Good morning, everyone, I'm John Ransom. My 31st year at Raymond James, we've had 47 conferences, I missed the first 16, got the last 31. I've got R. Scott Blackley with me here, CFO of Oscar Health. This was a stock we recently upgraded. After a tough year, we think better times are ahead. How's that for a pitch? We're gonna kinda jump into it. Before I get into the flow with my questions, maybe Scott, you could just kinda reset for folks who are newer to the story, kinda what happened in 2025, why you're confident that 2026 is gonna be a better year, you know, starting it with the macro and going to the micro.
Yeah. 2025 was a tough year. It was a tough year for the entire marketplace. I think, you know, pretty much all carriers really misestimated what market morbidity was gonna be in that year, and that led to losses for Oscar and for many others. Going into 2026, we did a significant amount of work to prepare ourselves for, you know, the fact that we were coming out of a very tough 2025. Enhanced subsidies expired at the end of 2025, and so going into 2026, we were expecting, you know, market shrinkage to happen. Now that we're here in 2026, we had an amazingly strong Open Enrollment, picked up a significant number of members. We ended Open Enrollment with about 3.4 million members.
We expect to start the Q2 with about 3 million members. That decreases, we expect that a number of passively enrolled members won't ultimately make their payment and will end up dropping out of the marketplace. You know, when I look at what the difference is between 2025 and 2026, we feel like we've priced for all of the risks that we're seeing in that we saw in 2025. We feel like that we priced for market morbidity that was being driven by market shrinkage in the 20%-30% range.
We anticipate that based on everything we've seen, while we priced at the high end of that range, we're actually seeing an indication that the market's going to shrink, you know, closer to the lower end of that range, or towards the 20% level. You know, when I kind of pull up, John, and I look at how are things going, at this point, we reaffirmed our guidance this morning. We did get the latest weekly report for December, so that's factored into that reaffirming our guidance. When I look at the statistics that I look at on our membership, and, you know, I see these, the same data every week, and I compare last year what we were seeing with utilization really running, pretty hot and not seeing the risk adjustment offsets.
When I look at it this year, I see a very, you know, different picture, more stability, and almost everything I'm looking at, you know, is looking favorable to what we had expected. I think we're off to a great start for 2026, and we're excited about the opportunity.
Great. Just to, again, level set, there's some journalists in here, you know, the estimates are the marketplace will shrink from, say, 24 million- 0 million. That's 20%, roughly, maybe a little lower. What we've have also seen is that your peers in the exchanges are getting much greater attrition than you are. To take Centene for a minute, 5.5 million goes to 3.5 million. You guys are going from 3.4- 3.0. Our hypothesis is that some of your peers had a higher share of no-pay passive renewals than you did. A, do you think that hypothesis is correct? B, you know, could you talk just a little bit about is the MLR of this expiring cohort any different than the average?
Is there something you had to factor in for this, or does it look more like your average member?
Lot in that question. I'll start with, you know, why are we seeing strong retention, and I think that's in part because we have been working on this transition and this marketplace change for literally two years. When we did our investor day, you know, now almost a year and a half ago, we talked about the fact we built our plan assuming that these enhanced subsidies would go away. Everything that's happened has been, you know, really built on a lot of prep for us in terms of we thought that we could estimate the risk and that there would be a great opportunity for us, we leaned into that.
That includes distribution, having really, you know, aggressive distribution engagement so that they were aware of what's happening in the market, what's happening with members. That is also coupled with some really strong plan designs that we were able to map where people who were losing subsidy dollars, where could they go in other plans and still retain their insurance coverage? When I look at all those things and say, why are we seeing less shrinkage from, you know, what got signed up in Open Enrollment to what we had expected the beginning of the Q2 , a lot of that is because we have moved those members into plans that we think are more affordable.
I don't really have the data on a plan-by-plan basis to say, did we have more or less, you know, members that who were leaving the market for reasons other than pricing. I can only say that we feel really good about, you know, kind of where we landed in open enrollment and, you know, so far, you know, on track to get to $3 million
Are you ready for some SEC math?
Let's have 'em.
Okay. You start with $2 million, you go to $3.4 million, you go back to $3 million. What that implies is you have, of your $3 million, you have $1.4 million new members.
Mm-hmm.
Are you with me so far?
Yeah.
It's complicated.
Yeah.
You with me? Okay.
Tough.
I worked on this. What do we know? Two things here. We understand you have a new tool to assess the, you know, the risk scores or the healthiness or acuity, morbidity of the new members, number one. Number two, can you give a high-level simplified explanation of why year two profitability for this cohort is generally better than year one?
Yeah. Let me break that down into a couple buckets. I've got this group of passively enrolled members that we expect is going to have a high amount of attrition. That's the 400,000.
Yeah
... we talked about. That group has, in general, MLRs that are, you know, let's call it one point to a point and a half favorable to the core book. Losing those, a little bit of a headwind, but we expected that, built that into our pricing.
Is that like one point four on the 400 or one point four on the whole shebang?
That's, you know, a point and a half against the average.
Okay
... MLR for the book.
Okay, gotcha.
I have a group of members that are newly enrolled, some of which came from other plans, some of which are new to the ACA. We did use some industry tools to get more information about those people earlier than what we have in the past, which, you know, gives us a lot more confidence about the trajectory of those people. Generally, what we've seen is new initiations tend to have lower risk scores because they tend to be younger.
Mm-hmm.
They tend to be younger and healthier on average than retaining members. If I have retaining members, they age every year, they get a year older, right? Typically what you see is the longer you have a member, the more information you have about their health, and the more we're able to engage with them to help them in that journey. You know, it's not surprising that the people who we know the most about, we tend to have the best experience with and so, you know, the longer duration members tend to have a better profitability profile than newer members.
What about like, let's say somebody's new to the ACA, they don't have a risk score, so they get a risk score. What's the timing of the benefit of assigning a risk score to a member who formerly didn't have one? How long does it take for that to be realized into the revenue calculation?
Things that matter a lot, just age, you know, gender, these are the things that drive pricing. We can build pretty quickly a profile just from the general demographics of what we would expect to see. It usually takes, you know, through the first, let's call it, four months of the year for those people to fully get engaged with healthcare, get a primary care physician, get all their scripts put in, you know, if they need to have that. I would say we're still very early on the front end of what we see with that. At this point, having that risk information earlier allows us to reach out to people that we think might be in a cohort that where they have a chronic condition.
It gives us the ability to try to get engaged with them to help them navigate their care journey earlier. You know, those are the things we started this year, I think you know, we're ahead of where we would've naturally been in the past.
Last year, the risk adjustment was very lumpy. You know, 11% in the Q1 , with some prior period help, and then it, you know, moved into the high teens toward the end of the year. When I did the math, I was actually surprised your risk adjustment's actually going up on an annual basis. It will be higher in the H1 , should be lower in the H2 . It's 20% of premium revenue. Last year was 18.5%. You still have a point and a half drag, in other words. With a business with razor-thin margins, a point and a half's a lot.
Maybe just, again, take a step back and talk about why would Oscar be a payer into the pool, not a recipient of the pool? How does it work? Has the one consultant everybody uses, Wakely, gotten any better at not having these wild swings every quarter where people don't know what they're earning until the Wakely consultant comes in?
If you don't know how risk adjustment works in the ACA, it is not at all the same as what's in Medicare Advantage. Medicare Advantage risk adjustment is a one directional, you know, it only works in your favor. In the ACA, because this is a non-underwritten marketplace, basically you do a comparison of what is the relative risk of the people you have in your health plan versus the average in the market. You do that at a state level, and then if you're healthier than the market, you make a payment into the marketplace. If you have sicker than average members, you receive a payment from the marketplace. That's the clearing function that allows this whole market to work.
We tend to have, based on the markets we're in, the plan designs, we tend to skew significantly healthier than the average. Our, as you talked about, John, our membership got healthier again this year by, you know, around a year, which is a lot in this marketplace. We will be a payer into the system because we expect to, again, have healthier members than the average. That isn't a, you know, like in and of itself, that's not a problem because if you have healthier members, you also expect, you know, to have lower claims costs per member than someone who has a sicker book.
When I look at all the risks of what did we build into our 20% risk transfer estimate, obviously, we took into account all of our experience from 2025. you know, risk adjustment's just a challenging calculation because, again, it's a relative measure. You're taking the risk score in your plan versus the risk score of the market. I think we're really good at estimating what our risk score is going to be. It's more challenging to get to what the market is gonna be. That's something that we and others have been engaging with Wakely, who provides information to the marketplace on risk adjustment. They're building some new reporting.
We expect to see that this month, it's not gonna tell you anything, and it won't be based on claims, but what it will tell you is, you know, who has come into the market? Who's left the market? What is the, you know, what is the membership profile in the market look like? That should help all of us to have a bit more of an estimate of, you know, what's going on in the size of the market, which will allow us to update our estimates on market morbidity.
Again, we're just kind of taking you back a little bit and level setting. You know, surprisingly to us, the Biden administration, you know, started introducing some integrity measures in 2024. Those continued into 2025, into this year. You had the CMS rule, which got blocked by the judge, which would further promote the integrity measures. Maybe just take a step back in history and talk about what actions did CMS take to try to root out some of the fraud in the system, and also just what Oscar does proactively to screen out fraud and what it does with uptuning its broker network to help in that.
In other words, trying to put to bed the idea that you got a bunch of fake members, and there's some smoking gun out there that you hadn't already thought through.
Sure. We're obviously big, I guess not obviously. We are very big proponents of, you know, the measures that CMS has been putting into place to promote the integrity of this marketplace. You know, we don't really have. We think it's bad for the system to have fraud. We're
Fraud is bad. I get you. Fraud is bad.
We're all about.
Okay. Just get that-
-supporting-
You got that, Parker? Fraud.
We're all about supporting-.
Fraud bad. Okay.
... what CMS is trying to do. You know, the challenge in all this rulemaking is we can if you tell us what the rules are, we can price for that. You change the rules midstream, that's where violence happens in terms of how it impacts the market, and You know, the things that have been put into place I think were made sense, but, you know, came in kind of in the middle of pricing, and I think were part of the reasons for 2025's market morbidity shift. Things like changes in, you know, how a broker can move a member from one plan to another plan. Obviously, some smart things to not allow people to be moved from one plan to another without their permission and consent. That plan went into effect last year.
Things like making sure that you qualify for the subsidies that you are receiving. That right now is a two-year look back. There's a proposal to move that to a one-year look back. You know, things that, the current provision that's being stayed, where they want a member to have to pay, even if you've got zero subsidies, if you're going to passively re-enroll, you have to make a payment of $5 to demonstrate that you're a real person. A lot of these things have been either put into place or they're stayed, and there was some litigation that a judge said, you know, administratively, that CMS couldn't put these things into place.
We anticipated in our pricing for 2026 that that stay of those provisions was not going to persist, that that would be resolved, and so we assumed that those integrity initiatives that are currently stayed are in our pricing, that they would be put into place. I think that's likely to happen probably mid-year based on everything we're seeing and hearing.
Mm.
The thing I would just say is that the recent rulemaking proposals that they came out with, the NBPP, really has a lot of those proposals now codified in the proposed-.
NBPP, tell us what that is?
NBPP is an acronym for a whole bunch of rulemaking that CMS does every year that dictates kind of the.
You think I knew that? I'm impressed you thought I knew that, so.
I assumed that.
Got it. Got it.
... you did know that. In general, what I would say is that that rulemaking, to me, says that a lot of the things that are currently stayed are going to start happening, you know, next year in 2027. Whether or not we see it mid-year this year or next year, the key things I would say is we're supportive, we build it into our pricing for 2026, and we don't see it as an impediment to the market continuing to be a well-functioning market.
Do you know anything about the judge on deck? I know the judge who blocked was perceived to be a liberal judge. Do you know anything about the next appeal?
I, I-
conservative judge?
You know, I, now you're asking me questions that are...
Yeah
... beyond my...
Well, I know it wasn't in the rule.
... my remit. I wouldn't know whether the judge would be, you know, deemed a conservative or.
But you-
... or a liberal judge.
Yeah. Okay, all right. I had a great question. It just slipped my mind.
All right.
Let me look at my list. Let me look. Okay. metal tiers. again, try to level set this complicated business. this year, the no-pay Silver plans with CSR disappeared. there's a much more balance between Bronze, Gold, Silver. It used to be most of the membership was in Silver, so you guys anticipated that price for that. just maybe take a step back, and for the first time, you're telling people what your metal mix is, so thanks for that. just kind of take that one, and I think you said on your call, if I remember, that you're aiming for all tiers to have sort of equivalent margins.
That used to be Bronze plans were considered to have higher margin, but just kind of take us back through the CSR silver loading and some of the dynamic changes in membership mix this year.
Yeah. If you don't live and breathe the ACA every day, you probably may not understand how in the ACA there are different products that we call metals, and each one of them has an increasing actuarial value, meaning the richness of the benefits goes, you know, greater as you work your way to the higher ends. Bronze is the lowest, so Bronze has, you know, the lowest actuarial value, meaning the plans cover, you know, relatively less of the benefits than the member versus other plans. We're still covering the vast majority of the cost. As you work your way up, Bronze has the lowest AV, Platinum has the highest. In our business, historically, we've been, you know, very much focused on Bronze and Silver. That's kind of the history.
As we moved into 2026, what happened is, you know, the average price increases in this marketplace were, let's just call it, in the 30% range, nationally. That, an increase in your price actually is a direct impact on the dollar subsidies. Subsidies are set based on the second-highest, Second Lowest Cost Silver Plan. That's what sets the dollar subsidies. What we did is we said, "Well, these people are gonna have more subsidy dollars, those who retained their subsidies.
What are they gonna do with those subsidy dollars?" Depending on their circumstances, we could map them either into a Bronze plan, where if they lost subsidy dollars, they could go and take the subsidy that they had and still get a plan that they were able to have a small e-payment and sometimes zero out of their pocket with a higher deductible. We mapped, you know, a cohort into that. We also mapped a cohort into Gold, which is a higher, a higher benefit type of package. We were able to take some people who had an increase in their subsidy dollars and actually map them into a Gold plan that gave them more benefits, while still having, you know, low to no out-of-pocket spending. We had this, that strategy of trying to barbell the membership into those two categories.
We saw significant movement from Silver, which is where a big part of this market was, into those two buckets. Importantly, you know, I would say that any historical performance of the metals, you probably need to just throw that out because with this great migration out of Silver into Gold and Bronze, you know, you're probably gonna see the performance look a little bit more common. We continue to believe that all of those plans are going to have, you know, drive strong marginal performance.
You maybe need to revisit the mix in the metal tiers.
I would say that his-
The Platinum too, roughly.
... historically we were, you know, predominantly 65-ish% Silver. We've seen that come down. That's shifted out to where, you know, a decent portion of that has gone to Bronze, a significant increase for us in Silver. You know, we're now a plan that has Gold, Silver, Bronze, with Bronze and Silver being the majority.
Is it an oversimplification to say if you're looking for... You're 27 years old, healthy, and you're looking for catastrophic insurance, and you don't make a ton of money, Bronze is a good-
Bronze is your play.
A Gold member would be what?
A Gold member is probably someone who has an expectation of wanting to, you know, to have care, and it doesn't necessarily mean that Gold has, you know, worse performance because it has higher utilization. You price for that in the actuarial value calculation. We're taking on a significant higher portion of the actuarial risk than versus Bronze. You know, I would say that Gold tends to have a population that has higher morbidity than Bronze.
Don't wanna belabor this point because it's still small, but ICHRA, explain what that is, number one. Number two, talk about the tax treatment of a employer making an ICHRA subsidy to buy insurance on the exchange versus the normal healthcare subsidy. Is there a difference? You know, thirdly, what will it take for that market to realize its potential, in your opinion?
Yeah.
both kind of maturation, regulatory, cultural resistance from the swamp, et cetera. What, what's gonna get that market going?
Individual contribution, health reimbursement accounts, this is basically, think of it as kind of in the way that the world migrated from employers having a defined benefit plan where they ultimately, you know, provided the compensation to fund retirement programs. That shifted to 401-K where they would just give dollars into an account. The employee would make all the investment decisions from there forward. ICHRA is much the same way. It takes an employee-sponsored plan where the employee makes the decision about what plans are offered to where they now just give the dollars to the employee, and the employee uses those dollars to go onto the ACA and pick a plan that's right for them. Why is that a smart thing?
Well, number one, you know, from an individual perspective, it allows me to choose a plan that's right for my circumstances. If I'm a young, 23-year-old, early in career person, healthy, don't expect to see the doctor very often, I'm gonna go get a Bronze plan, and I'll be able to take some of the money that was put into my account and maybe put that into an HSA, and use that for, you know, offsetting other costs along the way. If I'm instead a diabetic, I can go get an Oscar diabetic plan that has specific features designed for that condition. It really promotes choice, and we think that's, you know. Ultimately, everything that I see when I look across the world is we all want choice. We all want to decide what we want.
You know, it's not like someone tells you get to see, you get to have these three streaming services. Just imagine this, like, our employer is telling us which network we can go to, which doctors we can use, as opposed to us deciding it. It's kind of a perverse thing and something that's so critical to life. You know, we think that individualization is the future of this marketplace. There's some benefits in terms of the tax treatment. The employer doesn't have to pay some of the premium and exchange taxes when they put these dollars in there, so it's advantage to them. The other thing that is really important in this is if you think about a health plan that has 1,000 people, Cost of that plan is underwritten based on the average medical cost for those 1,000 people.
If you have a couple hemophiliacs, you know, a bunch of people who are having babies that year, maybe someone that's got cancer, that drives the average for that whole pool way up. If instead you're in the ACA with 24 million people, that average is much smoother. The employer has way more consistency in what to expect from a cost side. You know, I just look at all of these from my seat as a CFO, I'm like, okay, so it's less price increases every year, more predictability. Employees will like it more. Like, why wouldn't we do this? The reasons we haven't seen as much uptake on this is You know, it's like everything in life, there's inertia. People are slow to change.
We've been seeing more and more companies building the infrastructure that's necessary to kinda disenable, "I'm gonna take the money, I'm gonna put it into account for you. I'm gonna go choose." We think there's some big gaps in that process still that we're gonna part of our strategy is to help fill those gaps, and we'll have more to say about that over the course of the year. We continue to believe that ICHRA is a huge opportunity for the market and that we'll be a big participant in that market.
To be clear, if employer subsidizes ICHRA, is that a pre-tax or an after-tax subsidy?
Yeah, for the employee, it is a pre-tax subsidy.
The employer, I'm saying.
The employer gets the benefit of that. They can take.
It is treated the same from a tax standpoint as contributing to my health insurance through my employer.
Yeah.
I'd understood there was a difference. Did that change with the ACA or?
John, I might be butchering, you know, not getting that correct. The employer gets to. You know, basically the employee doesn't have to pay tax on it.
Yeah
... a tax advantage to the employer.
I'd heard like the one of the problems was it wasn't tax deductible for the employer to support ICHRA.
Well, they don't have to pay the exchange taxes.
Yeah
... there is a benefit.
Yeah
from that side, it's cheaper.
Okay
in that regard.
Yeah. Well, that was homework assignment for me.
Yeah.
I failed to-
You and me both, obviously.
Okay. Yeah. One of the, kind of what I thought were out there bear stories was that Oscar was so dumb, they were gonna get so many new members, they were gonna run out of money. Can we, put a pin in that one?
Yeah.
I got tired of answering that one, but.
Boy, I'll tell you what. If you look at our history, we have been really front-footed and thoughtful about having the capital before we need it, right? Like, I just look at everything we've done. Last year, we raised, you know, $400 million, which netted us something like $360 million of proceeds in order to, you know, prepare ourselves for the growth that we've seen. We entered into a $475 million revolver with a syndicate of really high, you know, top-shelf banks. I would say we've put into place all of the mechanisms that you would expect for a company with our size and scale. On top of that, we use quota share reinsurance, which basically is I engage with another insurance company. They post part of the capital that's required.
You know, this is a market where you have to post capital based on premiums. Our quota share partners today are posting roughly 55% of the capital required for the company. We pay them a fee for that. You know, I talked about a rule of thumb that basically we have to put in $50 million of capital for each $1 billion of premium. I think that's. You know, that can be different market by market, but that's a good rule of thumb, and that's really because of the quota share. If you think about on average, the cost of, you know, the capital we have to post is around 11%-12%. Quota share covers 1/2 of that. We fund the rest. We have a significant amount of excess capital and parent cash.
You know, when it comes to capital and funding growth, we feel like we're in a really good place.
We try to do some math. Again, always very dangerous. We went through your cost trend last year, stripped out the one-timers. What was interesting is you actually had a per member decline in medical costs in the Q3 and Q4 . And for the year, it was like 1% was the trend. We tried to do the same exercise for the implied guidance in 2026. It looks like you're building in about a 12% trend in 2026. Maybe if that's right, say great job, but if that's wrong, maybe we could get a little help with that exercise.
Yeah. I would say that in 2025, definitely trend was not flat. You know, we definitely experienced a significant trend. We always do a lot of work inside the company to claw back the trend experience.
Right
... you know, there are some offsets to that. When I look at 2026, I would say, you know, trend in 2025 was something in the mid to high single digits.
Right.
Expect something similar, next year. Expect market morbidity from the expiration of the subsidies is going to be another layer of increase in medical expenses. You know, we haven't dimensioned that specifically, but I think you're probably in the right ballpark.
Okay.
When I think about our pricing, we basically built in what was the experience in 2025? What do we think is gonna happen in 2026? We built in the potential adverse effects from program integrity measures. We built in some, you know, explicit expansion in margin targets. When I take all those things and aggregate them together, we feel like our pricing really has put a significant amount of the risk that we saw in 2025 behind us.
All right. Well, let's go to breakout. Thanks.
Thank you.