Oscar Health (OSCR) Q2 2026 Earnings Call Transcript

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DATE

Thursday, Aug. 6, 2026 at 8:00 a.m. ET

CALL PARTICIPANTS

• Vice President of Treasury and Investor Relations - Chris Potochar
• Chief Executive Officer - Mark Bertolini
• Chief Financial Officer - Scott Blackley

TAKEAWAYS

• Total Revenue -- $4.9 billion, growing 70% year over year driven by higher membership and rate increases.
• Net Income -- $362 million, an increase of $590 million compared to the second quarter of 2025.
• Earnings from Operations -- $389 million, representing an 8% operating margin and a $619 million year-over-year improvement.
• Effectuated Membership -- 2.96 million members, an increase of 46% year over year reflecting above-market growth during open enrollment.
• Medical Loss Ratio -- 79.2%, an improvement of approximately 12 percentage points year over year driven by disciplined pricing and favorable prior period reserve development.
• SG&A Expense Ratio -- 14.2%, a record low for the company reflecting a 450 basis point year-over-year improvement due to technology efficiencies and fixed cost leverage.
• Full Year Earnings from Operations Guidance -- $500 million to $700 million, representing a $250 million increase from the prior outlook at the midpoint.
• Full Year Revenue Guidance -- $18.7 billion to $19 billion, as management reiterated existing targets for the current fiscal year.
• Full Year MLR Guidance -- 81.5% to 82.5%, an improvement of 90 basis points at the midpoint from previous expectations.
• Full Year SG&A Ratio Guidance -- 15.6% to 16.1%, an improvement of 20 basis points at the midpoint from the prior range.
• Adjusted EBITDA -- $415 million, an increase of $615 million year over year.
• Risk Adjustment True-up -- $160 million, representing a favorable impact from the final 2025 CMS risk adjustment report recognized in the quarter.
• Prior Period Development -- $164 million total favorable reserve development in the second quarter, bringing the year-to-date total to $232 million.
• Cash and Investments -- $10.2 billion total, including $462 million held at the parent company.
• Subsidiary Capital -- $1.9 billion in capital and surplus at insurance subsidiaries, including $994 million of excess capital.
• Diluted EPS -- $3.16 for the first half of 2026, based on $1 billion in net income attributable to the company.
• Claims Processing -- 98.7% first-pass accuracy, with most claims processed in under 48 hours via the company's proprietary platform.
• Total ACA Market -- 19.2 million members, a 12% year-over-year decline that management reported as favorable to their pricing assumptions.
• Pharmacy Initiatives -- Tens of millions of dollars in expected annual savings through AI-driven medical economics models that flag utilization outliers.
• Oswell Agent Engagement -- 25% of members choose the agent's recommended site of care, saving an average of $75 per appointment.
• Medical Expense Trend -- 17% increase compared to the first quarter of 2026, which management attributed to the seasonal pattern of higher deductible plans.
• ICHRA Potential -- 115 million lives in the small group and middle-market segments that management views as the total addressable market for portable coverage solutions.
• ICHRA Cost Savings -- 26% potential savings for employers when converting from defined benefit plans to defined contribution models using the company's platform.

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RISKS

• Blackley stated, "I would expect that churn, we previously thought it was 1% to 2%. It's probably going to be closer to twice that amount," indicating that CMS program integrity processes and eligibility verification efforts will accelerate membership losses in the second half of the year.
• Bertolini noted that while inpatient, professional, and pharmacy utilization were favorable, "outpatient was elevated through the first six months of the year," though he indicated the trend remains stable.

SUMMARY

Management reported record first-half profitability for **Oscar Health, Inc.** (NYSE:OSCR), citing a strategic shift in the labor market toward portable healthcare coverage and technology-driven operating leverage. The company stated that the expansion of the gig economy and part-time work is making traditional employer-sponsored insurance less effective, creating a tailwind for Individual Coverage Health Reimbursement Arrangement solutions. Management indicated that its single, unified technology platform allows for the rapid deployment of artificial intelligence at scale without the integration costs faced by legacy competitors. The company raised its full year profitability outlook based on favorable morbidity trends and disciplined pricing execution while preparing for potential membership churn related to federal eligibility verification efforts.

• CEO Bertolini attributed internal efficiency to a single data set, stating, "We start with a huge advantage in being able to use AI at scale without having to make the investments in platform integration and data rationalization that a lot of our competitors do."
• The company is expanding its ICHRA strategy through the ICHRAx platform, which Bertolini stated allows the company to offer "the largest PPO network in the nation at narrow network rates" by including competitor plans on the exchange.
• Management expects the fourth quarter to have the highest SG&A ratio of the year due to investments in future growth and 2027 enrollment preparation.
• The company reported that its radiology pilot confirms coverage and guides members to high-quality providers, with expansion plans for additional procedures using care standards from centers of excellence.
• CEO Bertolini identified a shift in the labor economy where workers move between jobs and retirement at twice the rate of prior generations, a trend he expects artificial intelligence to accelerate.
• The company has integrated retail partners such as Allstate Health and Aflac into its Lucie marketplace to provide members with out-of-pocket cost management tools.
• Blackley indicated that the company recognized only a small portion of favorable 2026 morbidity data in its updated outlook, suggesting further potential tailwinds if current claims trends hold through the second half of the year.

INDUSTRY GLOSSARY

• ACA: The Patient Protection and Affordable Care Act, which established health insurance marketplaces.
• CMS: Centers for Medicare & Medicaid Services, the federal agency that administers risk adjustment and eligibility verification.
• EDE: Electronic Data Exchange, a technology platform that facilitates data sharing between insurers and federal exchanges.
• ICHRA: Individual Coverage Health Reimbursement Arrangement, a model allowing employers to provide tax-free funds for employees to buy their own insurance.
• MLR: Medical Loss Ratio, the percentage of premium revenue spent on medical claims and quality improvement.
• NBPP: Notice of Benefit and Payment Parameters, federal regulations that define annual standards for insurance markets.
• PMPM: Per-member per-month, a common metric used to normalize costs and revenues by membership volume.
• PPD: Prior period development, the change in medical claim reserves originally set in a previous fiscal period.
• SG&A: Selling, general, and administrative expenses, which include commissions, marketing, and corporate overhead.

Full Conference Call Transcript

Operator: Good morning. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Chris Potochar, Vice President of Treasury and Investor Relations.

Chris Potochar: Good morning, everyone. Thank you for joining us for our second quarter 2026 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar Health's Chief Financial Officer, will host this morning's call. This call can also be accessed through our Investor Relations website at ir.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 Annual Report on Form 10-K for the period ended December 31, 2025, and the quarterly report on Form 10-Q for the period ended March 31, 2026, each as filed with the Securities and Exchange Commission and other filings with the SEC, including our quarterly report on Form 10-Q for the period ended June 30, 2026, to be filed with the SEC. Such forward-looking statements are based on our current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change.

While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the second quarter 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.

Mark Bertolini: Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar Health announced strong second quarter 2026 results with significant year-over-year improvement across all core metrics. Oscar delivered record profitability for the first half of 2026, generating $1.1 billion in earnings from operations -- and $1 billion in net income. In the second quarter, revenue grew 70% year-over-year to $4.9 billion. MLR improved 12 points to 79.2% year-over-year with utilization moderately favorable to our expectations. Our SG&A expense ratio improved 450 basis points to a record low of 14.2%, reflecting disciplined expense management, technology-driven efficiencies and continuing operating leverage. Earnings from operations increased by $619 million year-over-year to $389 million.

Our performance demonstrates superior execution against the fundamentals of our strategy. Disciplined pricing, differentiated consumer products and a scalable technology platform work together to fuel individual market growth. We are raising our full year 2026 outlook based on the strength of our operating performance and our model built for long-term profitable growth. Now I will share our view on trends in the individual market, then I'll dive into our business highlights. The individual market is vital to our nation's economy and was built for the labor market now taking shape. The market is expanding coverage for people outside of traditional employer plans, including a growing number of entrepreneurs, gig workers, part-time employees and early retirees.

Over the past decade, the market drove down the uninsured rate and prevented billions in uncompensated care. Over the next decade, its role will only grow as people move between full-time jobs, contract work and retirement at twice the rate of prior generations. AI will accelerate that shift. Our nation's leaders should promote policies that put the next generation of American workers in charge of choosing their health care. Oscar is leading the charge with portable coverage and experiences that meet the expectations of the people powering our economy. The future of American Healthcare depends on a durable individual market, and 2026 trends reinforce our conviction in its long-term strength.

Total ACA membership stands at 19.2 million, down 12% year-over-year, tracking favorable to our pricing assumptions and reflecting continued consumer demand. Wakely's first claim-based report of 2026 market morbidity is also favorable to our expectations, suggesting potential upside to our outlook. We expect further market contraction and remain cautious with only 4 months of morbidity data, but we expect both trends to remain favorable to our pricing assumptions. Looking ahead to 2027, we anticipate a rational pricing environment with rates that reflect the effects of CMS' program integrity efforts. Now I will review our business highlights. Oscar ended the second quarter with 2.96 million members, up 46% year-over-year. Membership reflects above-market open enrollment growth and solid retention.

Our consumer products designed around clinical, lifestyle and cultural needs are driving higher member satisfaction, and we continue to launch features that help members find high-value care and manage costs. We are also building momentum in ICHRA with steady growth in demand from small businesses in the health care and professional services industries. Our technology continues to differentiate the member experience. This quarter, we piloted a radiology program with our Oswell Agent. Oswell uses our members' claims history and clinical interactions to initiate their next step for care. It confirms coverage, guides members to high-quality providers based on cost, location and availability and shows estimated savings from switching facilities.

1 in 4 members choose Oswell's recommended site of care and save $75 on average per appointment. We will expand this capability to additional procedures using care standards from leading centers of excellence. AI is powering operations across benefits, billing, claims, clinical care and member support. Our claims platform delivers 98.7% first pass accuracy and processes most claims in under 48 hours. We are also deploying AI in medical economics programs to identify cost signals early and act before they become trends. Pharmacy is a clear example. Our models analyze pharmacy activity alongside utilization, provider, broker and member data to flag outliers. Root cause analysis identifies the drivers so our teams respond with precision.

We expect these capabilities to generate tens of millions of dollars in annual savings. Oscar's technology is transforming the economics of the business. The team is embedding intelligence into all core workflows across our platform, making it smarter and more efficient with every deployment. As membership grows, we can serve more members without adding headcount at the same rate. That scale fuels operating leverage, expands margins and bends the medical cost trend for us and for our members. In summary, Oscar delivered a strong second quarter and record profitability in the first half of 2026. The fundamentals of the business are strong. Our performance is favorable to plan, and our improved 2026 outlook reflects that momentum.

We are entering the second half of the year from a position of strength with the technology, scale and operating discipline to deliver profitable growth. The ACA is the only health care market where private insurers compete directly for the consumer. Our job is to give consumers real choices, real price transparency and reward what they value. When that happens, the competitive market does what it does best. It drives out inefficiency, accelerates innovation and lowers costs. Oscar is defining that future. We are replacing one-size-fits-all coverage with solutions that make health care as easy to use as any other consumer product. Our results reflect the team's focused execution across our products, platform and strategy.

We will outline how we translate that performance into durable growth and long-term value at our Investor Day on September 16. I will now turn the call over to Scott. Scott?

Richard Blackley: Thank you, Mark, and good morning, everyone. This morning, we reported strong second quarter results, and we are raising our full year 2026 outlook to reflect our operating performance. Through the first half of the year, we delivered record profitability of approximately $1 billion of net income or $3.16 per diluted share. The fundamentals of the business are strong, and our results are favorable to our plan. Let me now turn to details on second quarter performance. We ended the second quarter with 2.96 million effectuated members, an increase of 46% year-over-year, driven by above-market growth during open enrollment and solid retention.

Total revenue was $4.9 billion, an increase of 70% year-over-year, driven by higher membership and rate increases, partially offset by higher risk adjustment payable accrual. The second quarter medical loss ratio was 79.2%, an improvement of nearly 12 points year-over-year. Recall that in the prior year period, we recorded the entire first half impact of the 2025 risk adjustment true-up in the second quarter. The year-over-year MLR improvement was driven by our disciplined pricing strategy and a strong current year performance compared to the market reset experienced a year ago. We also benefited from favorable prior period reserve development in the quarter. Now I'll spend a moment on risk adjustment.

In the second quarter, we received the final 2025 CMS risk adjustment report, which was approximately $160 million favorable to our first quarter accruals and fully recognized in the quarter. We also received the first risk adjustment report for 2026, covering claims through April, which showed market morbidity tracking quite favorable to both our pricing and first quarter accruals. With only 4 months of claims in the data, we recognized only a small portion of that favorability, which we believe is appropriate at this stage in the year. Through the first 6 months of the year, risk adjustment as a percentage of direct premiums was approximately 20%, consistent with our expectations for the full year.

Overall year-to-date utilization was moderately favorable to our expectations. By category, inpatient, professional and pharmacy utilization were favorable, while outpatient was elevated through the first 6 months of the year. On administrative expenses, we delivered another record low SG&A expense ratio. The second quarter SG&A expense ratio was 14.2%, a 450 basis point year-over-year improvement and the lowest in the company's history. The improvement was primarily driven by disciplined expense management, including an increasing impact from technology and AI initiatives, fixed cost leverage and lower risk adjustment as a percentage of premium. We reported earnings from operations of $389 million in the second quarter, a $619 million year-over-year improvement. Operating margin was 8%, a 16-point improvement year-over-year.

Net income was $362 million, a $590 million increase year-over-year. Adjusted EBITDA was $415 million in the quarter, an increase of $615 million year-over-year. Through the first 6 months of 2026, our results reflect disciplined execution and strong year-over-year improvement across all key metrics. Shifting to the balance sheet. Our capital position remains very strong. We ended the second quarter with approximately $10.2 billion of cash and investments, including $462 million of cash and investments at the parent. As of June 30, 2026, our insurance subsidiaries had approximately $1.9 billion of capital and surplus, including $994 million of excess capital, which was driven by our strong operating performance. Let me now turn to updates on our 2026 full year guidance.

Based on our first half performance, we are raising our full year earnings from operations guidance to a range of $500 million to $700 million, an increase of $250 million from our prior outlook. We continue to expect total revenues of $18.7 billion to $19 billion. We now expect full year MLR in the range of 81.5% to 82.5%, an improvement of 90 basis points at the midpoint from our prior outlook. On administrative expenses, we now expect our SG&A expense ratio to be in the range of 15.6% to 16.1%, an improvement of 20 basis points at the midpoint. We continue to expect adjusted EBITDA to run roughly $115 million above earnings from operations.

Our improved outlook reflects our strong first half performance, including favorable prior period development and market morbidity trends and an expectation of increasing membership churn in the back half of the year as CMS program integrity processes continue. As I mentioned, the market morbidity data that we received for claims through April was quite favorable to our expectations. Given this early stage in the year, we have not taken full credit for that favorability in our outlook. If the favorability holds as claims develop, that could present a tailwind to our full year outlook. In closing, our disciplined execution drove strong operating results and record profitability through the first half of the year.

We are confident in our improved 2026 outlook and are on track to deliver our strongest performance to-date. With that, let's turn the call over to the operator for the Q&A portion of our call.

Operator: [Operator Instructions] And your first question comes from Andrew Mok with Barclays.

Andrew Mok: On utilization trends, you noted inpatient and professional and pharmacy was favorable, but outpatient was elevated. Can you elaborate a bit on what you saw there, particularly on the outpatient side and how you're thinking about the pace of utilization for the balance of the year?

Mark Bertolini: Yes. Andrew, in outpatient, I would say that there are a handful of areas that we're paying attention to. Honestly, none of them is particularly outsized. And what I think is most important there is that we're seeing stability in these trends. And so while outpatient is a bit elevated, as you mentioned, we're seeing the other categories running favorable. And at this point, the trends are stable. And so the utilization looks very reasonable and is favorable to our -- to what we would expect it at this point in the year.

Andrew Mok: Great. And I appreciate all the comments that AI is accelerating the shift to untraditional employment. I would love to hear what you're observing in the market driving that commentary and how that impacts your view of intermediate-term growth.

Mark Bertolini: A couple of things on AI. First, we don't see the massive unemployment that a lot of other CEOs have painted a very dark picture of. We see a transition to different kind of job groups. And those are in the gig economy that's in part-time work, that's in multiple part-time jobs, that's in early retirees. And in that economy, employer-based insurance doesn't necessarily work well. There are a lot of people who don't have coverage as a result. And we are now working with some very large groups around that on part-time employees, people who work in multiple places with multiple part-time jobs.

So as that market evolves, we see it as a huge opportunity for ICHRA in expanding the total TAM of the marketplace. In small group and middle-market, there's 115 million lives alone that we think have some -- will have some impact on [ employment ] in growing these other jobs in our economy. As far as AI goes, internally, our investment is not something that we do separately. Every business owner has a platform. That platform has engineers, product management, AI and business people evaluating how we can advance every one of our platforms every day to reduce friction for our members and for the providers we work with.

And it's through those -- that analysis that we fund those projects with expected returns and expected investments. I note that in the press you hear of billions of dollars being spent by our competitors. And I would just make the point that we have one platform, we have one data set. As a result, we start with a huge advantage in being able to use AI at scale without having to make the investments in platform integration and data rationalization that a lot of our competitors do. And that has been -- that is why we are so far ahead in deploying AI at scale in the organization.

Operator: Your next question comes from the line of Jessica Tassan with Piper Sandler.

Jessica Tassan: So first question is just can you clarify that the 2025 reconciliation accounts for about 80 basis points of the 90 basis point MLR revision at the midpoint? And then just do you mind helping us kind of understand what you're seeing? I mean, you helped a little bit on utilization or a lot on utilization for this year, but just how do we get comfortable that you all have visibility into utilization just despite kind of the potentially the current effect of higher deductibles? How do we get comfortable essentially with the reiterated or the slightly raised core MDR guide?

Mark Bertolini: Yes, Jess, starting off with MLR and the impacts from PPD. I would say that MLR, excluding PPD in the first quarter was a little bit over 82% -- and MLR comes is impacted by 2 components of prior year development. There's the piece that impacts risk adjustment, which we talked about getting the final CMS report, and that was roughly $160 million. There's also favorable development around claims. And so when you look at all those things, I consider those core parts of the business, and they give us confidence that the reserves that we're booking our pricing are headed in the right direction. So everything there looks appropriate and stable.

Turning to your question on utilization and our confidence in the back half. I would just make a couple of observations. One, at this point in the year, we've had enough time to have a pretty good sense of the risk of the membership that we've got. I would say that it is consistent with our expectations. As I talked about with utilization, we're seeing trends that are stable. We're not seeing anything that looks to be kind of pushing and running from us.

So when I step back and look at all of the components of our operations and our business, I am pleased with the stability and with the clarity and visibility that we have into our current book. And with the weekly report that we got in the first quarter, it confirms a lot of what we thought was going to be shaping up for this year in terms of -- I would characterize as the reduction in membership that we had all planned for, looks like that's coming in a bit lighter. That results in morbidity in the marketplace that's likely going to be less than what we priced for and could present a tailwind to our full year outlook.

Richard Blackley: And I would add one more thing, Jess. In our management process and the way we operate the business and our operating plans, we actually create targets for affordability and reducing the actual trend we put into pricing. And we measure the results of our programs that we're developing, including some of the things we talked about with AI today that go against those targets. And so we're constantly measuring the opportunity and what we call flares where we see hotspots in the utilization, making sure we go after those immediately that we're acting quickly with precision and moving that utilization back to where we expect it to be.

Operator: Your next question comes from the line of Parker Snure with Raymond James.

Parker Snure: Just curious on how you guys are thinking about the 2027 rate cycle. We're seeing some of the preliminary rate filings beginning to roll through. But just generally, how are you thinking about positioning of your rates within the market and baking in conservatism for all things that could happen?

Mark Bertolini: Parker, thanks for the question. We believe the market so far has been rational. And again, we price by market. So we look at opportunities by market. And so comparing the overall rate filings is probably not a good way of measuring it. Just take a look at what happened in '26 based on our overall rate filings versus our competitors. We've done quite well in spite of what people thought was underpricing. And so I would suggest so far rational. We still have another bite at the apple as we go forward. And as we look at what could happen with the NBPP or the stay, which we probably don't think will be released at all this year.

But in event it does, we have an opportunity to change product and pricing should we need to do that. So we have more time. We're on it every day. We already have plans in place on how to do changes if we need to make them. So we're pretty confident that we're in a good place.

Parker Snure: And if I can just get a follow-up. I know it's early, but how are you thinking about the overall ACA market enrollment in 2027 at this point in time? Do you think -- I know there's still some unknowns, but do you think it's relatively flat or you see some more declines or just some general thoughts there?

Mark Bertolini: We think that based on what's already in place through regulation because we are reacting to a few program integrity efforts through CMS that are coming through in regulation and review that absent any dramatic changes to the NBPP, which again, we don't think will happen, that the market -- that a lot of the program integrity efforts have been built into the marketplace. We think we're through all the enhanced premium tax credits impact from 2026. So we think that the market has opportunity in it.

Obviously, we're not resting on our laurels and we're looking at things like ICHRA and other markets to grow our total available market, but we believe there's still opportunity for the market to remain stable or grow and for us to take share.

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

Stephen Baxter: I wanted to follow up on utilization. It looks like medical expense was up 17% quarter-over-quarter, and I think probably 20% on a PMPM basis. Could you give us some color on what's driving that? It seems like a much sharper increase than what you might normally expect. Obviously, there's a lot of unusual dynamics this year. And then how should we think about kind of either the upward sloping of MLR or maybe medical cost expense PMPM as we move through the balance of the year? And then I have a follow-up.

Mark Bertolini: Yes. Thanks, Steve. I think that in utilization, we're really seeing and translating that into MLR and PMPMs. We're really just seeing the seasonal pattern of the membership that we have this year. And so as we've talked about, we saw some transition in our book from silver into higher deductible Bronze plans. We also have more gold membership. So I do think that the seasonality that we're expecting is emerging. I would expect that's going to continue to pick up into the second half as members burn through their deductibles.

So MLR from the first 6 months, I would expect it to continue to trend higher quarterly and the seasonal patterns will look, I think, pretty similar to what we've seen historically.

Stephen Baxter: Got it. Okay. And then just to follow up on that. You have obviously a lot of new members this year. You also have like a lot of new members in new products. Can you speak at all to the performance of new members and some of the new products that you rolled out this year, like the new Bronze and the new Gold that you're speaking to?

Mark Bertolini: Yes. I would say that when I look across the book, we're really pretty pleased with the performance overall of the new products, membership behaving, as I talked about, pretty consistently with our expectations. The risk in the book looks very much with what we would have expected. So we're not really seeing any deviations in any particular metal. It is an interesting situation where Bronze now has a lot of members that moved out of Silver and moved into Bronze. Gold has members that moved out of Silver and now in Gold. So you can't really look at these metals in the same way historically.

So we do a lot of -- trying to refactor how these metals are going to perform. And against those adjusted expectations, I would say things are performing consistent or favorable to our plan.

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

Scott Fidel: First question, just hoping you could maybe just decompress the SG&A performance was quite strong in the quarter. Maybe walk us through that. And then were there any timing dynamics that in terms of expenses that may be sort of played out in other quarters? And then also maybe just talk about as you look towards the rest of this year, how you're thinking about investment spending that may be in SG&A as well?

Richard Blackley: Yes, sure. So SG&A, I would just say that, as Mark talked about, we've really made tremendous progress in SG&A. And in the -- both in the quarter and in the 6 months, I don't think I would call out anything that is driving the trend. What I observed there is that there are higher taxes this year, exchange fees that we're experiencing. We're basically offsetting that by efficiencies in our variable costs that are really being driven by a lot of the AI and other technology innovations that we've been putting into place.

So I would characterize our SG&A as being -- what you've seen in the first 6 months is a good indication of the rest of the year. I do think that we'll see the fourth quarter will be the highest SG&A ratio on a percentage basis. That is typically the pattern for us, and that really reflects our investments in future growth and getting ready for '27 enrollment. So from here, pretty stable third quarter and then an increase in the fourth quarter.

Scott Fidel: Okay. And then I just wanted to ask about just with some of the shifts that you have in the metal mix and with the shift to more Bronze, how that affects the risk adjustment accruals that you're making? Clearly, it seems like utilization is coming in favorable, but at the same time, you also have this -- the metal mix shift, I guess, and now that you've had the Wakely report.

And if I could just layer into that -- into the metal mix question because it's interesting you guys have that perspective, I guess, because obviously, there's a big focus on seasonality in the exchanges with the market mix shift to Bronze from Silver, but you have the perspective of having both the Bronze and the Gold. How was that seasonality playing out so far this year in terms of -- did you see what would be expected in terms of different type of seasonality around the higher cost sharing Bronze and sort of lower utilization as a result of that in the first half compared to Gold or was there any other observations that you found interesting there?

Richard Blackley: Yes. I would say that on the metals, against our refactored expectations, again, recognizing that a lot of our members that were historically Silver are now in different metals. The performance there is coming in, in line to favorable with our expectation and the risk is as we would have expected to slightly favorable. Just a comment about risk adjustment. So in general, we're a risk adjustment payer because our members skew younger. They're healthier. We tend to be more urban than the overall market, and that is particularly the case as we grow. Risk adjustment really is driven by morbidity, not necessarily plan design.

I talked about this in the past, but the risk adjustment formula is intended to neutralize the impacts of the different benefit designs by different metals. That's always not a perfect exact science in terms of how that -- those algorithms work there. But what we are seeing is we're getting what we would expect in terms of claims activity and the risk adjustment benefits from that. So at this point in the year, which we do have now, we're 6 months into the year. So we've got some visibility into this and all things are looking like they're running as we would have expected.

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

Raj Kumar: Maybe kind of focusing on ICHRA and I guess, yesterday's announcement with a partnership that you are undergoing with ICHRAx. So curious on what type of capabilities that offers to your current platform? And kind of how should we be thinking about kind of the kind of pace going into 2027 for that offering?

Mark Bertolini: So ICHRAx is an EDE that we built off of an ACA approved, CMS-approved Electronic Data Exchange that we purchased last year. We mentioned it in, I think, the third or fourth quarter call last year. And that EDE has a lower cost structure than current ACA alternatives as well as agreements to have all of our competitors as part of that platform. So we now have the rails upon which to run ICHRA, which has not been the case in the past. How do we convert members from a defined benefit to a defined contribution, how does the employer step aside and allow these people to sign up.

And what happens is because network is always an issue for employers because they have to have wide area networks at higher cost, by the way, than we do in the ACA with narrow networks, those employers want to know how we can get member coverage. And what we tell them is that we have all of our competitors on the platform and the members can select whatever competitor they want that has the network they need. So all of a sudden, we have the largest PPO network in the nation at narrow network rates. And what that allows those employers to do is to stand down on the issue of is there enough network coverage.

Couple that with benefit selection tools that we're using with brokers to get people into the right plan design allows savings as high as 26% of the employers' cost versus what the employee would need to pay by following this option. So that EDE, that ICHRAx invites all of our competitors to the table. They've all joined. We all get access to all those members as they convert. And then the real opportunity is on the front end of the conversion with the employer where they spend sizable sums to convert from defined benefit to defined contribution where the revenue is not regulated like insurance revenue doesn't require reserves and has higher margins.

And so that will allow for competition in that market. ICHRAx is then connected to Lucie where we are now starting to have -- we have Allstate Health. We have Aflac. We have a lot of retailers that want to get access to our members. Mark Cuban is talking to us about coming on board. Other organizations that want to join us to be able to offer retail opportunities to our members once they have to shop for their out-of-pocket costs as members in the program.

Raj Kumar: Got it. And then maybe as a follow-up, just kind of more on the technical side. I guess, kind of looking at your short-term investments that kind of increased quite a bit quarter-over-quarter. So curious on kind of that underlying dynamic given just the cash kind of being pretty steady quarter-over-quarter. So any color on that would be helpful.

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

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

Jonathan Yong: I guess when you guys think about the pricing that's being put into next year from yourself in the market, do you guys kind of see yourselves getting incrementally better G&A leverage just given kind of your productivity efforts and the pricing that's going to go into the market or should it be a little bit more muted relative to the improvement that you're seeing this year?

Mark Bertolini: I appreciate the question. Look, I think that -- we set out some long-term targets, and one of those was around SG&A ratio, and we're basically getting there a year ahead of plan. I still think there's opportunity for more leverage if we grow the top line faster than our cost structure, that's going to be a positive in terms of that ratio. So given everything we're doing with AI and focusing on running the most effective and efficient operation we can, I think there's more opportunity for improvement going forward.

Jonathan Yong: Okay. And then I think in your prepared remarks, you said there was an expectation of increasing membership churn in the back half of the year. I just wanted to be sure, is that in line with the previous expectation of that 1% to 2% per month or is it going to be a little bit more elevated than is typical?

Mark Bertolini: Yes. So we ended the second quarter, as we talked about, with 2.96 million effectuated members, which is basically flat in the second quarter. And so the -- what we saw in that quarter basically was significantly better than our expectations. So lapse was quite favorable. Some of the lapse that we expected in the quarter, we -- is related to CMS eligibility and data issues that we now expect to happen in the second half of the year. So I would expect that churn, we previously thought it was 1% to 2%. It's probably going to be closer to twice that amount. That's really a timing move and doesn't impact revenue.

You can see that we reaffirmed our full year guidance on revenue. So I would characterize that again more as just a delay in those members being unenrolled versus anything more fundamental in terms of the ongoing churn that we would expect in the business.

Operator: Your next question comes from the line of Michael Ha with Baird.

Hua Ha: Another firstly, a clarification to MLR. Scott, you mentioned first quarter MLR ex PPD was, I think, a little over 82%. For this quarter, if I exclude the favorable PPD and prior year risk adjustment true-up, I'm getting something around like 85.2%. Is that roughly correct? I know you mentioned utilization was moderately favorable. I just wanted to confirm the 85.2% is what you're thinking about as underlying MLR. And if there's anything to note even on like monthly cadence, was the favorability pretty consistent throughout the quarter, any moderation of trend?

Richard Blackley: Yes. As I mentioned, my math says that if you exclude the favorable PPD in the quarter, you do get an MLR that's approximately 82%. So we'll have to do some reconciliation with your numbers after the call. But I would say that we have seen, again -- total favorable prior period development of $164 million in the second quarter. Year-to-date, that's $232 million. So those are the numbers that you should be excluding if you're looking to try to adjust our second quarter or 6-month MLRs.

Hua Ha: Okay. And multiparter on risk adjustment. So if I exclude the prior year true-up, I'm getting current year risk adjustment transfer is about, I think, 17.9% of premiums, a lot better than the 20% expectation. So first question, is the implied transfer payable percentage in your updated guide for back half still 20%? I mean, I guess, for full year? And what does it imply for back half? And Mark, you mentioned the June Wakely could actually suggest upside to your updated guide. Curious if you could elaborate more on that. What does that layer of possible conservatism look like within the guide? How much confidence do you have in the durability of it through year-end?

And also, like what types of, I guess, scenarios in the back half of the year do you think could even pose a threat to full year expectations when it comes to risk adjustment? Is it membership attrition running hotter or something else?

Mark Bertolini: Yes. So on risk adjustment, I would recommend that you look at the first half as the best lens in terms of what's going on with risk adjustment. And in the first half, risk adjustment was 20%, which is -- continues to be our expectation for the full year. So there was modest favorability, as you talked about in Q2 related to the final CMS report that's embedded in the quarter. But overall, again, every quarter, we're doing a kind of a year-to-date true-up and what our expectation is around risk adjustment.

And so the fact that we were at 20% for the 6 months, and we continue to expect 20% for the full year, I think, shows that things are progressing as we expected.

Operator: Your next question comes from the line of Dave Windley with Jefferies.

David Windley: Mark, you -- the company invested a lot in working with your sales channel to navigate members between products for 2026. In your earlier answer, you talked about '27 being relatively stable. I'm wondering if you also think your tier mix will be relatively stable or do you see more of that navigation? And then I think a product like HelloMeno is new to '26. Do you have any plans of similar sort for '27?

Mark Bertolini: Yes, we do have new products rolling out. We continue to innovate and by market. So we expect that there will be more opportunity to move people into better plan designs that work for them and to demonstrate more of our capability of developing these kinds of products, along with the tools like the radiology tool I talked about in our talking points, which goes alongside the pharmacy tool. We talked about in the last quarter, we have more of those coming along so that it assist people.

And our whole idea is can we reduce friction at every opportunity when we invest in the platform, thereby reducing barriers for people to get the care they need when they need it. So yes, we have more navigation to do. It's not as significant as the level we did last year with the enhanced premium tax credits. It's more about delivering on new products in certain markets.

Operator: Your next question comes from the line of Kevin Fischbeck with Bank of America.

Kevin Fischbeck: Just want to try to help bridge the increase in guidance. Obviously, with Q1, you didn't change guidance, but you had $164 million of PPD this quarter, $68 million of PPD in Q1 and then $160 million of '25 risk adjustment this year. So those things all seem incremental to your original guidance, so like $392 million, but you raised the income guidance by $250 million. So can you help kind of bridge the delta between those numbers?

Richard Blackley: Yes. So first of all, the 2025 risk adjustment of $160 million is the largest part of the total Q2 favorable prior period development of $164 million. So the RA is a subset of the $164 million. As I talked about, there's $232 million of total favorable prior period development through the 6 months. And we raised guidance by $250 million. We think that the core business is running really well. When we got the first '26 Wakely report, I would say that, that was -- again, it's quite favorable to our expectations. We know that report is based on early-stage claims, and there will be some evolution there in terms of how that evolves.

And so we're not banking on all that favorability coming through. That's not part of our guide. But I would just say like we feel like there's more tailwinds than headwinds in our outlook, and we're well-positioned to have a strong rest of the year.

Kevin Fischbeck: Okay. Great. And then I guess one of your competitors talked about the IDR process being a headwind to them. And obviously, that can be a bigger issue that the more narrow the networks are. So just love to hear kind of your thoughts about how the IDR process is working relative to your expectations.

Mark Bertolini: Yes. I mean I think IDR is part of the business. I think we support the ultimate goal, which is to protect members from cost surprises. Those are all good things. But for us, I would say that IDR is not a trend driver.

Operator: Your next question comes from the line of Justin Lake with Wolfe Research.

Justin Lake: Mark, Scott, you guys have both mentioned CMS program integrity efforts and the impact on second half enrollment a few times during the call, and I want to follow up here. I talked to one of your peers who indicated that in June, CMS sent out a list of 1 million members that they believe might be unauthorized due to a lack of social security numbers and 0 claims. I'd also heard that about 80% of these members are in Florida and Texas, which I know are 2 big states for the company. So the -- I know you expect some impact here in the second half.

So curious if you could share with us how many of these million members were Oscar members? What percentage do you think you can hold on to or save? And what financial impact do you expect the potential loss of the rest of these members might have on your results given lower utilization of these folks?

Mark Bertolini: Yes. I appreciate the question. I would just say we continue to see CMS focusing on eligibility verification. And that is a topic that they have been really focused on throughout the year. In my comments, I talked about the fact that we expected to see some disenrollments in the second half that we had thought would start happening in really Q2. So that is something that we continue to anticipate. With respect to the financial implications, we don't recognize revenue for members that we anticipate are going to be disenrolled. We set up those -- the payments that we received from CMS as a liability on the balance sheet.

And all of the impacts of what's going on across the industry with payment integrity is baked into our full year guidance.

Justin Lake: Got it. Is there any way you could share how big that assumption is relative to what CMS sent you here in terms of the enrollment that they expect might not be correct?

Mark Bertolini: Well, I would put it this way. We're reviewing the file that we received. And there are a number of cases where we know that people were authorized appropriately. There are a number of cases where we've actually had contact with people. So their list was based on a set of assumptions that they went through on the file. The actual result will depend on our ability to go through those files, and we are going through them actively. And the appropriate accommodations for what we might think being lapsed members are in our guidance that we shared with you.

Richard Blackley: Yes. And I think we've got good visibility into that. So I don't think this is an area that we see as a risk to our -- to the rest of the year.

Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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