Oscar Health's Q3 2025 Earnings Call: Unveiling Contradictions on Market Morbidity, Pricing, Membership Projections, and MLR Seasonality

Date of Call: November 6, 2025

Financials Results

• Revenue: $3.0B, up 23% YOY
• Operating Margin: Loss from operations $129M, worsened $81M YOY

Guidance:

• Reaffirmed full-year 2025 guidance; revenue expected toward the low end of $12.0B–$12.2B.
• Full-year MLR guidance 86.0%–87.0%; risk adjustment assumed in the high mid-teens of premiums.
• SG&A ratio expected 17.1%–17.6%; loss from operations expected $200M–$300M.
• Adjusted EBITDA expected ~ $120M less than loss from operations.
• Q4 membership expected to decline sequentially due to SEP changes.
• 2026 pricing: weighted average rate increase ~28%; ~$60M of admin cost cuts targeted for 2026.

Business Commentary:

• Revenue and Membership Growth:
• Oscar Health reported total revenue of approximately $3 billion for Q3, marking a 23% year-over-year increase.

• The growth was driven by higher membership, with a 28% increase in members compared to the previous year, boosted by solid retention and strong enrollment.

  

• Morbidity and Medical Loss Ratio (MLR) Impact:

• The MLR increased by 380 basis points to 88.5% due to higher market morbidity, partly offset by favorable prior period development.

• This increase was attributed to Medicaid lives entering the market and initial impacts of program integrity efforts.

• Operational Efficiency and SG&A Expense Ratio:

• Oscar's SG&A expense ratio improved by 150 basis points year-over-year to 17.5%.

• This improvement was driven by fixed cost leverage, lower exchange fee rates, and disciplined cost management.

• 2026 Pricing Strategy and Market Dynamics:

• Oscar's 2026 pricing strategy resulted in a weighted average rate increase of approximately 28%.
• This pricing adjustment reflects elevated trend, higher market morbidity in 2025, and the expiration of enhanced premium tax credits and program integrity initiatives.

Sentiment Analysis:

Overall Tone: Positive

• Management reiterated confidence in expanding margins and returning to profitability in 2026, highlighted revenue growth of ~23% YOY, reaffirmed guidance, described disciplined 2026 pricing (~28% avg rate increase) and $60M of admin savings as drivers of improvement.

Q&A:

• Question from Hua Ha (Robert W. Baird & Co. Incorporated): Is the September Wakely weekly report showing morbidity driven by FTR rechecks/duplicate members, and could morbidity shift further in December?
  Response: Wakely shows ~1.5–2pt market morbidity increase through July; ~45% of CMS-flagged FTR/dual members have churned and were higher-risk, so we expect morbidity to remain elevated/consistent to year-end.

• Question from Hua Ha (Robert W. Baird & Co. Incorporated): Are you confident in a 16% SG&A target for 2027 despite expected member attrition and what about decremental margins?
  Response: Yes — AI initiatives and tight variable-cost management provide flexibility to adapt SG&A to membership changes and pursue the target.

• Question from Joshua Raskin (Nephron Research LLC): Can you elaborate on cost trends this quarter, drivers of the $84M favorable prior-period development and any expected utilization increase entering Q4?
  Response: PPD of $84M split roughly half from risk-adjustment/rebate clarifications and half from favorable claim development; utilization is modestly elevated but moderating, with inpatient improving.

• Question from Joshua Raskin (Nephron Research LLC): If enhanced subsidies are extended, what would stabilize reenrollment and help consumers for 2026?
  Response: We prepared $0/bronze plan designs and broker outreach; extension could trigger rebates under MLR rules—price effects depend on policy specifics.

• Question from Jessica Tassan (Piper Sandler & Co.): How did enrollment fare in diabetes/asthma/COPD plans, any RA/MLR benefits, expansion for 2026 and retention/metal-mix differences?
  Response: Condition-specific plans drive higher engagement, retention and NPS; they remain a small but strategic and effective part of membership and are being expanded selectively.

• Question from Jessica Tassan (Piper Sandler & Co.): Any early view on Oscar's 2026 morbidity vs. the market and product/pricing levers to control morbidity?
  Response: We priced conservatively assuming enhanced credits absent and a 20%–30% market contraction, building cushion so our pricing and actions should yield resilient morbidity vs. market.

• Question from Scott Fidel (Goldman Sachs Group, Inc.): What initial intelligence are you seeing in the opening days of OEP and how might that inform enrollment tracking vs. your 20%–30% market contraction expectation?
  Response: OEP activity is stronger than expected in early days, but it's too early to rely on initial signals—no enrollment guidance revisions based on five days of data.

• Question from Scott Fidel (Goldman Sachs Group, Inc.): How did the latest Wakely morbidity data feed into 2026 pricing and go-to-market positioning?
  Response: Wakely reinforced our conservative approach; we priced toward the high end of the 20%–30% contraction range and believe that provides a buffer to return to profitability.

• Question from Stephen Baxter (Wells Fargo Securities, LLC): How does your competitive position change in 2026 (percent of markets where you're low-cost) compared to 2025?
  Response: Lowest/second-lowest silver position rose from ~15% to ~30% of markets; our pricing is competitive (national avg increase ~26%) though not the absolute lowest versus the largest peers.

• Question from Stephen Baxter (Wells Fargo Securities, LLC): Is ~17% risk adjustment YTD a reasonable full-year estimate and what is cost trend this year vs. your assumption for next year?
  Response: Yes — ~17% RA YTD is a reasonable full-year proxy; core cost trend is modestly above this year's pricing expectations and we assumed higher trend for 2026.

• Question from Jonathan Yong (UBS): If enhanced subsidies are extended, how would you operationalize it and what SG&A step-up would be needed?
  Response: Operationalization is manageable — variable costs track membership and we have BPOs and AI tools to scale up/down; SG&A changes would follow growth rather than being directly driven by credits.

• Question from Jonathan Yong (UBS): Early OEP members — are they zero-premium types or are subsidy-losers downgrading or exiting the market?
  Response: Too early to determine — we don't yet have sufficient enrollment detail to characterize behaviors.

• Question from Andrew Mok (Barclays Bank PLC): Why is taking market share the right strategy in 2026 and does it increase adverse-selection risk?
  Response: Strategy is to capture members priced out by competitors via narrow/local networks and disciplined pricing; risk-adjustment mechanics and a rational marketplace reduce adverse-selection concerns.

• Question from Andrew Mok (Barclays Bank PLC): Q3 membership was up ~90k sequentially — what's driving the beat and implications for Q4 MLR?
  Response: Stronger Q3 membership came from lower churn and SEP additions; continuous SEP ended and we still expect Q4 MLR to drift up modestly but reaffirmed full-year guidance.

• Question from Craig Jones (BofA Securities): What program-integrity tools would you recommend Congress include with any enhanced-subsidy extension to root out fraud?
  Response: We support program-integrity measures and prefer they be implemented pre-pricing with CMS collaboration to avoid mid-cycle morbidity shocks and protect members.

• Question from Steven Couche (Jefferies): Can you quantify your cost advantage from a narrow-network strategy versus peers?
  Response: We declined to quantify publicly; emphasized that curated, market-specific networks and provider selection drive cost and growth advantages.

• Question from Steven Couche (Jefferies): What assumptions did you make about the impact of program-integrity measures and which measures matter most?
  Response: We didn't quantify specifics publicly; we built state program-integrity impacts into 2026 pricing assuming they could materially reduce market size at times.

Contradiction Point 1

Market Morbidity and Risk Adjustment

It involves differing explanations of the impact of market morbidity on the risk adjustment payable, which affects financial forecasts and risk management strategies.

Did the September weekly report indicate the impact of FTR rechecks and duplicate member removals ahead of Q4? Could the December weekly report show more market morbidity shifts? - Hua Ha (Robert W. Baird & Co. Incorporated)

2025Q3: Market morbidity increases by about 1.5 to 2 points across several of our markets. The drivers are similar to those discussed last quarter. The report captures claims through July and wouldn't include impacts of FTR or dual enrollment churn, which happened in the third quarter. About 45% of the CMS list has churned, and members have higher risk than our average book. This should be a tailwind to market morbidity. - Richard Blackley(CFO)

What is the 2025 free cash flow guidance? Why is the 2025 risk adjustment payable lower than 2024? - Joshua Richard Raskin (Nephron Research)

2025Q2: Risk adjustment payable changes are due to the market morbidity shift; the current year's market morbidity impact was reflected. - Richard Scott Blackley(CFO)

Contradiction Point 2

Pricing Strategy and Market Position

It highlights differing perspectives on the company's pricing strategy and market competitiveness, which are crucial for growth and market positioning.

How do you view next year's competitive dynamics? Are you positioned as a low-cost leader in key markets? - Stephen Baxter (Wells Fargo Securities)

2025Q3: We are competitive in 30% of our markets this year, up from 15% last year, though not as competitive as some others. Nationally, the average price increase is around 26%, and we believe our pricing strategy is disciplined and positions us well for growth. - Richard Blackley(CFO)

How do your rate increase requests compare to peers? Are you targeting higher or mid-to-low range increases? - Craig Jones (BofA Securities)

2025Q2: Our pricing reflects market morbidity and subsidy changes. We are competitive in some markets but less so in others. Overall, our rates are expected to be comparable to larger peers and cover market risks. - Richard Scott Blackley(CFO)

Contradiction Point 3

Membership Trajectory and Projections

It involves differing expectations for membership trends and growth projections, which are crucial for understanding the company's future financial performance and market position.

What is the expected membership trajectory for Q2 and the remainder of the year? - John Ransom (Raymond James)

2025Q3: We expect membership to trend up in the first half of the year due to strong payment rates and SEP. However, we anticipate a decrease in the second half of the year with the proposed end of the continuous SEP for individuals at or below 150% of the federal poverty level. Overall, we expect to finish the year with approximately 1.8 million members. - Mark Bertolini(CEO)

What is the expected membership growth for Q2 and the remainder of the year? - John Ransom (Raymond James)

2025Q1: For the full year, we expect membership to be approximately 1.5 million to 1.6 million. - Mark Bertolini(CEO)

Contradiction Point 4

Impact of Grace Period Membership on MLR Seasonality

It relates to the impact of grace period membership on medical loss ratio (MLR) seasonality, which is a crucial metric for understanding the company's financial health and operational efficiency.

Can you explain the grace period membership's impact on MLR seasonality? - Stephen Baxter (Wells Fargo)

2025Q3: We expect normalized patterns in grace period membership moving forward. - Mark Bertolini(CEO)

Can you explain the grace period membership's impact on MLR seasonality? - Stephen Baxter (Wells Fargo)

2025Q1: We expect a normalized pattern in grace period membership moving forward. - Scott Blackley(CFO)