Alignment Healthcare’s 2026 Rate Disappointment, Cautious Membership Outlook Clash With Prior Optimism

Date of Call: Feb 26, 2026

Financials Results

• Revenue: Full year 2025 total revenue of $3.9B, grew 46% YOY; Q4 2025 revenue $1B, grew 44% YOY.
• Gross Margin: Full year 2025 adjusted MBR of 87.5%, an improvement of 130 basis points YOY; Q4 2025 adjusted MBR of 87.7%.
• Operating Margin: Full year 2025 adjusted EBITDA margin of 2.8%, representing 270 basis points of margin expansion YOY.

Guidance:

• Full year 2026 membership expected between 292,000 and 298,000.
• Full year 2026 revenue expected between $5.14B and $5.19B.
• Full year 2026 adjusted gross profit expected between $615M and $650M.
• Full year 2026 adjusted EBITDA expected between $133M and $163M.
• Q1 2026 membership expected between 281,000 and 285,000.
• Q1 2026 revenue expected between $1.21B and $1.23B.
• Q1 2026 adjusted gross profit expected between $138M and $148M.
• Q1 2026 adjusted EBITDA expected between $26M and $36M.
• Full year 2026 MBR expected to be 87.7% at the midpoint.
• Expect modestly lower MBR in first half of 2026 vs. full year average; second half slightly higher.

Business Commentary:

Revenue and Membership Growth:

• Alignment Healthcare reported total revenue of $1 billion for Q4 2025, growing 44% year-over-year, and full-year revenue of $3.9 billion, a 46% increase.
• The company's health plan membership reached 236,300, representing 25% year-over-year growth.
• The growth was driven by strategic expansion and the clinically centric model that delivered high-quality care at lower costs, along with the scalability of their operations.

Profitability Improvement:

• Alignment Healthcare achieved an adjusted gross profit of $125 million in Q4, resulting in an adjusted MBR of 87.7%, and full-year adjusted gross profit of $495 million, with an MBR of 87.5%, improving 130 basis points year-over-year.
• The company transformed from breakeven to an adjusted EBITDA of $110 million in 2025, reflecting a margin expansion of 270 basis points.
• This improvement was attributed to their clinically centric model, operational advantages, and effective cost management, allowing them to navigate industry disruptions.

Expansion Beyond California:

• Alignment Healthcare more than doubled its ex-California membership and achieved significant market penetration with a 16% share of total membership as of December 2025.
• The company maintained high quality standards, evidenced by multiple 5-star plan ratings in states like North Carolina and Nevada.
• This expansion was facilitated by the portability of their care model and a focus on durable provider relationships and quality outcomes.

2026 Financial Outlook:

• Alignment Healthcare provided guidance for 2026, expecting health plan membership between 292,000 and 298,000, and revenue between $5.14 billion and $5.19 billion.
• The adjusted EBITDA guidance range for 2026 is $133 million to $163 million.
• The outlook reflects confidence in their model's ability to balance growth and profitability, supported by improved operating efficiency and strategic reinvestment.

Rate Environment and Regulatory Developments:

• The 2027 advance rate notice indicated a relatively flat rate environment, reflecting CMS's focus on program integrity and aligning payments with costs.
• Alignment Healthcare's exposure to unlinked chart reviews is limited, with less than 1% of total HCC value derived from such reviews.
• The company believes the current environment favors their clinically-led model and cost management capabilities, positioning them to compete effectively regardless of rate changes.

Sentiment Analysis:

Overall Tone: Positive

• "We transformed from roughly breakeven just $1 million in adjusted EBITDA in 2024 to delivering adjusted EBITDA of $110 million in 2025. This reflects an adjusted EBITDA margin of 2.8% and represents 270 basis points of margin expansion year-over-year." "The data insights provided by our AIVA technology platform, combined with our Care anywhere clinical model provided us with the visibility and control necessary to navigate a year of significant disruption." "We are entering a reimbursement environment that creates a more level playing field with our competitors, which allows our distinct care management model to shine."

Q&A:

• Question from Michael Ha (Baird): What would prevent Alignment from having a rerun of 2024/2025's performance in 2027 given the similar setup?
  Response: Management feels the model is working and will work irrespective of rate changes, expects to maintain discipline on growth and margin, and is strengthening operations to achieve meaningful growth over the next 3-4 years.

• Question from Michael Ha (Baird): Why is the implied 2026 MBR guide of 87.7% conservative given past MLR improvements?
  Response: The guide reflects three key factors: ongoing third phase-in of V28 (a headwind), a new member mix disproportionately weighted toward complex dual-eligible and LIS members (which carries higher initial MBR), and no assumption for sweep pickup from new members.

• Question from John Stansel (JPMorgan): How are you thinking about changing your distribution/network strategy, and is new state expansion in 2027 dependent on rate environment?
  Response: Investing in deeper broker and provider relationships, especially in ex-California and new markets, creates an opportunity as incumbents step back. New state expansion is being seriously considered and is not dependent on rates; the company believes it can do well in any environment.

• Question from John Stansel (JPMorgan): How are you thinking about potential incremental changes from the CMS RFI?
  Response: Submitted comments; expects policy to focus on program integrity and risk adjustment, supports documentation of HRAs, and believes the administration will do the right thing on rates.

• Question from Matthew Gillmor (KeyBank): Can you unpack the favorability in the Q4 ADK metric and the outlook for ADK in 2026?
  Response: ADK finished the year in the low 140s; the 2026 outlook expects ADK to tick up slightly due to member mix (more dual-eligible), but apples-to-apples trend remains under control.

• Question from Matthew Gillmor (KeyBank): Where are AI investments directed, and how will they benefit the business?
  Response: Focusing on foundational actions: validating data architecture and workflows to ensure efficient scaling and faster cash flow breakeven. Will then deploy agentic AI in areas like member services, financial reporting, and care stratification for administrative improvements and clinical insights.

• Question from Scott Fidel (Goldman Sachs): Are you concerned about the MA industry's position, and what can it do to improve?
  Response: Believes the industry should return to CMS's original intent for MA: high quality and low cost. Expects MA to continue growing as the benefit differential vs. traditional Medicare remains, and M&A will continue.

• Question from Craig Jones (Bank of America): What do you think the right growth rate for 2027 should be, and what will CMS do?
  Response: Thinks the 0.9% advance rate notice is disappointing; believes CMS will address the skin substitutes offset and potentially adjust rates upward with more data, but is unsure if it will fully meet underlying trend.

• Question from Ryan Langston (TD Cowen): Did you say exposure to chart reviews is 1% total, with an even smaller subset from unlinked reviews?
  Response: Confirmed exposure is limited (1% of total HCC value), with an even smaller subset from unlinked chart reviews, and feels no significant exposure from the change.

• Question from Benjamin Mayo (Leerink Partners): Can you provide numbers on D-SNP growth in non-California markets and comment on potential opportunity in Nevada's coordination-only duals contract?
  Response: About 50% of AEP growth was in LIS, duals, and C-SNP members both in and outside California. Could not elaborate on specific opportunity in Nevada's coordination-only duals contract.

• Question from Benjamin Mayo (Leerink Partners): How do you view the potential CMS change to Stars (removing 12 measures)?
  Response: Views it as net neutral in the near term, believes it will lead to Stars program simplification, and sees it as a positive development.

• Question from Jessica Tassan (Piper Sandler): What is the expected slope of MBR over the year for 2026?
  Response: Expects similar seasonal cadence to 2025, with Q1 and Q4 typically higher, Q2 seasonal low, and Q3 picking up, but overall a flatter slope compared to 2025 due to Part D accruals.

• Question from Jessica Tassan (Piper Sandler): Can you discuss retention during AEP and the lower projected intra-year growth in 2026?
  Response: Retention was strong, contributing to sales growth and helping mature cohorts. Intra-year growth is not being fully banked on due to market disruption; OEP is feeling fine.

• Question from Tiffany Yuan (Barclays): What is your exposure to the risk model rebasing component relative to the industry?
  Response: Believes exposure is lower than others due to blended RAP scores being below 1.1, and will be advantaged if there are further tweaks to the model.

• Question from Tiffany Yuan (Barclays): How did Part D MLR progress through quarters in 2025, and will 2026 be similar?
  Response: 2026 Part D MLR seasonality will be similar to 2025 but slightly more weighted to the first half due to risk quarter accruals and contra-revenue.

• Question from Jonathan Yong (UBS): What is the status of provider engagement in a potential new state, and where are you typically in the process?
  Response: Looking for full provider durability and engagement; focusing on aligning with physicians and MSOs. Lessons learned from past expansions mean being extra vigilant, but progress is being made.

• Question from Jonathan Yong (UBS): Can you clarify your view on the 2027 rate update? Is it below trend?
  Response: The 0.9% advance rate notice is disappointing and below underlying trend, but CMS attributes it to different data. Hopes for a higher adjustment but believes Alignment can win either way due to high quality and low cost.

• Question from John Ransom (Raymond James): What is 'bending the trend 2.0' in terms of deploying assets?
  Response: Focuses on operational improvements: more precise stratification models, efficient clinician workforce management, better clinical outcomes, tighter integration with providers, and potentially buying captive specialty companies to improve overall MLR.

• Question from John Ransom (Raymond James): Do you think MA is a good deal for taxpayers apples-to-apples?
  Response: Thinks it is a very good deal for seniors; post-V28 studies suggest it is apples-to-apples, and expects continued MA growth as rebates remain attractive vs. fee-for-service.

• Question from Raj Kumar (Stephens): How is new member engagement with the Care Anywhere platform trending vs. last year?
  Response: Engagement is about the same year-to-year (~65%); internal target is 75%, and new member service hires are expected to improve it through continuous focus.

• Question from Raj Kumar (Stephens): Have you seen divergence in trend or consumer behavior in ex-California markets, leading to operational tweaks for AVA?
  Response: Focus is on operational scaling to ensure ex-California providers and members receive same service as in California; working on provider satisfaction metrics and clinical replicability.

Contradiction Point 1

Growth Outlook and Market Positioning

Contradiction on confidence in growth trajectory and market disruption impact.

Michael Ha (Baird) - Michael Ha (Baird)

20260227-2025 Q4: The company is not yet providing specific 2026 bid commentary but expects continued strong performance. - John Kao(CEO)

What factors could prevent Alignment from replicating its 2024/2025 performance? - Scott Fidel (Goldman Sachs)

20251031-2025 Q3: Early AEP results are strong, with growth occurring in high-performing product mixes and provider networks. Confident in the model's ability to scale... - John Kao(CEO)

Contradiction Point 2

Membership Growth Strategy and Outlook

Guidance on 2026 membership growth becomes more cautious.

Jessica Tassan (Piper Sandler) - Jessica Tassan (Piper Sandler)

20260227-2025 Q4: There was significant market movement/ 'disruption' in 2025, and Alignment is not ready to assume all AEP gains will sustain through the year. - James Head(CFO)

What factors are contributing to lower projected year-end membership growth during AEP 2026, specifically lower gross adds or increased intra-year churn, and what is the mix of new versus tenured membership? - Ryan M. Langston (TD Cowen)

2025Q2: Alignment is well-positioned for at least 20% growth in 2026, with opportunities in both California and existing ex-California markets. - John Kao(CEO)

Contradiction Point 3

Provider Relationship and Engagement Strategy

Rationale for building deeper provider relationships shifts.

John Stansel (JPMorgan) - John Stansel (JPMorgan)

20260227-2025 Q4: Distribution investments are focused on ex-California markets and new market entries. Alignment is at a scale where deeper provider and broker relationships can be built, and incumbent competitors are stepping back, creating opportunities. - John Kao(CEO)

Can you discuss changes to the distribution/network strategy, particularly with brokers, and whether the potential 2027 expansion into new states is dependent on a more favorable rate environment? - Matthew Dale Gillmor (KeyBanc Capital Markets Inc.)

2025Q2: Initiatives to create operational and financial alignment with Independent Practice Associations (IPAs) and medical groups are yielding results, as evidenced by inpatient admissions per 1,000 dropping to the low-140s. This collaboration improves quality, access, and profitability for both Alignment and providers. - John Kao(CEO)

Contradiction Point 4

Rate Environment as a Factor for New State Expansion

Stance on rate environment's role in expansion strategy changes.

John Stansel (JPMorgan) - John Stansel (JPMorgan)

20260227-2025 Q4: New state entry is being seriously considered with provider engagement underway. Rate environment is not a determining factor; Alignment believes it can succeed in any environment due to its clinically-led model and choice of partner providers. - John Kao(CEO)

Can you discuss changes to the distribution/network strategy, particularly with brokers, and whether the potential 2027 expansion into new states is dependent on a more favorable rate environment? - Jonathan Yong (UBS)

2025Q2: Thematically, margin pressure on global capitation providers is likely due to premium compression and V28-related costs, creating tension between plans and providers. Alignment's model of integrated care management and risk handling is a strategic advantage, with ongoing collaboration with medical groups. - John Kao(CEO)

Contradiction Point 5

Characterization of the 2026 Rate Environment

Contradiction on whether the 2026 rate environment is favorable or disappointing.

Craig Jones (Bank of America) - Craig Jones (Bank of America)

20260227-2025 Q4: The 0.9% advance notice is disappointing to the industry... Alignment believes they can win regardless of the final rate due to their high-quality, low-cost model. - John Kao(CEO)

What guidance do you have for the 2027 growth rate and CMS's final notice actions? - Michael Ha (Baird)

2025Q1: Given favorable 2026 rates and star rating tailwinds, how will you approach the margin vs. growth dynamic? - Michael Ha(Baird)