All right. Thanks, everyone, for joining us. Here we have Oscar Health, CFO, Scott Blackley, who's joining me on stage. I guess we'll kind of jump in before we talk about the other big things that have happened. We'll start with just your third-quarter results. We obviously kind of saw what happened. I guess on the weekly data, it impacted your third-quarter results. Assuming it remains stable from here on out, given it was off, did you make any changes in how you were weighting the updated data for the remainder of the year? On the flip side of this, you did say the FTR and other program integrity measures were not factored into it. This theoretically could be a positive here as you indicated those numbers tend to carry higher. If any color and thoughts on that?
Yeah. In terms of the estimate, our full-year guidance assumed that we do not see any further decay in market morbidity in 2025. At this point, my best information about market morbidity is the most recent information, which is what we have got. We use that. We then roll that forward throughout the year with expectations for how much we in the industry, how many charts we collect, what is the impact of that on risk score. It is a pretty dynamic calculation. The inputs were based on the second-quarter weekly results. As you talked about, there are always puts and takes, particularly at this time of year, that could impact the market risk scores.
On the one hand, we did talk about the fact that at least in the data that we've specifically seen for our members, the members who lost their subsidies and left us, who had an FTR issue or were identified by CMS to be dually enrolled, they did have higher risk scores. Them leaving the ACA would be a good thing if everyone saw those. It's not really a big population, though. I would point out that in the end, after we got the files from CMS, for us, less than 2% of our book. It does have a modest tailwind effect. On the flip side, I'd read other people's transcripts and did see at least a few carriers that talked about increased utilization pressure. We built in already into our expectations that we would see a fourth-quarter increase in utilization.
That's also built into our estimates. At this point, fingers crossed that we based our guidance on everything we know at this point.
Okay. Just on the utilization that you and your peers have kind of been seeing, at least as it relates to you, you said it was trending down and actually stabilized for your book of business. It is elevated, but it does not sound like you are seeing what the peers are seeing. What do you think is kind of the dynamic of why that would be?
That is a great question. I scratch my head over that as to why do people who have similar businesses sometimes have quite different experiences. I think partly that could be on your footprint and where you are seeing it. We have not all of our market performs the same. We have got some states that are having much more challenging times and other states that are performing really well. It could just be mix that is driving that. Overall, on utilization, I think of it as in the first quarter, we had high utilization, and it was well above our expectation and really being driven by inpatient. We saw that moderate every month in the second quarter into the third quarter. As you mentioned, we saw stabilization in that through the end of the third quarter.
A lot of the improvement that we've seen in some of the category shifts are the result of actions that we believe that we drove. Things like making sure our members are getting their care at the right point of care, site of care, things that were done in the first quarter in an inpatient setting that we think were more appropriately done in outpatient or even in professional settings. We worked really hard to help those transitions of care happen. Overall, when I look at our utilization, I feel like it's at the best spot it's been throughout the year. I haven't seen anything that suggests that we need to change our guidance when we were evaluating our full-year guidance before the call.
As I said on the call, we feel like we looked at all the factors, and it supported reiterating our guidance for the year.
Okay. Just on the kind of total cost of care initiatives that you're kind of talking to, what exactly are you kind of doing there? Is it just intervening earlier with your members, redirecting them to cheaper areas of care? Is the drop in utilization just settling down at this point where the market's just utilized a little bit and we're kind of here where we are?
It is some of all those things. The total effect on MLR for the year, part of that is, as I talked about, transitioning sites of care, which is proactive efforts on our part, both working with the providers and health systems. Those are active engagement as we see something coming through for a procedure, helping the member know, "Here is a better choice of a more effective cost of care for you," and then talking with the physicians to make those transitions. That is part of our playbook. More broadly, working on fraud, waste, and abuse, on overpayments, on all of the things that I think are blocking and tackling in this industry. I think we have just continued to improve our ground game on all those measures as we have gone throughout the year, which has been a tailwind to total utilization.
Okay. Great. Rates have been officially released year-over-year basis. I think you said you're around 28%. From our perspective, the average premium dollar doesn't seem to look too far off from peers. You're lowest cost in 30% of your accounting. How do you feel about your relative position and kind of how enrollment could theoretically shake out?
Yeah. I think you hit on probably the most important thing there. If you look at dollar premiums, year-over-year prices, you got to know the starting point. Our 28% increase might not be directly comparable to something you're seeing from a peer. When I look at the dollars of where prices landed for 2026, I would characterize the market as being really rational. There's a group of competitors that I think all have similar price positions. Obviously, we got more competitive this year. We basically went from, in 2025, we were the lowest or second lowest in 15% of our markets in Silver. This year, we're at 30%. We are more competitive. We've seen some of our biggest competitors who've either stayed similar or who've come down.
What I take comfort from is we are all priced in a fairly narrow band when I look at the overall. It is a market-by-market story, of course. In every individual market, you might see slightly different competitive dynamics. I would kind of describe pricing as there is a group of companies, some public, some not-for-profits, that are all kind of in a reasonable band that look to be trying to get market share and achieve their target margins. There is another group of companies that look to be trying to defend their position, not interested in growing their books, looking to shrink their books. I feel like we have got a really good competitive position in pricing. It gives us the opportunity to grow our share in the marketplace.
Based on the pricing work that we have done, which I'm happy to talk about, what we considered in pricing, we think we've got a great opportunity to both grow share and deliver profitability and meaningful margin next year.
Okay. And then we'll get to the pricing, which is can you talk about the rate development process and your landing zone for your prices within the contract of growth versus margin, particularly in this coming year because obviously, it's very uncertain?
I would say we spent probably twice as much time on building pricing this year as we've done in my history at the company. We measured each individual component of pricing specifically. We started with what we observed as trend in 2025. We then added on what is the impact of the market morbidity movements that we'd seen in 2025. We measured the impact of a potentially smaller market next year as a result of the enhanced subsidies expiring. We separately measured that. We considered some of the program integrity measures that are currently stayed but might come back in at some point next year. We separately measured those, assuming that they were in place for the year. We built those all, added those all up. We added actually a buffer for margin on top of that.
I would say in terms of our framework, we believe we were as conservative as we could be within kind of the guidelines that we have in discussing those pricing regimes with regulators and the actuarial values that we need to create in the plans. Really a very thorough modeling exercise. A lot of the presumptions that we had or assumptions that we had about 2026 market morbidity were built on our historical experience and data. We do have a pretty lengthy history in this marketplace. We were able to look at markets where we had changed our pricing, and we could see the behavior of how many of our members transitioned out of that market. This was where we and some other competitors had changed our market pricing in those markets.
We had some data to see how people responded to significant price changes. We do think there's a portion of the market that will not be able to afford the premium and will likely leave the marketplace next year. Our estimate for the marketplace is that it will contract by 20-30% next year. Most of that is on the back of individuals that can no longer afford the premium and will leave the marketplace. That assumes that enhanced subsidies were allowed to sunset and expired.
Yep. Okay. As you expand into a number of new counties, how do you feel about your positioning there, just given there is a bit of a lack of experience, I guess, in any of your early indicators of how enrollment is doing in those markets?
Yeah. We are always looking to continue to expand our book. I think we entered something like 70-ish new counties in this year's open enrollment. I would say our playbook is pretty consistent every year in terms of we look to take advantage of networks that we already have relationships with as often as possible and expand and ride the rails of existing network partnerships. That results in a lot of visibility into how those networks perform and what we should expect from them, which, even though it is a new market, we get the benefit of having experience with those networks. In new states, for example, I think we need to let those markets mature a little bit.
We have a pretty strong playbook of land and expand in those markets where we kind of get a foothold, make sure that the networks that we have and the arrangements that we put into place are resulting in outcomes that are consistent with our expectations. We always end up making some adjustments along the way for those. That is the playbook that we run, very similar to this year to what we have done in the past. I would say more broadly about open enrollment and how that is going. We have had, geez, three, four days since we last talked about this in our commentary with our last call. I would say that open enrollment so far is really going well.
We spent so much time planning for this open enrollment, working with the broker community, educating them about all the changes that were coming through, what was going to happen with our membership around changes in enhanced subsidies, helping them to understand how can you map those members to different plans that can give them affordable plan options. We emphasize out-of-pocket premium is probably the single biggest factor that would drive decisioning. We created plans to allow people to buy down. We feel like we were extremely creative in our plan designs and what we put into the market. Thus far, we've been really incredibly pleased with what we've seen at this point in enrollment, seeing kind of the structures that we put into the market seem to be really getting traction. Obviously, still very early, but so far, really strong outcomes.
Okay. I guess just building on that a little bit, is it kind of retention that you're seeing that's much better than kind of, or to your words, coming in very strong, etc.? Are you seeing members downgrade into cheaper products at this point, or is it still too early from that perspective?
I would say we had planned that we would have retention this year would be historically low compared to, let's say, the last couple of years where we had really, really high levels of retention. That was because we had assumed that with the loss of subsidies that we would see attrition at a higher level than what we had historically seen. At this point, I think it is too early to say if some of the early retention stats are going to be indicative of the full OE. I would say that the plan designs that we put into place, our expectation about where we see people moving have been really successful. We are excited about our opportunity to, again, pick up market share, feel like we did really discipline pricing.
The combination of great products, great pricing, and some new markets, we think there's a real great opportunity for us to both pick up share and to improve profitability.
Okay. My next batch of questions was focused on the enhanced subsidies, so maybe a little stale at this point, just given the events over the weekend. Given the uncertainty of the enhanced subsidies, if there was an extension, which may be a lower probability than it was 24 hours ago, what may be included in any extension from your perspective, any adjustments that they can do? Can you frame out the upside that you theoretically have? On the downside, what's the risk that perhaps none of us are necessarily thinking about?
Yeah. I was super pleased last night flying in to see all these things changing last night. This morning, you can imagine it's always fun to be the first person from your company to talk post a big change like that. I would say that it's pretty clear that we won't get enhanced subsidies with the extension of the budget. I still think there's room for hope and optimism that you could see something as we get into December, that there's still room for negotiation and for some benefits to be put into place. We continue to think that this should be a bipartisan issue. There's millions of people who are hardworking Americans that are impacted by an inability to afford the premiums.
When you have subsidies in the marketplace and you take them away, that's a big transition for a lot of families in this country. We think there's a lot of real strong reasons to figure out solutions. I did see some of President Trump's texts about alternatives that he might propose. I think our general point of view is anything that we can do to help the American families afford healthcare is something that we should support. We'll work with the administration on how we could potentially make that as feasible as possible. Again, we're excited about the potential to see something get done. Obviously, less clear as to how that might happen now. To speculate what it might look like, I think it's premature given the developments we've seen thus far.
I'll just reiterate that Oscar has been planning to run this 2026 with no enhanced subsidies. It's been kind of our playbook since well into early last year. We're ready for the market, assuming that those subsidies go away. We think we've got great opportunities even if the subsidies don't get extended.
Okay. Kind of keeping on the idea that if they are extended to any extent possible, there's been talk of possible clawbacks from the industry side, but that hasn't necessarily come from the government side of the world. If there was an extension, kind of what's your perspective? Have you heard anything from the government side in relation to this?
Yeah. Look, if subsidies got extended, we did build into pricing that there would be an adverse impact to market morbidity from a loss of the enhanced subsidies. So there's a potential that we might end up with margins that are above what are allowed for by regulation. We think there's already market mechanisms to deal with that. There's a rebate calculation that if your margins, you have an MLR that's too low, you've got to return that premium back to members. Our point of view is that this market is best served by stability. We think that allowing the market mechanisms that are already in place to return those premiums to members seems like the best way to approach this.
If that was not what the regulators and politics angles want to do, then our primary feedback to the regulators has been, "Don't make a change mid-year that the industry has not been able to build into its pricing expectations." That creates just more of these cycles of surprise and then repricing. We have suggested that we need to put these changes in advance of pricing. Either make changes for 2027 or in advance of any kind of SEP period for 2026 allow us to actually reprice the book and create the actuarial estimates that are underlying all of our pricing and to reprice. We still think the best course of action would be just to let the rebates carry the load. If that is not the case, then let the industry reprice and put something out there that has high fidelity.
Okay. Any thoughts or idea of some of the members who effectively said that they could not afford the exchange products without the enhanced subsidies? Are they effectively gone permanently at this point from your perspective? I know you mentioned the 20%-30% decline will likely be borne by those members. Perspective on that?
Look, I think that there isn't an alternative opportunity for these members to get health insurance, right? They're basically going to be uninsured. We think there is certainly an opportunity to bring them back into this marketplace. I don't think that we all appreciate the sophistication and magnitude of the broker engagement that is now in this marketplace. It's the vast majority of the population who is in the marketplace is coming there through brokers. Those brokers are compensated by bringing people and keeping people in the ACA. They know who in their books of business aren't renewing in the ACA. They know they have those people's contact lists. They know who those people are. I think they would be incredibly incentivized to go find them and bring them back in. Of course, there's going to be some churn.
I don't think you'll get back 100%, but we think that there would be a very significant population that could and would come back into the ACA if subsidies were extended.
Okay. We've generally had the view that young healthies would be the most likely topped out of coverage. Your average member does seem to skew a bit younger than peers. Kind of how do you view that dynamic?
Yeah. Part of the reason why we're not expecting retention to be as high as what we've seen in recent history is exactly your point, right? That we do tend to skew younger. We do tend to skew healthier. I would say that a big part of our efforts to try to ensure that we had plans that allowed people to buy down to a price point where their out-of-pocket premium is similar to what they're paying in 2025. I think that means that they're likely to have higher deductibles, higher out-of-pockets, higher co-insurance. It does create more of a burden on a family who ends up needing to have any type of health insurance coverage. That's probably not a great thing for the long-term health of these members. We do think it's important that they have access and have insurance coverage.
We did build many plans that would allow them to basically buy down and retain their coverage. We do think that would mitigate to a degree. There are clearly still a cohort of lives that are in this marketplace who are just not going to be able to afford paying for healthcare when there is no subsidy. As Mark talked about in his commentary in our call, these are the people who support this country doing the jobs of farmers and construction and Uber drivers and the waiters and all the gig economy folks. We need those people to have the same opportunity to get health insurance as the rest of us. This is not a market that I think is optional at this point. There are just too many people who need and rely on the ACA.
We continue to believe this is the market for the future. Our kind of conviction that this is a marketplace that we want to be in now and for the foreseeable future is high.
Okay. Just going to the idea of an extension if it happens, additional outreach, outpolicing of it. Some of your peers have called out that they've kind of embedded some G&A or keeping some in their back pocket in case something does occur. I guess from your perspective, how much of a lift would it be within your business to kind of do this? Is it embedded in your expectations? Do you need to work with the brokers a little bit more closely? Maybe that could be a factor.
Yeah. I think our existing cost structure could absorb a range of membership outcomes without having to make significant investment. There's obviously a point where we would have to bring in more resources to support, particularly kind of the onboarding and the first couple of months of post-open enrollment. We have assumed a certain cost structure given some membership projections. If we saw something above that, that's where we could potentially see some pressure in the back half of this. I guess we're almost at the end of 2025, but really before the end of this year and into the first part of next year, I would view that as a plus and upside opportunity because we are confident in our pricing. If we had more members, we view that as a good thing.
I don't think that's a significant risk, but there is some risk that we may have to scale up if we did see more members than what we are expecting.
On capital, you did the raise in September, reduce your convertible recently. Can you talk about the decision to reduce the convertible? I assume it was you approaching them versus them coming to you. Any reason the whole amount was not done?
Yeah. For those of you who did not see the commentary or read the commentary about this, we had a convertible transaction that we did back in 2022, $305 million, that had a seven and a quarter coupon. We worked with one of the primary owners of that instrument for an early redemption. We had the ability to force conversion at the end of 2026. The security was deeply in the money. Basically, it was trading like a common stock instrument. It was an opportunity for us to save on the coupon and to create some liquidity for a partner who basically there was not very much option value left in that security given how in the money it was.
It was kind of a we're constantly talking to our investors, including our debt security investors, and felt like this was an opportunity for both of us to achieve goals. The reason that the entire thing didn't all convert at once was more about just ownership dynamics and not wanting too much concentration at any one time. They have until December 14th. They've redeemed a significant portion already, and they have an option to convert the remaining of their position up through the mid part of December. We think it was a pretty fantastic transaction for both parties. We're excited to take something that basically was trading like common equity and redeem it into common equity, reduce the debt on our balance sheet. That arrangement also had some covenants, some restrictions on our ability to issue debt.
We paid them some money in order to get our convert done that we did in October. Not having it in those covenants basically has been removed with the conversion that we've done. We feel like it just really cleaned up the balance sheet and improved the financial performance of the company.
Okay. I'm assuming this level of capital is enough for what we currently know as of today. Under the premise of the subsidies theoretically being extended and you see an influx of members above baseline plan or even above where you currently are kind of projecting, are you comfortable with where you stand from that perspective? How should we think about that?
Yeah. We've got over $1 billion of excess capital and parent cash. We go into a situation where it's kind of funny that I think if three or four months ago we'd said subsidies are set to expire, do you have enough capital? Are you going to grow? Is there a chance that you'll need more capital if subsidies get extended? That conversation was pretty dynamic. Today, with the subsidies looking like they're not going to get extended, at least with the bill, that seems less of an issue for us. We have always tried to run the balance sheet to try to position us for both upside and downside exposure. Felt like we had enough opportunity for growth in 2026, both with and without the subsidies. That rehydrating our balance sheet after the losses that we were seeing in 2025 just made sense.
I'm really comfortable that we've got a really strong capital surplus at the moment that gives us the ability to absorb a lot of growth. There's obviously a point where you just don't have the capacity for endless growth in a business that requires you to post capital before you earn any money. The other thing I would just say is that I remind people that we do use quota share. It is, they basically, those quota share arrangements, our quota share partner posts their portion of capital. It's a little bit more than half of our book is covered by quota share. They are covering a significant amount of capital. If we grew, they would continue to post a portion. That reduces the burden on us. We do pay them for that rented capital. We feel well-positioned.
We think that there's certainly in the scenarios that we're projecting that we'll have adequate capital. There are certainly points where if we really grew significantly, if something happened that allowed that to occur, we may need to look at additional fundraising, which we think we would have ready access to.
Okay. I'll just ask the same when I have any questions. Just raise your hand, but I'll continue on here. Just on ICRA, this is an opportunity that you continue to focus on, and one of your larger peers has also placed a pretty big emphasis on. On the other hand, there are others that believe ICRAs are just not viable, even if they have their own exchange product offering. Kind of what's your perspective on this?
I think that the naysayers on ICRA probably have commercial and group plans that they're protecting. That's kind of the friction point of ICRA because we think there's a huge opportunity to move small, mid-sized, and even large companies into ICRA over time. Our focus is really to create more awareness of what these products can be and to try to grow the TAM. As much as even building a direct business for us, we're having a lot of really encouraging conversations. Our pipeline of potential ICRA both customers as well as people that want to partner with us, like the Hy-Vee relationship that we just launched in Des Moines, Iowa this year, right? We've got a lot of people in the pipeline for us that we're working with. I think this is a marketplace that may take more time to mature than maybe we thought.
As a CFO, I look at the mechanics of why and how you do this, and it's so obvious to me. There's just really no reason for a company to be responsible for making the decisions about what providers we all have access to. If you can provide your employees with a plan that lets them choose the network they want and allows them to basically maintain that network or go to a new network without the employer intervening, and it's cheaper for the employer, why isn't this a home run? It's really a head-scratcher to me as to why we're not seeing more adoption. I would say that when I look at the fundamentals that are here, there's more infrastructure, there's more platforms that are available, there's more engagement by brokers and by the types of people that might market these arrangements.
I do see certainly green shoots coming out on ICRA that tell me that this is going to be a market that gets some strong footing. We continue to be very, very optimistic about the opportunity for this to be a significant business for us over time.
Okay. We're basically at the one-minute mark, so I'll just close out here. What do you kind of see as the biggest risks for 2026? Obviously, utilization is always one thing, but what would you characterize as the biggest risk for you in your mind?
The number one is, did we and our competitors price market morbidity correctly? Because when I look at my peers and I see pricing where we're all kind of in the same band, it's not like there's a whole bunch of people that have taken different points of view as to what morbidity is going to be next year. That might be because a whole bunch of consultants were walking around selling their information to all of us over and over again. And we all took input from similar sources. I would, first of all, say that if you believe that we're mispriced, I think you probably think the market's mispriced. The biggest risk for this industry is going to be, what's the market morbidity next year? We believe that we built in more than enough for us to accommodate that in our pricing.
That's probably the biggest risk going into next year. I think that we're on balance. I would say I'm incredibly excited about the opportunity for Oscar to really have a transformational 2026 in terms of picking up market share and delivering significant profitability and margin improvement. On balance, I'm excited to have the opportunity that we have and our price position and what we've seen from kind of the early days of open enrollment. We feel great about our opportunities for next year, and I look forward to coming back next year and telling you how great it's been.
All right. Great. With that, we'll end it there. Thanks.
All right. Thank you. Appreciate it.