OSCR - NYSE

Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Chris Potochar, Vice President of Treasury and Investor Relations.

Good morning, everyone. Thank you for joining us for our fourth quarter and full year 2025 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar Health's Chief Financial Officer, will host this morning's call. This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our quarterly report on Form 10-Q for the period ended September 30, 2025, and filed with the Securities and Exchange Commission and other filings with the SEC, including our annual report on Form 10-K for the period ended December 31, 2025, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the fourth quarter and full year 2025 earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2026 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable without making unreasonable efforts to calculate certain reconciling items with confidence. With that, I will turn the call over to our CEO, Mark Bertolini.

Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar announced fourth quarter and full year 2025 results and the 2026 outlook. We reported total revenue of $11.7 billion, a 28% increase year-over-year. Our SG&A expense ratio of 17.5% improved by approximately 160 basis points over the prior year, reflecting continued efficiency gains through growth, disciplined expense management and AI and technology advancements across the business. MLR increased 570 basis points year-over-year to 87.4% and our 2025 loss from operations was $396 million, primarily due to higher market morbidity resulting in a higher risk adjustment payable. Oscar is on track to return to profitability this year. We expect a significant year-over-year improvement of nearly $750 million in earnings from operations in 2026, representing the midpoint of our guidance. Scott will discuss our financials in more detail shortly. Before I get into our business highlights, I want to provide an update on the performance of the individual market. Overall, 2025 was a reset year for the industry. The industry-wide increase in market morbidity due to Medicaid lives entering the market and program integrity initiatives shifted market dynamics. Oscar embraced the change and positioned the company for strong top line growth and margin expansions in 2026. We took decisive actions with a disciplined pricing, distribution and product strategy to go after profitable growth as competitors pulled back or exited the market. Our pricing strategy always assume the expiration of enhanced premium tax credits. Our final 2026 rates also reflected higher market morbidity, elevated trend and the effects of program integrity initiatives. Early 2026 open enrollment results demonstrate the resilience of the individual market. The latest CMS data indicates overall market membership of 23 million lives representing a better-than-expected decline of 5% year-over-year. We expect many passively enrolled members facing higher premiums will exit the market when the grace periods expire. We will, therefore, have greater clarity on final paid membership and market contraction when CMS releases final enrollment data midyear. Current enrollment data indicates market contraction may track toward the lower end of our original projection of 20% to 30%. The individual market stability underscores the priority consumers place on maintaining health coverage, more small business owners, working Americans and gig workers are running the market as group insurance fails to meet their affordability needs. The individual markets fundamental characteristics, combined with a larger and growing addressable market can absorb morbidity changes without dramatic trend impacts Oscar is in a strong position to continue leading the individual market and defining the future of consumer-centered health care for all Americans. Now I will review our business highlights. The 2026 open enrollment period was a record for the company. Oscar delivered another year of above-market growth, and we are privileged to serve 3.4 million members as of February 1, 2026. We expect to start the second quarter with approximately 3 million paid members, a 58% increase year-over-year. Member retention remains solid across the book, driven by our suite of affordable products, agenetic AI features and a superior member experience. Oscar's market share across our footprint increased from 17% in 2025 to 30% in 2026. We continue to grow IFP and ICRA membership in prominent service areas, including new and existing markets in Arizona, Florida, New Jersey and Texas. The team created new cost-effective bronze and gold plans to support consumers losing enhanced premium tax credits and expanded broker partnerships by 60% to manage distribution across the overall market. Our integrated strategy, which we deployed well ahead of enhanced premium tax credit exploration, positioned us to profitably capture new membership in the active shopping season. Product innovation was a key growth driver of this open enrollment. We launched several new lifestyle offerings tailored to certain conditions at stages of life. These include Hello Menno, the first menopause plan in the ACA, when a Salud, our Spanish first experience for members with diabetes and Hive Health with Oscar, our landmark ECR plan. Our lifestyle products are attracting new consumer segments and creating a loyal customer base. Members enrolled in our lifestyle products have above-average retention rates and are 50% more likely to recommend Oscar to family and friends. They are also more likely to come in as direct enrollments, demonstrating the greater attachment to our brand. Our deep understanding of the consumer and the strength of our product experience continue to create powerful entry points for consumers, positioning us for long-term IFP and ICRA growth. Oscar investments in AI are creating efficiencies across the business as we grow. We lowered administrative costs by 160 basis points year-over-year while significantly increasing membership. AI is integrated across the Oscar platform, enabling teams to automate routine tasks, efficiently scale our service operations and improve decision support. For example, our Agentic AI bot for care guides reduced response times by 67% during peak and open enrollment period. AI is also central to our member experience. Oswell, our industry-first Health agent now completes 86% of questions received from members with high accuracy and quality. We continue to embed Oswell across our product portfolio to help members take control of their health. The impact of AI on our efficiency and the quality of the interactions for our members is unparalleled in this pace in my 40 years in this industry. In summary, Oscar's disciplined pricing, record high membership and top line growth lay a strong foundation for this year. We are well positioned to significantly expand margins and return to profitability in 2026. Our strategic priorities position Oscar to shape the next evolution of the individual market in the following ways. First, accelerate National IFP and Ecraexpansion. Second, create lifestyle products with an exceptional consumer experience; and third, drive operational excellence through AI and frictionless execution. The individual market is the engine of consumer-driven health care. When consumers choose how and where to spend their money, they exploit inefficiencies and improve the quality of the interaction. We see in our own growth, the power of designing products around consumer needs. That's the promise of the individual market. the promise of choice, the promise of long-term innovation, innovation our country needs to turn healthcare into a market that fits real lives and creates meaningful coverage for life. I want to thank our Oscar team for their dedication to our customers if we're delivering a successful open enrollment. Our 12 years of experience in the individual market will drive results for 2026 and beyond. I will now turn the call over to Scott. Scott?

Thank you, Mark, and good morning, everyone. 2025 was a challenging year for ACA carriers as market morbidity stepped up across the industry. We experienced these industry-wide trends with higher-than-expected claims and lower-than-expected risk adjustment offset leading to a net loss of $443 million in 2025. Over the course of 2025, we took appropriate steps to position Oscar to deliver strong earnings in 2026 including disciplined pricing and cost management actions. I'll begin with a brief overview of fourth quarter results, review of our full year performance and then discuss our outlook for 2026. Starting with the fourth quarter. We ended the year with approximately 2 million members, an increase of 22% year-over-year. Membership growth was driven by solid retention, above-market growth during open enrollment and continued SEP member additions. The fourth quarter medical loss ratio was 95.4%, an increase of 730 basis points year-over-year. During the quarter, we received an updated risk adjustment report for claims through October. The report indicated that overall market morbidity remains stable from the third quarter to the fourth quarter. However, relative to our expectations, Oscar's membership skewed healthier than the broader market, which required an increase of our risk adjustment accrual of $275 million in the fourth quarter. The fourth quarter risk adjustment true-up was partially offset by $99 million of favorable in-year development and $36 million of favorable prior period development, primarily related to claims run out from the prior year. Overall utilization in the quarter was modestly above our expectations. Inpatient utilization continued to moderate while outpatient and professional increase, which we believe was associated with members accelerating care as the enhanced premium tax credits expired. Pharmacy utilization was largely in line with our expectations. Turning to the full year. Total revenue increased 28% year-over-year to $11.7 billion, driven by membership growth, partially offset by an increase in the net risk adjustment payable. The full year medical loss ratio was 87.4%, an increase of 570 basis points year-over-year. Risk adjustment was a headwind throughout 2025, driven by higher market morbidity which we primarily attribute to the full year impact of members entering the ACA market as a result of Medicaid redeterminations as well as program integrity efforts. Risk transfer as a percentage of direct premiums was approximately 18.5% for 2025, representing a 390 basis point increase year-over-year. Switching to administrative costs. We continue to drive improvements in our SG&A expense ratio. The full year SG&A expense ratio improved by approximately 160 basis points year-over-year to 17.5%. The year-over-year improvement was driven by fixed cost leverage, lower exchange fee rates and disciplined cost management, including an increased impact from technology and AI initiatives. The loss from operations for the full year was approximately $396 million, a change of $454 million year-over-year, driven primarily by the higher risk adjustment payable. The adjusted EBITDA loss for the full year was approximately $280 million, a change of $479 million year-over-year. Turning to 2026. We have been preparing for the expiration of the enhanced premium tax credits for some time and took deliberate actions in 2025 to position the business for profitable growth and improved financial performance. We introduced innovative and affordable plan designs aligned with member needs, optimized our distribution strategy and took a measured approach to geographic expansion. Our disciplined pricing assumed and expected market contraction at the high end of our previously communicated 20% to 30% range driven by the expiration of enhanced premium tax credits and CMS program integrity initiatives. We also refiled rates in states covering approximately 99% of our membership to reflect the higher market morbidity in 2025. Together, these actions position us to profitably drive share growth. For 2026, we expect total revenues to be in the range of $18.7 billion to $19 billion, an increase of 61% year-over-year at the midpoint, driven by another year of above-market growth during open enrollment, solid retention and rate increases. While our weighted average rate increase for 2026 was approximately 28%, the increase on a per member per month basis is lower, reflecting shifts in member age and metal mix. Our outlook also reflects elevated churn this year, driven primarily by passively enrolled members facing higher premiums following the sunset of the enhanced premium tax credit and ongoing CMS program integrity initiatives. From a member profile perspective, our average member is 38 years old, approximately 1 year younger year-over-year. As expected, we saw migration from silver plans to Bronson gold plants, reflecting plan designs intended to offer affordable options following the expiration of the enhanced premium tax credits. For 2026, we expect risk adjustment as a percentage of direct premiums to be approximately 20% based on our updated membership mix and 2025 risk adjustment experience. Turning to medical costs. We expect our medical loss ratio to be in the range of 82.4% to 83.4%, representing 450 basis points of year-over-year improvement at the midpoint. Our outlook reflects elevated market morbidity observed in 2025, an incremental increase in morbidity in 2026 and medical cost trends and utilization patterns largely consistent with our 2025 experience. We also incorporated additional third-party data to assess the risk profile of new members, which is tracking modestly better than our pricing expectations, while renewal risk scores are in line with our expectations. With respect to seasonality, we expect MLR to be lowest in the first quarter and highest in the fourth quarter as members meet their annual deductibles. On administrative expenses, we expect continued improvement in our SG&A expense ratio. We expect the SG&A expense ratio to be in the range of 15.8% to 16.3%, representing an approximately 140 basis point year-over-year improvement at the midpoint. We continue to see the benefits of scale as fixed cost leverage and variable expense efficiencies driven by technology and AI are expected to drive further improvement in our SG&A expense ratio. We expect our SG&A expense ratio to be fairly consistent in the first 3 quarters with an uptick in the fourth quarter. We expect to meaningfully improve financial performance and a return to profitability in 2026. We expect earnings from operations to be in the range of $250 million to $450 million, a significant improvement of nearly $750 million year-over-year implying an operating margin of approximately 1.9% at the midpoint. Adjusted EBITDA is expected to be approximately $115 million higher than earnings from operations. Shifting to the balance sheet. we have taken opportunistic steps to strengthen our capital position and optimize our capital structure. As a reminder, during the third quarter, we increased our capital in preparation for 2026 growth, completing a $410 million convertible notes offering due 2030, generating $360 million of net proceeds. Subsequent to that transaction, we entered into a new $475 million 3-year revolving credit facility. The transaction was well supported by a strong syndicate of top-tier banks and executed on favorable terms, further strengthening our balance sheet and providing additional flexibility as we execute on our strategic plans. We ended the year with approximately $5.5 billion of cash and investments, including $414 million at the parent. As of December 31, 2025, our insurance subsidiaries had approximately $1 billion of capital in surplus, including $315 million of excess capital. To help frame our capital position in the context of our growth outlook, I want to spend a moment on regulatory capital requirements. While individual states vary, a useful rule of thumb is that for every $1 billion of premiums, we are required to hold approximately $50 million of capital, which reflects roughly 55% quota share reinsurance ceding percentage for 2026. Overall, our capital position remains very strong. In closing, 2025 marked a shift in the individual market dynamics. Oscar has been in the ACA since its inception. And today, we are operating from a position of scale and experience. That perspective has informed the actions we've taken to position our business for profitable growth in a rational market and improved financial performance. We are well positioned to return to meaningful profitability this year. With that, I'll turn the call back over to Mark for his closing remarks..

Oscar is stronger than ever. Our decisive actions in 2025 position us to take a significant leap forward on profitability in 2026. We primed Oscar for the market of the future. The team introduced new affordable consumer products. We increased broker distribution with new tools, data and training to efficiently move new and existing members to Oscar Plans. We drove strong retention, showcasing brand loyalty and followership. 2026 is the springboard for Oscar to accelerate financial performance toward our long-term targets. Our playbook drives repeatable value in the market with ongoing product innovation, geographic expansion and membership growth. We are not here by accident. Our growth is the culmination of years spent navigating the market and obsessing about the consumer experience. We proved consumers vote where they find value. Oscar's growth is not just about retaining our book of business. It's about staying ahead of the consumer, driving long-term individual market growth and setting a new standard for healthcare. Now I will turn the call over to the operator for the Q&A portion of our call.

[Operator Instructions] Your first question comes from the line of Josh Raskin from Nephron Research.

I guess the obvious question is how you get comfort on this new membership coming in for 2026 and why you think the MLRs will be down so much? And then I guess, related to that, maybe, Scott, if you could provide a little bit more color on your assumptions around risk adjustment, I heard the 20% accrual. But as you become a larger part of the market, I think you said 30% market share overall. Does that actually help, does that reduce your overall accruals? So I know there's a bunch in there.

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

Just more color on the assumptions around your risk adjustment in 2026. And my point being, if you're 30% of the market does that make your risk accruals more market rate, right? Meaning are you going to see less volatility as you become a larger part of the market?

Yes, understood. All right. Well, let's start off with kind of the membership and our ability to project what we see there. So I would kind of bifurcate the membership between -- we've got a significant portion of our membership or renewing members we have a lot of information about those members and feel like we can project what their behaviors are going to look like. And then we also have a population that is new members for Oscar. We obviously picked up share. So we do have a lot of new members One of the things that we've increasingly done is to leverage third-party data to pull in clinical information about those members. That really is giving us a fairly rich amount of information about those members in terms of their historical utilization trends. It also helps us to target our outreach to help them manage their care journey. So we feel like we've got better insights into this oncoming membership and we've had really at any point in our history. So those are kind of the building blocks in terms of why we're comfortable with the MLR projections. On risk adjustment in '26, I would say that you can see from my talking points that we're actually expecting our risk adjustment as a percentage of direct revenues to increase year-over-year from 25% to 26% to about 20% in 2026. It's an interesting thing that we're starting to see a little bit of a barbell between the plans who really cater to the highest morbidity populations and the plans that have everyone else, we're picking up a very large share of young, healthy members. And so that's driving risk adjustment higher. We are continuing to look at ways to get more information about what is going on outside of our books because that's the hardest part of forecasting risk adjustment. We've been engaged with Wakeley on helping around this new reporting that they're proposing to bring forward in the first quarter. We're expecting that will give the entire market more visibility into what's going on with membership. That should help all of us in forecasting risk adjustment and so I don't know that it's going to decrease the challenges in making that estimate as accurate as it can be, but it certainly will give us a head start.

Your next question comes from Jessica Tassan with Piper Sandler.

So I appreciate the color on membership. Can you elaborate maybe a little on the fourth quarter utilization pull forward you described. You guys spoke about higher retention. So should we think about the pull forward as being kind of silver members in '25 who are disinclined to utilize care in '26 due to higher deductibles? Just any color on 4Q utilization and how it relates to your 2026 utilization expectations?

Yes. Thanks for the question, Jess. So I want to emphasize utilization was modestly higher than our expectation in the quarter. Really, when I look at the MLR performance in the quarter, I really would say that it is vastly driven by the risk adjustment true-up. In terms of the utilization pressure, we did see -- we had a modest expectation of an increase as we went into the end of the year. members losing their subsidies likely to go ahead and seek care. We saw that. We think that was a primary driver of some of the movement we saw in outpatient and professional. We also saw things like substance abuse disorders that ticked up, some mental health benefits that ticked up in labs types of things. So really things that would indicate to us these were members that we're just trying to make sure that they took advantage of the benefits why they have them don't give us a lot of concern about carryforward impact of those types of activities.

Got it. And then just -- I know you all mentioned that overall market-wide membership could come in a little bit better than the 20% to 30% disenrollment you had been forecasting last year. Can you just maybe offer any color on the overall size of the market post the fluctuation? And then secondarily, just any comments on kind of the adequacy of pricing market-wide. So how should we get comfortable with the fact that all of the peers have been also priced appropriately and that risk adjustment doesn't end up being a problem in '26 might was in '25.

From the standpoint of effectuation versus actual enrollment, we believe that the market -- the market currently has shrunk by 5%. However, a lot of people have changed their plan signs and it was purposeful on our part to give brokers specific transitions that they could do for their members to impact the loss of enhanced premium tax credits. And so as a result, in our book, we saw silver drop in half as a percentage of what it was before and bronze increase by almost 50% and gold almost quadruple. And that's the kind of shift we saw in our membership mix. That means people are carrying higher deductible plans. And this is the big open question mark for the rest of the year, 2 things. One, when we get closer to pages and our pads are on par with where they've been in the last couple of years anyway. The next question is how many people when they see their premium actually pay it. And that's the first piece that will get us to the end of the year, and that's where we go from 3.4 million lives as we currently stand in February, the 3 million lives by the time April 1 rolls around. The next big question is this is as big a political issue is any other thing around in premium enhanced premium tax credits is as people start to use their plans and realize the amount of out-of-pocket that they need to pay to use those plans, will they maintain coverage? Or will they drop out? And this is where the big paths of enrollment, you don't know how they're going to behave until they start using the plans. It's going to create a lot of financial hardship for most Americans who only have $400 in their bank account. And this is where we have an open question. And we think by the end of the year that, that number drops to the lower end of our range, which was 20% to 30% reduction in the overall market size.

Your next question comes from Andrew Mok with Barclays.

This is Tiffany on for Andrew. Can you share where OEP membership landed for the book and give us a sense of where paid rates are tracking in January '26 versus January 2025.

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

And as a reminder, we expect that as of the end of the first quarter, we'll have 3 million paid members. That's what our expectation is for that time period. .

Okay. Got it. That's helpful. Can you provide a bit more color around expected membership cadence following the 1Q grace period? And how we should think about that throughout the year?

Sure. So in terms of churn expectations, through the first quarter, we're obviously going to see higher churn as we see the effects of the higher payment rates or premiums that Mark just talked about. And so we'll see a dip from 3.4 million down to $3 million by our estimate by the end of the first quarter. From there, we're expecting churn patterns to look more similar to what we saw pre-ARPA, so in the range of 1% to 2% a month in terms of kind of churn from the end of the first quarter through the end of the year. The other thing I'd just point out is the other factor impacting the churn rates is that we are expecting to see less SEP membership this year than what we've seen in recent years as some of the things like the continuous enrollment for people below the FPL 150 level now that, that's expired, we would expect to see less of that membership. So while in recent years, we've seen our overall membership trending up throughout the year, we would expect this year to kind of revert to more pre-ARPA trajectories where you see membership decrease throughout the year.

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

Can you just talk about your mix of metal tiers. It sounds like Bronson Gold went up significantly and silver went down. And I assume you're skewing a little bit more towards bronze which typically has had more variability. How would you characterize your historical experience with bronze and how you're thinking about this time around?

Yes. I would say it's going to be interesting, everything that you might think about metals, we should probably discard because we've seen a transition from people who've historically been in silver to other metal mixes. So I don't think you're going to be able to really proxy history. Bronze in general for us has always been a high-performing product. So the fact that we've seen more growth in bronze than in silver, and we've seen that transition is actually something that we are completely comfortable with. If I just kind of pull up for a second and talk about the metals. Overall, our general philosophy is that our plans need to have margins that are in a relatively tight band. We would expect that all of them generate strong contribution towards total company profitability. I do think that with the momentum -- with the movement from silver to bronze and gold, we will see those plans look and act actually more similar to each other. Obviously, bronze has higher deductibles. So we may see a bit higher churn in that population than we may see in other populations that don't have those higher deductibles. As Mark talked about, we think that may be a driver over time of more churn.

Great. And then just going back to the membership gains. If I think of that 400,000 that's going to roll off by 2Q, I assume those are the passive renewals. So that would imply a little less than half of your membership is "new" I guess are those new members coming in from new markets that you entered into? And I know you have data, you're using third-party data to get a better sense of the members. But I guess how much has things changed from last year to what it may look like this year where maybe that third-party data may not be as accurate.

I'll let Scott talk about the third-party data, but let me just sort of dimension this for your calculation is pretty close. That 400,000 is going to be passive that will roll off. We have grown a bit. And what we did early in the summer as we went out and enrolled 11,000 new brokers. We met with 17,000 brokers over the summer and gave them a list of members that they have with us. and showed them the members that were most affected by the lack of enhanced premium tax credit and what plans you could move them to based on their needs. They went and did that. And we gave them access through our broker portal to our campaign builder software, which we used to outreach to members to reach those people and give them the information before open enrollment. And that's why we got off to a fairly significant start early on because the brokers had it all stacked up, ready to go. Our view was the more we can help the brokers get people to the right place, the more they can be productive elsewhere, which is then what happened, is that they went to other plans who either were leaving the market or had not prepared the broker community or the membership with the right kind of product changes and move those members as well. So that's sort of the lay of the land on how our growth occurred. We weren't sure how it was going to roll out for new membership, but it obviously had a significant impact.

Yes. And Jonathan, with respect to the third-party data, I would say that for new initiations, most of those people, we've got clinical information from third parties that gives us a good basis to have an expectation of how they're going to perform. And importantly, it gives us a lot of information about who we need to start to engage to help them manage their healthcare conditions. That's important both from the perspective of managing our costs as well as getting the member in as early as we can, which is a positive thing for risk adjustment as well. There are a portion of our new initiations who are new to the market, who we don't have great information about, but we do have a significant amount of data over time as to what those types of people might look like in terms of their acuity. And we've -- in looking at kind of the information that we do have about those members, we're not seeing anything in terms of the characteristics of them that costs us to think that there's something there that should be concerning for us. .

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

So if we take 3 million as kind of the "real member number, approximately what percent of those do you think work with the broker and tried to tailor the coverage versus the remaining passive renewals. I think that would be helpful.

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

And then my -- I mean this is kind of a basic question. So you all can downgrade your opinion of my IQ. But what I don't understand is, I get the passive enrollment, but you've got to pay the first premium before you get covered. So what kind of member gets passively renewed pays the first premium and then decides to drop off?

Again, that's the big question this year versus prior years, usually when they start paying premium, they stay with us. unless there's some sort of event where they don't require our coverage anymore. However, in this case, when they start looking at the out-of-pocket costs associated with plans that they were moved to or stayed in. They're going to start to say, wait a minute, this is expensive, and I'm not going to be able to afford this. Now what we see, and this is an important aspect, it's far different than prior years in the marketplace is that most Americans now see health care is the single largest line item in their homes, in their family budget, more than their own mortgage. The result is that they are afraid of a lot of people who buy from us are afraid of losing the house or losing their family or having to go bankrupt if they don't get coverage. So then the real question, the pivot question that we have and I met with the AHA Board of Directors a couple of weeks ago, is what happens when they can't pay the deductible? And how do we handle that? And that's where we're sort of looking at this mill and saying, does it create this enrollment. Do people still hold on to it because they're afraid of losing their homes or going into bankruptcy. We're not sure. So we're not -- we're hedging our bets on the level of disenrollment that will occur as a result.

John, just to add 1 more dimension there. When you look at our expectation and what we're seeing on payment rates, if you're going from having an out-of-pocket premium that you were paying in 2025 to having an out-of-pocket premium that you're paying to '26. And you have actively enrolled and even passively enrolled. We're seeing relatively strong payment rates in those categories. It's really the population where you're going from a $0 plan to something that you've got to pay out of pocket. So you've either lost your subsidy or you've transitioned from 1 plan to another. That's where we expect to see really high nonpayment rates. And the way the whole process works, you may not make your first payment in January, but you don't ultimately churn off until the end of the quarter because you are in a grace period until then. .

I see. So passive going from 0 premium to some premium. And we know that like call centers, in some cases, we used to send these people up and never had a payment link. But our understanding was of care wasn't a big user of these legacy call centers. So you've got payment links. It's just that they go from, say, $0 to $100 a month, and they just -- that's just a bridge to part. Is that right?

You are correct. We did not -- we are not a big user of call centers. .

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

I want to come back to some of the questions on mix. I appreciate you're saying that silver is lower in both gold and bronze are much higher. But is it possible to get maybe the percentages kind of before and after for each category? And basically, the crux of it is that, obviously, your membership, PMT seem like they're going to be up somewhere in the 50% range. So we're kind of comparing that to the overall revenue increase on the guidance line and it's a little bit hard for us to square quite why. There's not maybe more of a PMPM yield in there. So it'd be great to have some more quantification on that? And then I have a follow-up at this time.

Sure. So for Bronze for the prior 2 years, around 25% and '26 to 39%. Silver has been steady at 71% in the prior 2 years. This year, they're at 36%. In gold, which is in the low -single digits, 3%, 4% for the last 2 years is now 25%. So fairly significant changes. And the bronze and the gold plans we offered were $0 with fairly -- not very rich benefits.

Stephen, the other thing I would just mention is that the characteristics of the membership are important to modeling your revenue. So the fact that we're seeing a year younger membership has an impact on PMPM revenue. So you need to factor that in. That's 1 of the reasons why I discussed that in the call is to help with your ability to project revenue with that information.

Got it. No, that's helpful. And then maybe just qualitatively, like is there any difference in terms of this MLR guide, how you're thinking about kind of what you're budgeting in for retain membership and sort of how you're thinking about this newer to the planned membership and how that might perform? I would love to understand is philosophically how you're thinking about that part of it?

Yes. Well, we obviously modeled membership with a lot of our past history. So we will have experiences that are different for returning members versus new initiations. I would say that in the aggregate, given the amount of work we've been doing on this population going -- which is now over 2 years that we've been expecting that the subsidies are going to go away. And so starting with the whole, how do we design plans to capture people who had a price shock. We've really built in, I think, a deep level of expectation and understanding about how those different populations are going to perform. I talked about all the ways that we tried to triangulate and get data about those folks. But I think that in general, I would say we're using our historical experience with each of those populations to project the future, feel like that the estimates that we've made both in pricing. And now we've taken everything that we've heard to date and built that into our guidance. And I feel like we're being very balanced in our estimates.

And the increase in risk adjustment allowed also takes MLR up.

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

This is Sam Becker on for Scott Fidel. Yes, I was just curious on what are your levers -- key levers to achieving EBITDA profitability without the extension of the enhanced subsidies? And what are those key headwinds or tailwinds when thinking about MLR and SG&A from 2025 to 2026.

Well, there are a number of them. First, it's growth. So it's growth drives a reduction in overall percentage of costs. AI, where we're able to create a better member experience and greater stickiness, and we're seeing that on a regular basis. We have a dozens of LLMs on the back end of the business. and now 2 agentic AIs are about to launch another here in the next few months. So we're now having a lot of impact where people can access us quicker with much more accuracy and without having to wait on phones, which would also again reduces our costs. And then on the MLR front, we are constantly working on our contracts and our utilization management, and we task the team to deliver so many hundred basis points every year and opportunities to keep our trend in line with where we think the market should be. And so all of those things together, and there are a lot of levers that we manage every day through the management process are the things that we track to make sure that we commit our targets.

And Sam, I just want to make 1 point really clear. Our guidance is on EBIT. So it's not on adjusted EBITDA. I did talk about it in the call that we would expect adjusted EBITDA to be $115 million above our earnings from operations guidance that we put out. So I just want to make sure that we're talking about the same things. Thank you. .

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

This is Olivia on for Michael. Because exchange marketplace risk adjustment is net neutral, creating a reliance on other plans in our markets the lack of visibility, any 1 plan has into the rest of the market makes risk adjustment mechanics difficult in our view. Looking to 2026 and beyond, you mentioned the potential Wakely industry report in 1Q, whether it's through this potential Wakely report or other efforts, can you share how you're getting more insight into the rest of the market as well as your thoughts on what can be done to make risk adjustment more transparent and less volatile in the future. Is there any potential reform you think could be done to improve risk adjustment? And I have a follow-up at this time.

Olivia, thanks for the question. Look, I think that estimating risk adjustment, as you say, is the most difficult thing that we have to do each quarter because you're both trying to project your own performance inside your own book and also the market. It's -- I think we're quite good at projecting our own market -- our own book and what the performance is where we do get surprised by how the market moves in ways that we can't see. I'm optimistic that working with Wakeley, and it sounds like most of us in the industry are working with them as an important service provider to all of us. to help get more timely information about what's going on with the market because that's the most challenging part of our ability to project that. So I think we're taking steps in that direction. I'm not sure that we'll get all the way there in this first report, but I do think that with the support of many of the industry players that we can increase visibility into this estimate over time. .

And if I can squeeze in 1 more, please. When I think about healthcare innovation, 2 specific areas I see offer leading the way and becoming an agent of change are in ICRA that could disrupt an employer group market that is ripe for change and leading the charge in crafting condition and disease-specific plans, which appear to be the future of health insurance. Both are exciting, but both are early on. So as you look ahead, what do you think needs to happen to catalyze the rate of adoption. And as a first mover, what type of competitive advantages do you believe this will present us for longer term?

So from a micro standpoint, Olivia, we are not only concentrating on products to capture membership in the insurance company, but we've also built out the front end of the business where we can now work with employers to convert them. There's a lot of opportunity in revenue and actually in a higher margin, unregulated and not requiring any risk capital to work with employers to move employees into defined contribution and once in defined contribution, work with brokers to get them into whatever plan works for them, whether that is an Oscar plan or not? So you're going to start seeing us over time report 2 different kinds of revenue in the model. where we're going to have revenue coming out of the conversion of employers that have defined contribution, the whole brokerage work that's done there, and then also membership that we capture inside our own health plan. So the acre opportunity is much larger than just the membership, although our membership did double this year. And given what happened in the individual market relative to rates, there was some reluctance on employers to jump in now. We need to show that we can stabilize that marketplace and get more people in. So that's sort of the lay of the land on ICRA. On the disease or the lifestyle products, we truly believe and this is the proposal that we put in front of the administration and 1 they've talked about is to separate the investment decision from the financing decision. The investment being what I buy versus how I pay for it. And the opportunity to create HSA Roth IRA like funds, where people can take whatever funding mechanism they have, whether that's their employer, their own money, Medicare, Medicaid or other subsidies like from the ACA and put them into a bucket -- and by buying a qualified health plan manage the rest of their costs by themselves, and this is where our new Agentic AI tool is headed than having a marketplace where people can use the money that they receive for healthcare to buy what they want in their local market, a narrow network with a plan design that changes with their life, starts to create the opportunity for lifetime value of membership and change the investment thesis that insurance companies would have in managing that membership and how we would approach it, which leads to the lifestyle products. if we can move with a family or an individual through their lifetime, offering them new designs that allow them to stay with their network, be effective in managing their current health status and live as fully as they can until the last day, I think that's the ultimate culmination of an individual market where all Americans can get healthcare that they want their choice -- and where we have a market so large, the morbidity changes really have no impact on the overall underwriting cycle of the business.

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

Maybe just following up on the kind of ICAcommentary. Just curious on the membership associated with the IV arrangement and kind of what's the initial uptake from that employee base -- and then historically, have you seen kind of the ICRA population exhibit a more kind of stickier membership base? Or should we expect a similar level of churn relative to the kind of broader individual plan?

I think -- first of all, we're not giving out actual ICRA numbers by segment yet. It's not meaningful enough to move the dial, although we see all of these efforts being successful so far. The more important part is, again, back to this thesis of I have my money, I buy it the way I want. We think ICRA's stickier because as long as I have the funds to pay for it, I can keep what I bought. I don't have to change it. If my financial -- if my funding circumstances change, I just use the different funding to keep the same thing I had. So we view ICRA as a development moving beyond the ACA model. which is helping people when they can't afford health insurance to a model where I now buy my own insurance, my own network, the product design that fits me at this time, it allows me to stay with my product and my network for as long as I want. That's where the member experience and all these tools we're building comes in where people can actually use it the way they need to and have the information they need to use it most effectively.

Got it. And then as a quick follow-up, just kind of curious on the new member engagement rates for 2026. And how is that comparing to what you're seeing or experiencing at this same point last year?

Yes, I don't think that It's too early to tell -- after the first quarter, we'll have a better idea. .

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

Right. I was wondering what you've assumed in your guidance, does the change in the percentage of 0 utilizers between 2025 and 2026. I think that will need to come down the exploration enhanced tax credits. I was just going to give us an exact percentage, maybe just how do you think it will compare to your 2019 percentage prior to when those were enacted?

Yes, correct. Thanks for the question. In general, we don't comment on the portion of our book that's nonutilizers. It's a normal part of given that we have a very healthy membership, we would anticipate that not all of those members need care in any given year. So we do have a portion of the book that doesn't utilize. When I look at the -- how our book has evolved, there our book is younger than it was a year ago. So it isn't necessarily the case that you should assume that we'll see lower levels of nonutilization. We take all of those factors into account when we set our guidance for MLR. And as I talked about earlier, we've done a terrific amount of work to build up our estimates around those projections and we feel like we've -- we're as comfortable as we can be with them at this point in the year? .

Okay. Got it. And then maybe for those 400,000 number that you expect to roll off by the end of the quarter, what do you think their 2025 MLR was? And how would that compare to, say, historically what your members that rolled off would be.

Yes. I'm not going to dimension the specifics of those members. When I look at the difference between 2025 MLR and 2026 MLR. It's really a story about the changes in market morbidity on a year-over-year basis. That's really the biggest driver. We've taken into our pricing for the upcoming year, all the changes that happened in market morbidity last year, our expected increases as people are leaving the ACA in '26. We've built all of those things in. We've included a trend that is higher than what we've seen in the historically but relatively consistent with last year. So we feel like we've taken all of those building blocks that's going to impact utilization next year into our pricing, which gives us confidence about our ability to return to profitability next year. .