Oscar Health (OSCR) Q2 2026 earnings call transcript

Now, turn the call over to Chris Potechar, 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. highOscar. com.

Old 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. highOscar. com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Security 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 10K for the period end of December 31, 2025, and the quarterly report on Form 10Q for the period ended March 31, 2026.

Each is filed with Securities and Exchange Commission and other filings with the SEC, including our quarterly report on Form 10Q for the period end of 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-GAT measures. A reconciliation of these measures to the most directly comparable GAT measures can be found in the second quarter earnings press release available on the company's Investor Relations website at IR. highOscar. com. We have not provided a quantitative reconciliation of estimated full-year 2026 adjusted EBITDA as described on this call to GAT 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, then $1 billion in that 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 discipline 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. Discipline pricing, differentiated consumer products, and a scalable technology platform worked 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 will 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 plants, 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, and twice the rate of prior generations. The AI will accelerate that shift. Our nation's leadership promote policies that put the next generation of American workers in charge of choosing their healthcare.

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, checking favorable to our pricing assumptions and reflecting continued consumer demand.

Wakeley'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 to remain cautious with only four 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's program integrity efforts.

Now I'll review our business highlights. Oscar landed 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 ICRA with steady growth and demand from small businesses in the healthcare and professional services industries. Our technology continues to differentiate the member experience. This quarter, we piloted a radiology program with our Oswald agent. Oswald uses a member's claims history and clinical interactions to initiate their next step for care. It confirms coverage guides members to high quality providers based on costs, location and availability, and shows estimated savings from switching facilities.

One in four members choose Oswald's recommended site of care and saves $75 on average for 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 and 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. OSCU 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 in 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 the position of strength with the technology, scale, and operating discipline to deliver profitable growth.

The ACA is the only healthcare 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 in efficiency, accelerates innovation, and lowers costs.

Oscar is defining that future. We are replacing one size fits all coverage with solutions that make healthcare 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.

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 upset by higher risk adjustment payable accrual. The second quarter medical loss ratio was 79.2%, an improvement of nearly 12.0 year over year. The year over year MLR improvement was driven by our discipline 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 four 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 six 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 six months of the year. On administrative expenses, we delivered another record low SGA expense ratio. The second quarter SGA 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 of 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 six 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 investments, including 462 million of cash investments at the parent. As of June 30th, 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, 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 today.

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

Good morning, 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 what we would expect at this point in the year.

A couple of things on AI. First, we don't see the mass of 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 ICRA and expanding this whole time of the marketplace.

In small group and middle market, there's 115 million lives alone that we think will have some impact on unemployment 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 that analysis that we fund those projects with expected returns and expected investments.

I note that the pressure here 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 is why we are so far ahead in deploying AI at scale in the organization.

Yeah, just starting off with with MLR and the impacts from PPD. You know, I would say that MLR excluding PPD in the first quarter was a little bit over 82%. And, you know, MLR comes is is impacted by two 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, you know, favorable development around claims. And so, you know, when you look at all those things, I consider those core parts of the business and, you know, they give us confidence that the reserves that we're booking are pricing, you know, we're headed in the right direction. So, you know, everything there looks appropriate and stable.

Turning to your question on utilization and our confidence in the back half, I would just, you know, make a couple observations. One, at this point in the year, we've had enough, you know, 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, you know, it looks to be, you know, kind of pushing and running from us. So, you know, when I step back and look at all of the components of our operations and our business, you know, I am pleased with the stability and with the clarity and visibility that we have into our current book. And, you know, 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, you know, I would characterize this.

The reduction in membership that that we had all planned for looks like that's coming in a bit lighter, that results in, you know, morbidity in the marketplace that's, that's likely going to be less than what we priced for and then could present a tail went to our full year outlook.

And I would add one more. In our management process and the way we operate the business in 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 and with precision and moving the utilization back. Where we expect to be.

Parker, thanks to the question. We believe the profit 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 in 26 based on our overall rate filings versus our competitors.

We've done quite well in spite of what people thought was under pricing. 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 MVP 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 that we need to make them. So we're pretty confident that we're in a good place.

We think that based on what's already in place through regulation, because we are reacting some to a few program integrity efforts through CMS that are coming through in regulation and review that absent any dramatic changes to the MVP, 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 from 2026. So we think that the market has opportunity in it. Obviously, we're not resting on our laurels when we're looking at things like get grow in other markets to grow our total available market, but we believe there's still opportunity for the market to.

You remain stable or grow and for us to take share.

Yeah, thanks, Steve. You know, 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, you know, as we talked about, we saw some transition in our book from silver into higher deductible bronze plans. We also have more gold membership. So, you know, I do think that 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 burned through their deductibles. So, you know, MLR from the first six months, I would expect it to continue to trend, you know, higher quarterly and the seasonal patterns will look, I think, pretty similar to what we've seen historically.

Yeah, I would say that when I look across the book, you know, 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, you know, 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 know, you can't really look at these metals in the same way historically. So we do a lot of, you know, trying to refactor how these metals are going to perform and against those, you know, adjusted expectations. I would say things are performing, you know, consistent or favorable to our plan.

Yeah, sure. Good morning. So, SGA, I would just say that, as Mark talked about, we've really made tremendous progress in SGA and in the, both in the quarter and in the six months, I don't think I would call out anything that is, you know, driving the trend. What I observe there is that there are, you know, higher taxes this year, you know, 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 SGA as being, you know, what you've seen in the first six 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 SGA, you know, 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, you know, 27 enrollment. So, you know, from here, you know, pretty stable third quarter and then an increase in the fourth quarter.

Yeah, I would say that on the metals, you know, 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, you know, 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, you know, is particularly the case as we grow.

Risk adjustment really is driven by morbidity, not necessarily plan design. I talked about this from the past, but the risk adjustment formula is intended to neutralize the impacts of, you know, the different benefit designs by different metals. That's always not a perfect, you know, exact science in terms of how 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, you know, at this point in the year, which we do have now, you know, we're six 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.

So Ikra X is an EDE that we built off of an ACA approved CMS approved, electronic data exchange that we purchased last year. We mentioned it and 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 Ikra, 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 networks always an issue for employers because they have to have wide area networks at higher costs, by the way, then 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 employer's costs versus what the employee would need to pay by following this option.

So that EDE that Ikra acts 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. Ikra acts is then connected to Lucy where we are now starting to have we have all state 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.

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

Appreciate the question. Look, I think that we set up some long term targets and one of those was around SGNA ratio and we're basically getting their year ahead of plan. I still think there's opportunity for more leverage. If we grow the top line faster than 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, you know, running the most effective and efficient operation, we can. I think there's more opportunity for improvement going forward.

Yeah. So we ended the second quarters 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 expectation. So laps was quite favorable. Some of the laps that we expected in the quarter, we, you know, 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 turned. We previously thought it was, you know, 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 know, you can see that we reaffirmed our pool, your guidance on revenue. So I would characterize that again more as just a delay in those members being unenrolled versus anything more, you know, fundamental in terms of the, the ongoing churn that we would expect in the business.

Yeah. So on risk adjustment, I would, I would recommend that you look at the first half is the best lens in terms of what's going on with risk adjustment.

And in the first half, risk adjustment was 20%, which is, you know, continues to be our expectation for the full year. So, you know, there was modest favorability as you talked about in Q two related to the final CMS report. That's embedded in, in the quarter. But overall, again, every quarter, we're doing a, you know, kind of a year to date, true up. And when our, what our expectation is around risk adjustment. And so the fact that we were at 20 for the six months and we continue to expect 20 for the full year, I think, shows that things are progressing as we expected.

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 at 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 their talking points, which goes alongside the pharmacy tool, we talked about in the last quarter, we have more of those coming along so that 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.

Yeah. 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. So the RAs is a subset of the 164. As I talked about, there's 232 million of total favorable prior period development through the six months. And we raised guidance by 250 million. We think that the core business is running really well.

When we got the first 26 weekly report, I would say that that was, again, it's quite favorable to our expectations. We know that that report is based under 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 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.

Yeah, 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.

Yeah, appreciate the question. I would just say we continue to see CMS focusing on eligibility verification and, you know, that excuse me, 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 disenrollment in the second half that we had thought would start happening in really Q2. So, you know, that is 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 receive from CMS as a liability on the balance sheet. And, you know, all of the impacts of, you know, what's going on across the industry with payment integrity is baked into our our full year guidance.

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 laughs members are in our in our guidance that we've got to share with you.

Yeah, and I think we've got good disability into that. So, you know, I don't think this is an area that we see as a risk to the rest of the year.