Oscar Health, Inc. (OSCR) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary shows a mixed but overall positive sentiment. Strong financial metrics were presented, with a reaffirmed revenue guidance and improved SG&A ratio, alongside strategic partnerships. Despite concerns in the Q&A about morbidity and market shrinkage, management's confidence in pricing and profitability for 2026, along with a competitive pricing strategy, suggests a positive outlook. The market cap indicates a moderate reaction, likely resulting in a positive stock price movement within the 2% to 8% range over the next two weeks.

Key Financial Performance

Total Revenue Approximately $3 billion, a 23% increase year-over-year. The increase was driven by higher membership.

Medical Loss Ratio (MLR) 88.5%, an increase of approximately 380 basis points year-over-year. The increase was due to higher market morbidity, partially offset by favorable prior period development.

SG&A Expense Ratio 17.5%, improved by approximately 150 basis points year-over-year. The improvement was driven by fixed cost leverage, lower exchange fee rates, and disciplined cost management, partially offset by the impact of higher risk adjustment payable as a percentage of premium.

Loss from Operations $129 million, a change of $81 million year-over-year. The change was influenced by higher risk adjustment payable and other operational factors.

Net Loss $137 million, an $83 million change year-over-year. The change was influenced by higher risk adjustment payable and other operational factors.

Adjusted EBITDA Loss $101 million, a change of $90 million year-over-year. The change was influenced by higher risk adjustment payable and other operational factors.

Membership 2.1 million members, an increase of 28% year-over-year. Growth was driven by solid retention, above-market growth during open enrollment, and SEP member additions.

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Operating Highlights

HelloMeno: Oscar introduced a new product, HelloMeno, aimed at helping women manage menopause. This product is tailored for women over 45, a growing demographic in the ACA market. It offers $0 benefits, early intervention programs, and high-value treatments, potentially saving members up to $900 annually.

Hy-Vee Health with Oscar: Launched in Des Moines, Iowa, for 2026, this innovative plan offers $0 concierge care, affordable fixed pricing, and in-store rewards for healthy food purchases. Expansion to additional markets is planned.

Oswell AI Agent: Oscar introduced Oswell, a health AI agent powered by OpenAI, integrated into its product portfolio. It provides personalized health management, symptom understanding, and care guidance, leveraging Oscar's cloud-native tech platform.

Market Expansion: Oscar expanded into two new states, Alabama and Mississippi, for 2026, increasing its presence to 20 states. The total addressable market for 2026 is approximately $12 million, up 500,000 year-over-year.

ICRA Growth: Oscar is seeing increased adoption of its ICRA plans, driven by competitive pricing and demand from small and midsized employers. The Hy-Vee Health with Oscar product reflects this growth.

Revenue Growth: Total revenue for Q3 2025 was approximately $3 billion, a 23% year-over-year increase, driven by higher membership.

Membership Growth: Membership grew by 28% year-over-year, reaching over 2 million members by the end of Q3 2025.

SG&A Expense Ratio: The SG&A expense ratio improved by 150 basis points year-over-year to 17.5%, driven by cost management and fixed cost leverage.

Pricing Strategy for 2026: Oscar implemented a disciplined pricing strategy with a weighted average rate increase of approximately 28% for 2026, reflecting elevated trends and market conditions.

Profitability Goals: Oscar aims to return to profitability in 2026 by expanding margins through pricing adjustments and cost management.

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Risk or Challenges

Market Morbidity: Higher market morbidity due to Medicaid lives entering the market and program integrity efforts, leading to increased medical loss ratio (MLR) and impacting profitability.

Expiration of Enhanced Premium Tax Credits: The expiration of enhanced premium tax credits is expected to contract the market and create affordability issues for many Americans, potentially reducing membership and revenue.

Risk Adjustment Payable: A $130 million increase in risk adjustment payable for 2025, driven by higher market morbidity, negatively impacts financial performance.

Utilization Trends: Year-to-date utilization is modestly above expectations, with elevated inpatient utilization and slightly elevated outpatient and professional services, which could increase costs.

Membership Churn: A sequential decline in membership is expected in the fourth quarter due to historical churn patterns and the end of continuous monthly SEP for low-income members.

Regulatory and Policy Changes: Uncertainty around Congress reaching a compromise on tax credits and other policy changes could impact market dynamics and affordability.

Administrative Costs: While administrative costs have improved, further cost management is necessary to offset financial pressures from risk adjustment and market conditions.

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Guidance & Outlook

2026 Profitability: Oscar Health remains confident in its ability to expand margins and return to profitability in 2026.

2026 Pricing Strategy: The company has implemented a disciplined pricing strategy with a weighted average rate increase of approximately 28% for 2026. This reflects elevated trends, higher market morbidity in 2025, the expiration of enhanced premium tax credits, and ACA program integrity initiatives.

Market Contraction and Tax Credits: Oscar anticipates the overall market to contract in 2026 due to the expiration of enhanced premium tax credits and program integrity efforts. However, the company remains optimistic that Congress will reach a compromise on tax credits to address affordability issues.

Membership Growth and Market Expansion: Oscar expects to grow its market share in 2026, entering two new states (Alabama and Mississippi) and expanding in existing markets. The total addressable market for 2026 is projected to be approximately $12 million, up 500,000 year-over-year.

Product Diversification: Oscar continues to diversify its product mix, including the launch of HelloMeno, a product tailored for women experiencing menopause. The company also plans to expand its innovative ICRA offerings, such as the Hy-Vee Health with Oscar product.

AI Integration: Oscar is integrating an industry-first health AI agent, Oswell, into its product portfolio to enhance member experience and care management.

2025 Full-Year Guidance: Oscar reaffirmed its 2025 guidance, expecting total revenue towards the low end of $12 billion to $12.2 billion, a medical loss ratio (MLR) in the range of 86.0% to 87.0%, and an SG&A expense ratio between 17.1% and 17.6%. The company also anticipates a loss from operations between $200 million and $300 million, with an adjusted EBITDA loss approximately $120 million less than the loss from operations.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Regarding the September weekly report, is there any indication of how much market morbidity shifts might have been influenced by FTR rechecks and removal of duplicative members heading into the fourth quarter?

A:The Wakely report showed market morbidity increases of about 1.5 to 2 points across several markets. These increases were driven by similar factors as discussed last quarter but to a lesser extent. The report captures claims through July and does not include impacts of FTR or dual enrollment churn from Q3. About 45% of members on CMS' FTR or dual enrollment list churned, and these members had higher risk than the average book, which could be a tailwind to market morbidity. Expectations remain that market morbidity will stay consistent through the end of the year.

Q:Do you still feel confident about achieving the longer-term G&A target for 2027, even with expected member attrition over the next couple of years?

A:Yes, management believes there is more room for improvement in SG&A. They are leveraging AI models to streamline operating costs and ensure variable costs align with business size. They are confident in adapting their cost structure to market changes.

Q:Can you elaborate on the underlying cost trends in the quarter and any changes from the first half? What areas drove favorable development, and are there any early signs of expected utilization increases in Q4?

A:The PPD for the quarter was $84 million, with half related to favorable risk adjustment development and the other half from favorable claims development. Utilization continues to moderate year-over-year but remains slightly elevated versus pricing expectations. Inpatient utilization is elevated but moderating, while outpatient professional utilization is slightly elevated. Shifts between categories are attributed to total cost of care initiatives. Utilization softening throughout the year aligns with pricing expectations.

Q:If enhanced subsidies are extended, what mechanisms would help create a more stable reenrollment process for consumers in 2026?

A:Management has focused on creating $0 goal and bronze plans and educating brokers on these products. Enhanced tax credits would not significantly change prices at this stage. A minimum MLR in the ACA market could lead to rebates for members if plans make excess profits, which would benefit the community.

Q:Can you discuss enrollment in 2025 for diabetes, asthma, and COPD-specific plans, and their impact on risk adjustment visibility, MLR favorability, and retention?

A:These plans are designed to attract members interested in managing their conditions, leading to better engagement and cost management. They have high NPS scores and better retention rates. While not a large portion of membership, they are important for attracting and retaining members.

Q:What are your early thoughts on how Oscar's morbidity in 2026 might evolve relative to the market?

A:Oscar has priced as if premium tax credits are gone and accounted for potential market shrinkage of 20-30%. Pricing captures risks and program integrity efforts. Management is confident in their ability to navigate the market and maintain consistent MLR performance.

Q:What initial feedback are you receiving from open enrollment period (OEP) channels, and how does it align with expectations?

A:Early OEP activity has been higher than expected, but management is cautious about drawing conclusions. Significant preparation with brokers and mapping members has been successful. Auto-mapping on plans leaving the market met expectations.

Q:How has the latest Wakely data on morbidity and risk adjustment informed your pricing and positioning strategy for 2026?

A:Management expects a market contraction of 20-30% and has priced towards the high end of that range. Pricing is resilient against observed changes and positions the company for profitability and margin expansion in 2026.

Q:What is your analysis of competitive dynamics for 2026, and how does your pricing position compare to peers?

A:The company has improved its competitive position, moving from 15% to 30% of markets with the lowest or second-lowest silver price plans. The average national price increase is around 26%, and management believes their pricing is competitive and disciplined, allowing for margin growth and market share gains.

Q:What are your assumptions for risk adjustment as a percentage of direct premiums and cost trend for 2026?

A:Risk adjustment is estimated at 17% of direct premiums for the full year. Cost trend for 2026 is expected to be higher than historical levels, excluding market morbidity shifts.

Q:How are you operationalizing a potential extension of enhanced subsidies, and what impact would it have on G&A?

A:Enhanced subsidies are not expected to impact SG&A significantly. Management is focused on leveraging fixed and variable cost structures and AI capabilities to adapt to growth or contraction.

Q:What are you observing about members losing enhanced subsidies during the enrollment period?

A:It is too early to determine detailed trends about members losing enhanced subsidies, including whether they are downgrading or leaving the market.

Q:Why is taking market share the right strategy for 2026, and does it pose adverse selection risks?

A:Taking market share involves targeting competitors who have priced out of the market. The strategy focuses on leveraging narrow networks and risk adjustment mechanisms. Management views the marketplace as rational and does not see adverse selection as a significant concern.

Q:What drove the stronger-than-expected membership in Q3, and what are the implications for Q4 MLR?

A:Stronger Q3 membership was driven by lower churn and SEP member additions. MLR is expected to drift up in Q4, but management reaffirms full-year guidance, indicating no concerning trends.

Q:What tools or measures could Congress implement to address fraud alongside an enhanced subsidy extension?

A:Management supports program integrity efforts and prefers collaboration with CMS to align these measures with the pricing cycle. This approach would minimize market disruptions and ensure effective implementation.

Q:Can you quantify the cost advantage of your narrow network strategy compared to peers?

A:Management did not provide specific cost advantage figures but emphasized the importance of curating markets with the right providers and systems to achieve competitive costs and above-market growth.

Q:What are your assumptions for the impact of program integrity measures, and which measures are most impactful?

A:Management has priced for the adverse market impact of state program integrity provisions and is prepared for their potential implementation in 2026. Specific measures were not detailed.

Q:Review of Unclear Management Responses

A:Management avoided providing direct answers to questions about the detailed impact of members losing enhanced subsidies during the enrollment period and the specific cost advantage of their narrow network strategy compared to peers. Additionally, they did not detail the assumptions for the impact of program integrity measures or specify which measures would be most impactful.

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Earnings Word Cloud

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