Oscar Health, Inc. (OSCR) Earnings

Management highlights

### Market Context & Long-Term Strategy - The individual ACA health insurance market is positioned for long-term growth, driven by a structural shift to gig work, part-time employment, early retirement, and accelerated labor market churn from AI adoption. This shifts demand away from traditional employer-sponsored coverage, expanding the total addressable market for Oscar. - Total current ACA market membership stands at 19.2 million, down 12% year-over-year, which tracks favorably to Oscar's pricing assumptions. Early 2026 morbidity data from Wakely is also better than expected, supporting potential upside to full-year results. - Management expects further mild market contraction, and anticipates a rational 2027 pricing environment that reflects the impact of CMS program integrity efforts. ### Operational & Product Highlights - Membership growth outpaced the overall market, with strong retention driving the 46% year-over-year total membership increase. Small group business through the Individual Coverage Health Reimbursement Arrangement (ICRA) is seeing steady growth, particularly among small businesses in healthcare and professional services. - AI is integrated across all core platform workflows to improve efficiency, cut costs, and enhance the member experience. The company piloted an AI-powered radiology care guidance program through its Oswell agent, which uses member claims and clinical data to recommend high-value, lower-cost care sites. 25% of members follow the recommendation, saving an average of $75 per appointment, and the capability will be expanded to additional procedures. - AI and analytics are also used to identify cost trends early: for example, pharmacy cost models integrate multiple data sources to flag cost outliers, enabling targeted intervention that management expects to generate tens of millions of dollars in annual savings. - Technology-driven efficiencies and operating leverage from growing membership have driven consistent improvement in SG&A ratios, allowing the company to scale membership without proportional increases in headcount, expanding margins and reducing cost trends for both the company and members. - The company maintains a very strong capital position: $10.2 billion in total cash investments at quarter-end, with $1.9 billion in capital and surplus at insurance subsidiaries, including $994 million in excess capital.

Guidance

Management raised full-year 2026 guidance based on strong first-half operating performance: - Operating earnings guidance is raised to a range of $500 million to $700 million, an increase of $250 million from the prior outlook. - Full-year total revenue guidance is maintained at $18.7 billion to $19 billion. - Full-year MLR guidance is updated to 81.5% to 82.5%, an improvement of 90 basis points at the midpoint compared to the prior outlook. - SG&A expense ratio guidance is improved to 15.6% to 16.1%, a 20 basis point reduction at the midpoint from prior guidance. - Adjusted EBITDA is expected to remain roughly $115 million above full-year operating earnings, consistent with prior expectations. - The updated guidance incorporates an expectation of higher membership churn in the second half of 2026 due to CMS program integrity eligibility verifications, which is a timing shift of expected disenrollments from the second quarter rather than a fundamental change in business trends. Management only recognized a small portion of the early morbidity data favorability in the updated guidance, so if favorable trends hold through full claims development, there is additional upside potential to the full-year outlook.

Segment performance

Oscar Health reports consolidated performance for the full business, with no breakdown of separate product segment financials provided in the transcript. Overall consolidated Q2 2026 results: total revenue of $4.9 billion, growing 70% year-over-year. Medical Loss Ratio (MLR) was 79.2%, an improvement of 12 percentage points year-over-year. SG&A expense ratio hit a record low 14.2%, a 450 basis point year-over-year improvement. Operating earnings were $389 million, a $619 million year-over-year increase, with an 8% operating margin (16 percentage point YoY improvement). Net income was $362 million, up $590 million year-over-year. Adjusted EBITDA was $415 million, up $615 million year-over-year. For the first half of 2026, the company generated $1.1 billion in operating earnings and $1 billion in net income, a record for profitability. Total effectuated membership at quarter-end was 2.96 million, up 46% year-over-year.

Risks & headwinds

- Early morbidity data for 2026 is only based on four months of claims, so favorable trends may not hold through the full year, creating uncertainty around full-year performance. - CMS program integrity eligibility checks are expected to lead to higher disenrollment (churn) in the second half of 2026, with a concentration of potentially ineligible members in Oscar's large markets of Florida and Texas. - Risk adjustment transfer calculations, particularly with the recent shift in membership mix across plan metals, are not an exact science, creating uncertainty around accruals and final full-year results. - Uncertainty remains around potential regulatory changes, including the potential release of new rulemaking (MBPP) that could require changes to product design and pricing for 2027. - Elevated outpatient utilization in the first half of 2026 could trend higher than expected through the balance of the year, creating potential headwinds to MLR.

Analyst Q&A

• Q: What is driving elevated outpatient utilization in the first half of 2026, and what is the outlook for utilization for the rest of the year? /

  A: Management noted that no single factor is driving the modest outpatient elevation, and overall utilization trends are stable across all categories. While outpatient is slightly higher than planned, other categories (inpatient, professional, pharmacy) are running better than expected, leading to total utilization that is still favorable to full-year expectations. There are no outsized risks emerging from the current trend.

• Q: How does AI-driven labor market shift impact Oscar's intermediate-term growth opportunity, and what advantage does Oscar have in AI deployment relative to competitors? /

  A: Management expects AI to accelerate the shift to non-traditional work, increasing demand for individual market coverage rather than employer-sponsored plans. This expands the total addressable market for Oscar's ICRA and individual business, with 115 million lives in the small and middle market that could be impacted. Oscar has a single integrated platform and unified dataset, giving it a major advantage over competitors with fragmented legacy systems, allowing it to deploy AI at scale without costly integration work.

• Q: How is Oscar positioned for the 2027 rate cycle and ACA market enrollment? /

  A: Management says the 2027 pricing environment is shaping up to be rational so far, with pricing set at the individual market level rather than based on broad industry trends. The majority of CMS program integrity changes have already been priced into the market, and the impact of expired enhanced premium tax credits has been fully absorbed. Management expects the ACA market to be stable or grow slightly in 2027, and Oscar is positioned to gain share, with additional growth opportunity from the ICRA market.

• Q: What capabilities does the new ICRA-X platform provide, and what is the growth opportunity for ICRA in 2027? /

  A: ICRA-X is a CMS-approved electronic data exchange that includes all competing insurers on its platform, enabling employers to move from defined benefit to defined contribution coverage. This solves the key network issue for employers, by giving employees access to any competing plan that meets their network needs at ACA narrow network rates, delivering up to 26% in employer cost savings. The platform also opens up new high-margin revenue from conversion services, and creates opportunities for supplemental product partnerships with third parties like Allstate Health, Aflac, and others.

• Q: How does the increased membership churn expected in the second half of 2026 compare to prior expectations, and what is the impact on full-year results? /

  A: Management previously expected 1% to 2% monthly churn, but now expects churn to be roughly twice that level in the second half. This is purely a timing shift: disenrollments that were originally expected in Q2 are being pushed to the second half due to delays in CMS eligibility verification. This does not impact full-year revenue guidance, as the change is already fully incorporated into the updated 2026 outlook.