Earnings Call Transcript - OSCR Q1 2026

Operator, Operator

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. The operator provided instructions to participants. I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations.

Chris Potochar, Vice President, 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.

Mark Bertolini, Chief Executive Officer

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 one 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 zero 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 Blackley, Chief Financial Officer

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, Operator

The operator provided instructions to participants. And your first question comes from the line of Jessica Tassan.

Jessica Tassan, Analyst

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 base period or if they just kind of didn't utilize—were they not aware they had coverage? And then can you just describe the accounting for any expenses incurred by that population in your first quarter results?

Scott Blackley, Chief Financial Officer

So I would say that for members who churned off, there was 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 paying. And once that person goes into a delinquent status, we no longer pay claims—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, 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.

Jessica Tassan, Analyst

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 weekly 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?

Scott Blackley, Chief Financial Officer

On Wakely, 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 the new members are that came in and what the risk scores might look like for the people who left. That's the process that Wakely used to build that report. It's very early in the year to draw firm conclusions about market morbidity, but we are encouraged about the data we saw in that report. I would describe it as in line to favorable with our expectations. When I look at our claims experience, 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. 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 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.

Operator, Operator

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

John Ransom, Analyst

Just wanted to ask a question about SG&A. So your revenue was suppressed by almost 400 basis points by your risk adjustment versus the 20% guide, but your SG&A was 15.2%. Why would SG&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?

Scott Blackley, Chief Financial Officer

I appreciate the question. We saw obviously strong revenue growth—revenue growing at 53% based on the headline numbers, higher than that 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 a dynamic as we grow membership and have some open positions at the beginning of the year. There's a natural 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 the SG&A ratio moving sideways to slightly up. The fourth quarter tends to be a little bit higher as we start to pick up expenses associated with open enrollment 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.

Mark Bertolini, Chief Executive Officer

And I'd 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 is essentially a tax for being in the game.

John Ransom, Analyst

And just my second question. Your old guide, I think you hinted 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?

Mark Bertolini, Chief Executive Officer

That was our number April 1.

Scott Blackley, Chief Financial Officer

Three million.

Operator, Operator

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

Andrew Mok, Analyst

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?

Scott Blackley, Chief Financial Officer

Medical claims were in the first quarter seasonally low and were also favorable to our expectations. Given those low levels of claims, we have a natural offset, which is when your claims content is suppressed, your risk adjustment ends up being higher. It's a bit of a trade-off. 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 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.

Andrew Mok, Analyst

Got it. Maybe just a follow-up to that point: 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?

Scott Blackley, Chief Financial Officer

We try to make sure that all of our metal tiers have targeted profitability and that we're not having one perform at a really high level and others be drags for us. At this point—talking about about 15% of claims—everything we're seeing, whether it's through utilization, authorizations or actual claims, suggests that the risk of the membership we have is in line to favorable with what we would have expected. We're not seeing any patterns that cause us to believe there's anything unexpected.

Operator, Operator

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

Samuel Becker, Analyst (Goldman Sachs, on for Scott Fidel)

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?

Mark Bertolini, Chief Executive Officer

It's largely the weekly numbers and risk adjustment. If you look at the year-over-year differences between our risk adjustment at this point last year, which was 11%, 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. From our point of view, that's the number that we wait for. Claims will develop more fully by the end of the second quarter, and we'll have a much clearer view.

Operator, Operator

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

Jonathan Young, Analyst

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

Scott Blackley, Chief Financial Officer

Take those two things separately. The 24% risk adjustment level is explicitly being driven by our claims experience. 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. 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, but we're waiting to see more signals before we lean into that. On prior period development (PPD), in the last weekly report we received for 2025, we did see a couple of states that had adverse development totaling about $85 million. We reflected that in the quarter. We did have some other states with positive developments, which we chose not to recognize and instead wait for the final report. So we feel like we balanced the risk in that area. We also had favorable claims run out to a significant degree of $150 million. Net-net, our prior period development was favorable $68 million in the quarter. When I look at the combination of those factors, favorable prior period development is helpful, and we used those risk levels and reserve levels in building our pricing for 2026. We think those tailwinds will transition beneficially over the year.

Mark Bertolini, Chief Executive Officer

One note on the Wakely weekly report: it doesn't include claims experience. It really includes demographics and other indicators we've looked at in prior years on our own basis. It was nice to have some outside verification of the way we view the marketplace from a morbidity standpoint. It isn't as detailed as a regular claims report, but it was useful.

Jonathan Young, Analyst

Okay. Great. And then on emerging utilization—actually, going back to the first quarter, did flu or weather play any factor into the beat? Were there any emerging trends you're keeping an eye on at this point?

Mark Bertolini, Chief Executive Officer

Flu was somewhat worse than in the fourth quarter, but overall it was okay. I haven't mentioned flu in a first quarter call in a long time. The weather was fine. We didn't see anything abnormal in our results. We reviewed claims submissions and lags with our team, and the experience has been better than we anticipated, but we have not booked all of that.

Scott Blackley, Chief Financial Officer

Jonathan, just to add: I think the most insightful thing about utilization patterns is the lack of unusual utilization patterns.

Operator, Operator

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

Olivia Miles, Analyst (Baird, 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?

Scott Blackley, Chief Financial Officer

We sit here with more data than we've had in preceding years. The new Wakely report gives some early information. Ultimately, how claims performance develops will be the most important factor to tell us what's going on with market morbidity. When we look at the early metrics and calibrate them against external data points, I'm pleased with where we are relative to market morbidity. Almost all signals are pointing toward favorable market morbidity development versus where we entered the year. Q2 will be an important first report because it will be the first time we'll see from a claims perspective what market morbidity looks like. But again, we see primarily favorable signals at this point.

Olivia Miles, Analyst (Baird, on for Michael Ha)

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 the 2026 guide, how you're expecting to grow and scale this platform over the next few years? Any visibility into the revenue basis or long-term targets for this new product?

Mark Bertolini, Chief Executive Officer

I'll give some headlines now and go into more depth at Investor Day in September. As we talk to employers around the country, including increasingly larger employers interested in ICHRA solutions, they care a lot about networks. While an individual shopper wants to select their network, we're inviting competitors to the platform because an individual can select among different plans. That matters because you're converting an entire employer. On the economics, converting to an employer solution means you have to meet other benefit solutions. We have companies like Allstate Health and Aflac and Guardian joining our platform to provide ancillary products. More importantly, the margin from a dollar standpoint for these employer relationships is higher than an insured ACA member and it's unregulated in that it doesn't require risk capital. It's another margin opportunity to grow both top and bottom line over time. We're excited about the model and are assembling it, and having many partners on the platform allows us to share networks and offer narrow network rates that are very competitive given combined purchasing power. We'll provide more detail in September.

Scott Blackley, Chief Financial Officer

Any of the costs to stand up that business are included in our guidance. For this year, we would expect a modest effect, but we're excited about the prospects of building a fast-growing, high-margin business.

Operator, Operator

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

Raj Kumar, Analyst

Maybe just on effectuation enrollment—any kind of market level color, are any markets doing better or worse than your internal expectations or the weekly expectations?

Scott Blackley, Chief Financial Officer

Looking at the landscape of our competitors who have reported and our own performance, effectuation rates have been pretty much as expected to modestly favorable. They also line up with what Wakely assumed. So far this year, whether it's Oscar or competitors, our expectations of how members would ultimately roll out of the ACA have been pretty much spot on. That stability in our ability to estimate the market generally bodes well for the rest of the year.

Raj Kumar, Analyst

Got it. And then as I think about this year and some of the market dynamics, a large competitor exited this year—any color on how that membership is trending from a risk adjustment standpoint? And looking to 2027, with another competitor having a modest portfolio exiting, how does that bake into your expectations as you go into the pricing cycle for next year?

Mark Bertolini, Chief Executive Officer

I'd explain that by distribution. It's hard to know exactly where all new members came from, but we did pick up some auto-assigned members from a competitor that left the marketplace. When we did our Investor Day two years ago, we assumed there would be no enhanced subsidy extension and built our plan accordingly. That allowed us to prepare products that would mitigate cost increases for members, and we built tools that allow brokers to set aside what they needed to retain members. For brokers, it's about maximizing capacity to sell and retain. We gave them products and lists of members and product recommendations. Many competitors were stuck between expectation of enhanced subsidies or not and didn't make the plays we made on product. Brokers, seeing our solutions, brought members to us. Our enrollment growth was almost a straight line up over the first three to four weeks when enrollment opened because our brokers were ready, had already talked to clients using our technology, and were able to get them signed up efficiently.

Operator, Operator

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

Craig Jones, Analyst

So I think your member mix, when you think about 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. With that mix shift toward Bronze versus average, how does that impact your risk adjustment payable year-over-year?

Scott Blackley, Chief Financial Officer

Our book is relatively balanced: Bronze is our largest category, Silver close second, Gold a significant portion as well. The risk adjustment formula is intended to be neutral across metal levels: coefficients in the formula adjust for the expected claims and condition values of different metal tiers. So risk adjustment isn't driven entirely by metal mix. What's more important is overall utilization across metals. We tend to attract relatively healthier members given the products and markets we're in—urban areas that skew healthier on average. We do think you see healthier members in Bronze than in Silver, for example, but across all metals we expect strong margin performance and view risk adjustment as more driven by overall utilization than any one metal.

Mark Bertolini, Chief Executive Officer

Even given our prior period development in this quarter, what we see in our covered population is that we've been at or below expectations relative to utilization and costs. If it were not for the risk adjustment change in the market last year, we would have hit our numbers. The MLR was driven up by the change in market morbidity, not by our underlying utilization, and we're seeing that same trend in the first quarter of this year.

Operator, Operator

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

Dylan, Analyst (Wolfe Research, on for Justin Lake)

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

Mark Bertolini, Chief Executive Officer

Too early—there's not enough claims yet to have any real differentiation.

Scott Blackley, Chief Financial Officer

On the membership side, we're excited about the growth we've seen in some of these smaller and newer markets for us. We have a playbook to go into new markets, understand the local environment in a grounded way before seeking accelerated growth. 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 to get ahead of ourselves.

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.