Oscar Health, Inc. Q2 FY2025 earnings call

Market Dynamics

• Latest risk adjustment data indicates a meaningful market-wide increase in morbidity in 2025, impacting all carriers with mid- to high single-digit increases across Oscar's markets. Attributed to consumers entering for Medicaid redeterminations and healthier, low-utilizing consumers leaving due to program integrity efforts.

Actions Taken

• Resubmitted 2026 rate filings in states covering nearly all current membership to reflect morbidity increases. Engaging productively with state regulators. Initial rate filings already reflected program integrity changes and expiration of enhanced premium tax credits.
• Disciplined in expense management, rightsizing the cost of the business in the back half of the year, harvesting technology and AI-driven efficiencies, reducing fixed cost headcount to eliminate approximately $60 million in administrative costs for 2026, and improving 2025 SG&A guidance by 50 basis points at the midpoint.

Strategic Steps

• Acquired assets including an individual market brokerage, a direct enrollment technology platform, and a consumer education website, healthinsurance.org. Launched a new ICHRA product with Hy-Vee, Inc. in Des Moines, Iowa for plan year 2026, offering superior benefits including concierge medicine at an affordable fixed price through Hy-Vee Health Exemplar Care clinics.

In the second quarter of 2025, Oscar Health reported total revenue of $2.9 billion, a 29% year-over-year increase. The medical loss ratio (MLR) increased 12 points year-over-year to 91.1%, primarily driven by an overall increase in average market morbidity. The SG&A ratio was 18.7%, improving 90 basis points year-over-year. The loss from operations was $230 million, and the adjusted EBITDA loss was $199 million. In the first half of the year, earnings from operations were $66 million and adjusted EBITDA was $129 million.

2025 Guidance

• Reaffirmed revenue of $12 billion to $12.2 billion and a loss from operations of $200 million to $300 million.

2026 Outlook

• Believe the market will stabilize in 2026 and expect to return to profitability. 2026 rate filings reflect higher market morbidity, contemplated trend, impacts from program integrity efforts, and expiration of enhanced premium tax credits.

• Market-wide increase in morbidity in 2025 impacting all carriers. - Uncertainty around risk adjustment payable. - Potential impact of dual eligible enrollees moving between Medicaid and ACA. - Fourth quarter potential increase in utilization.

Q: Good morning. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oscar Health Second Quarter 2025 Earnings Conference Call.

A: Good morning, everyone. Thank you for joining us for our second quarter 2025 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar's Chief Financial Officer, will host this morning's call.

Q: Appreciate the comments, Scott, on the uses of cash. But can you provide some guidance on 2025 free cash flow, understanding the strength in the first half and then the outflows, I assume, in the second half? And then on the risk adjustment payable, I know there's a lot of moving parts there, but I think the total on the balance sheet is about $2.65 billion. I think 2024 balance was $1.65 billion. It sounds like there was a small change there. So maybe there's something around $1 billion for 2025. And then I guess my question would be, why would the payable as a percentage of revenues be lower in '25 relative to '24?

A: Yes. Well, Josh, let me start with your question about cash. So as we talked about in the prepared remarks, we feel like we've got a very strong capital position at this point, $5.4 billion of total cash and investments, $579 million in excess capital and $205 million of cash at the parent. The vast majority of the cash and investments are in our insurance subsidiaries, which more than covers the risk adjustment payable as well as our required capital, and that's where you end up with the excess capital. We think that the bulk of the remaining losses that we're forecasting for this year are going to be absorbed by that excess capital position. And so you saw that our excess capital decreased by about $300 million from last quarter, and that was the subsidiaries absorbing the losses in the second quarter. And with respect to parent cash then, I do think that parent cash will decline in the back half of the year, largely due to us making some additional capital contribution to the insurance subsidiaries where we don't have as much excess capital. But we feel confident that parent cash is going to be at levels that remain more than sufficient to cover the cost of the holding company and the things that we need. So we feel really good about where our capital position was going into this change in market morbidity and are confident that we've got the access to funding that we need to continue to run this company.

Q: So last year, when you set your '27 EPS target, $2.25, I saw a number of multiyear upside levers from the hundreds of basis points of opportunity on fraud, waste and abuse, the PBM renegotiation, provider contract renegotiations, upside from ICHRA that could drive considerable earnings upside well above $2.25. So with everything happening this year, the risk pool volatility, I was wondering if you could elaborate on what you view as multiyear earnings levers that may have been more longer dated that you may have had in your back pocket, but you could also pull forward and accelerate if needed? Like how large and tangible are these opportunities?

A: Mark here. We are continuing to accelerate wherever we can across the board, particularly around medical costs. So I would say that we still have opportunity, plenty of opportunity to do better. You saw the effects of our administrative cost reductions through AI. We're now deploying Agentic AI in the clinical space as we look at ways of directing people and helping people find the right care at the right time. And so all of those things are coming to play. And we still, Michael, believe we have a lot of opportunity, and we are pulling all levers as we can now to set up '26 and beyond as profitable years.

Q: So last year, when you set your '27 EPS target, $2.25, I saw a number of multiyear upside levers from the hundreds of basis points of opportunity on fraud, waste and abuse, the PBM renegotiation, provider contract renegotiations, upside from ICHRA that could drive considerable earnings upside well above $2.25. So with everything happening this year, the risk pool volatility, I was wondering if you could elaborate on what you view as multiyear earnings levers that may have been more longer dated that you may have had in your back pocket, but you could also pull forward and accelerate if needed? Like how large and tangible are these opportunities?

A: Mark here. We are continuing to accelerate wherever we can across the board, particularly around medical costs. So I would say that we still have opportunity, plenty of opportunity to do better. You saw the effects of our administrative cost reductions through AI. We're now deploying Agentic AI in the clinical space as we look at ways of directing people and helping people find the right care at the right time. And so all of those things are coming to play. And we still, Michael, believe we have a lot of opportunity, and we are pulling all levers as we can now to set up '26 and beyond as profitable years.

Q: So last year, when you set your '27 EPS target, $2.25, I saw a number of multiyear upside levers from the hundreds of basis points of opportunity on fraud, waste and abuse, the PBM renegotiation, provider contract renegotiations, upside from ICHRA that could drive considerable earnings upside well above $2.25. So with everything happening this year, the risk pool volatility, I was wondering if you could elaborate on what you view as multiyear earnings levers that may have been more longer dated that you may have had in your back pocket, but you could also pull forward and accelerate if needed? Like how large and tangible are these opportunities?

A: Mark here. We are continuing to accelerate wherever we can across the board, particularly around medical costs. So I would say that we still have opportunity, plenty of opportunity to do better. You saw the effects of our administrative cost reductions through AI. We're now deploying Agentic AI in the clinical space as we look at ways of directing people and helping people find the right care at the right time. And so all of those things are coming to play. And we still, Michael, believe we have a lot of opportunity, and we are pulling all levers as we can now to set up '26 and beyond as profitable years.

Q: So last year, when you set your '27 EPS target, $2.25, I saw a number of multiyear upside levers from the hundreds of basis points of opportunity on fraud, waste and abuse, the PBM renegotiation, provider contract renegotiations, upside from ICHRA that could drive considerable earnings upside well above $2.25. So with everything happening this year, the risk pool volatility, I was wondering if you could elaborate on what you view as multiyear earnings levers that may have been more longer dated that you may have had in your back pocket, but you could also pull forward and accelerate if needed? Like how large and tangible are these opportunities?

A: Mark here. We are continuing to accelerate wherever we can across the board, particularly around medical costs. So I would say that we still have opportunity, plenty of opportunity to do better. You saw the effects of our administrative cost reductions through AI. We're now deploying Agentic AI in the clinical space as we look at ways of directing people and helping people find the right care at the right time. And so all of those things are coming to play. And we still, Michael, believe we have a lot of opportunity, and we are pulling all levers as we can now to set up '26 and beyond as profitable years.