help manage their health effectively, and allow them to live fully until the end, that represents the ultimate achievement in an individual market where all Americans can access the healthcare they desire, thus creating a vast market with minimal impact from morbidity changes on the overall underwriting cycle.

Raj Kumar, Analyst

I would like to follow up on the ICRA commentary. I'm interested in the membership related to the ICRA arrangement and the initial uptake from that employee base. Historically, have you noticed that the ICRA population tends to have a more stable membership base? Or should we anticipate a similar level of churn compared to the broader individual plan?

Mark Bertolini, CEO

I think we're not sharing specific ICRA numbers by segment at this point because they aren't significant enough to make a considerable impact, although we have seen positive results from our efforts so far. The crucial aspect is that with the ICRA model, individuals have control over their spending and can maintain their purchases. As long as they have the necessary funds, they can keep what they bought without needing to change. If their financial situation alters, they can use different funding to sustain the same products. We believe that ICRA represents a progression beyond the ACA model; it assists those who cannot afford health insurance by allowing them to purchase their own insurance, choose their network, and design products that suit their current needs. This model enables them to retain their products and networks for as long as they wish. This is where member experience and the tools we're developing are crucial, as they empower individuals to utilize their plans effectively with the information they need.

Richard Blackley, CFO

Yes. 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 it's too early to tell. After the first quarter, we'll have a better idea.

Operator, Operator

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

Craig Jones, Analyst

Right. I was wondering what you've assumed in your guidance, does the change in the percentage of zero utilizers between 2025 and 2026. I think that will need to come down the expiration of 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?

Richard Blackley, CFO

Yes, that's correct. Thank you for your question. Generally, we do not discuss the nonutilizers in our book. It's expected given our strong membership that not every member will require care in any year, so there will always be some who do not utilize services. As I look at the evolution of our book, it is younger than it was last year. Therefore, it should not be assumed that we will necessarily see lower levels of non-utilization. We consider all these factors when determining our guidance for MLR. Additionally, as I mentioned earlier, we have made significant efforts to refine our estimates for those projections, and we feel confident in them at this stage of the year.

Craig Jones, Analyst

Okay. Got it. And then maybe for those 400,000 members 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?

Richard Blackley, CFO

Yes. I'm not going to dimension the specifics of those members. When I look at the difference between the 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 histories but relatively consistent with last year. So we feel like we've taken all of those building blocks that are going to impact utilization next year into our pricing, which gives us confidence about our ability to return to profitability next year.

Operator, Operator

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.