Conferencia de resultados del 3T 2026 de Oscar Health (OSCR): Vuelve a elevar sus previsiones

Puntos clave

• Oscar Health cerró el tercer trimestre de 2026 con aproximadamente 2,7 millones de afiliados, un 27% más en tasa interanual, mientras que los ingresos aumentaron cerca de un 70% hasta los 5.100 millones de dólares.
• La ratio de siniestralidad médica mejoró 450 puntos básicos hasta el 84%, y la ratio de gastos SG&A cayó 350 puntos básicos hasta situarse en el 14%, un mínimo histórico para la empresa.
• El beneficio operativo del tercer trimestre alcanzó los 178 millones de dólares, lo que supone un incremento interanual de 307 millones de dólares. Por su parte, el EBITDA ajustado aumentó 308 millones de dólares hasta situarse en 207 millones de dólares.
• La actualización de los datos de ajuste por riesgo generó un impacto positivo de 250 millones de dólares en los ingresos trimestrales. La dirección señaló que el perfil de riesgo de Oscar con respecto al mercado mejoró significativamente, mientras que la utilización de servicios médicos se mantuvo moderadamente favorable frente a las previsiones.
• Oscar elevó por tercera vez sus previsiones de beneficio operativo para todo el año 2026 a un rango de entre 850 y 950 millones de dólares. El punto medio se sitúa 200 millones de dólares por encima de la previsión anterior y 550 millones de dólares por encima de la guía inicial.
• La dirección prevé que el mercado general de la ACA se mantenga estable en 2027 frente al cierre de 2026, mientras que Oscar aspira a ganar cuota de mercado mediante una fijación de precios disciplinada, expansión geográfica, nuevos productos y las oportunidades surgidas tras la salida de competidores.

Datos financieros clave

Durante los primeros nueve meses de 2026, Oscar registró aproximadamente 1.200 millones de dólares de beneficio neto, o 3,59 dólares por acción diluida, y cerca de 1.300 millones de dólares de beneficio operativo.

El incremento trimestral de los ingresos reflejó un mayor número de afiliados, subidas de tarifas y el impacto favorable de 250 millones de dólares derivado de la actualización de datos de ajuste por riesgo. El ajuste por riesgo representó el 11,8% de las primas en el tercer trimestre y el 17,2% en los primeros nueve meses.

La utilización médica fue moderadamente favorable frente a las previsiones de la dirección. El uso de servicios hospitalarios, profesionales y de farmacia resultó favorable, mientras que la atención ambulatoria se mantuvo elevada. La dirección atribuyó en parte esta tendencia ambulatoria al traslado de la atención médica desde centros de internamiento mediante iniciativas de asequibilidad y contención de costes médicos.

Desempeño comercial y operativo

Oscar inicia el periodo de inscripción abierta con presencia en 713 condados, un 24% más que el año anterior. La aseguradora también se está expandiendo a Carolina del Sur, lo que eleva su mercado direccionable a cerca de 10 millones de consumidores en 21 estados.

La compañía lanzó RetireEase en mercados seleccionados para personas con jubilación anticipada dentro del mercado de la ACA. Cientos de planes de Oscar incluyen ahora cobertura dental y de la visión, mientras que una alianza con Allstate Health Solutions incorpora una cobertura complementaria de menor coste orientada a ayudar a los afiliados del plan Bronce a gestionar los gastos de su propio bolsillo.

Hy-Vee Health with Oscar se está expandiendo desde Iowa hacia Nebraska, Misuri y Kansas. La dirección afirmó que el modelo de atención personalizada del producto presenta un índice de satisfacción del 92%. Además, Oscar está lanzando HelloMeno fuera del mercado oficial y comunicó una creciente adopción de Choice entre empresas de los sectores sanitario, tecnológico, de la construcción y manufacturero.

La estrategia tecnológica de Oscar incluye funciones de IA en su plataforma de seguros y en la plataforma de contratación sanitaria LUCI. La dirección afirmó que LUCI está en camino de intermediar cerca de 800.000 pólizas nuevas en 2027, impulsada por la demanda de corredores y consumidores.

Previsiones de la dirección

La mejora en las perspectivas responde a un ajuste por riesgo favorable y a una utilización médica moderadamente más favorable de lo previsto. El rango de ingresos se incrementó en 300 millones de dólares con respecto a la previsión anterior.

Para 2027, la dirección prevé que el incremento medio ponderado de las tarifas de Oscar se sitúe en torno al 14%. La compañía indicó que la tendencia de los costes médicos representa el mayor componente, seguido de una mayor morbilidad en el mercado y un cierto grado de expansión de márgenes. Las previsiones oficiales para 2027 se publicarán junto con el informe de resultados del cuarto trimestre.

Oscar mantiene su objetivo de alcanzar al menos 4 dólares de beneficio por acción para 2029.

Riesgos y aspectos a vigilar

Las revisiones de integridad del mercado realizadas por los CMS siguen representando un obstáculo para el volumen de afiliados. La caída intertrimestral de miembros en el tercer trimestre reflejó principalmente las bajas derivadas de una revisión de elegibilidad a nivel sectorial, y Oscar espera una cantidad menor de bajas adicionales durante el cuarto trimestre.

Los requisitos reforzados de verificación de elegibilidad y del Seguro Social podrían ralentizar la actividad de inscripción abierta y reducir inicialmente la productividad de los corredores. La dirección anticipa una curva de aprendizaje, pero afirmó que Oscar ha facilitado formación y herramientas tecnológicas para respaldar a los corredores.

La dirección ha incorporado una mayor morbilidad del mercado en la fijación de tarifas para 2027, lo que refleja el impacto esperado de las iniciativas de integridad de los programas. No obstante, el volumen y la composición de los futuros pagos por ajuste de riesgo dependerán de la cartera de afiliados de Oscar y de los mercados individuales.

Oscar también prevé un incremento estacional habitual en la ratio de siniestralidad médica durante el cuarto trimestre, a medida que más afiliados alcancen sus límites máximos de desembolso de su propio bolsillo. La dirección apuntó a una MLR implícita para el cuarto trimestre en el rango bajo del 90%.

El desenlace legislativo y normativo sigue siendo incierto. La dirección comentó que cualquier modificación relativa a la ampliación de los subsidios de la ACA u otras reformas requeriría negociaciones más amplias, y actualmente no prevé medidas legislativas de relevancia a corto plazo.

Puntos destacados de la sesión de preguntas y respuestas con analistas

• Estacionalidad de los gastos SG&A: La dirección atribuyó la eficiencia del tercer trimestre al control riguroso de costes, al apalancamiento de costes fijos y a un mayor uso de la IA. El incremento previsto en la ratio de gastos para el cuarto trimestre refleja el gasto asociado al periodo de inscripción abierta, la recopilación de historiales clínicos para el ajuste por riesgo y las inversiones destinadas a respaldar el crecimiento.
• Cuota de mercado en 2027: Oscar prevé que el mercado de la ACA se mantenga en general estable, pero confía en ganar cuota gracias a su mayor presencia geográfica, nuevos productos y al regreso al mercado de aproximadamente 850.000 asegurados debido a la salida de competidores.
• Estrategia de precios: La dirección afirmó que Oscar no necesita ofrecer el plan más económico en cada mercado. La rentabilidad y estructura de su red, las relaciones de distribución, la calidad del producto, el servicio al cliente y la retención también determinan su posición competitiva.
• Costes médicos: La dirección señaló que la utilización de servicios continúa siendo coherente con el riesgo subyacente de su base de afiliados, sin tendencias significativas por categorías de cobertura (niveles de metal). Asimismo, por el momento no observa indicios de un aplazamiento generalizado de la atención médica entre los afiliados del plan Bronce que pudiera generar una inusual utilización acumulada posterior.
• Apoyo a los corredores: Oscar señaló que LUCI y sus herramientas de inscripción directa están diseñadas para mantener la productividad de los corredores a medida que aumente la complejidad de los requisitos de elegibilidad. La compañía busca ofrecer comisiones competitivas, aunque no considera indispensable pagar la comisión más alta del mercado.
• Ajuste por riesgo: La dirección advirtió de que la previsión del 17%-18% para todo el año 2026 es específica de la cartera de afiliados actual y no debe asumirse para 2027.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Unknown Speaker

... address consumer needs, including opportunities created by competitor exits. strengths combined with our medical cost management, operating efficiency, and superior technology will drive sustainable financial performance in 2027 and beyond. Now I will review our business highlights. Oscar Insurance ended the third quarter with 2.7 million members, up 27% year over year. We are entering open enrollment with a 24% larger footprint spanning 713 counties. We are also expanding into South Carolina. Our expansion increases our total addressable market to approximately 10 million consumers across 21 states. Oscar is launching a new wave of consumer lifestyle products.

Our newest product, RetireEase, is live in select markets and serves a growing segment of 2.5 million early retirees in the ACA. Members keep their trusted doctors and receive set prices for preventative services, physical therapy, and heart, bone, and joint care. We are also addressing affordability through bundled benefits. Hundreds of OSCAR plans now include dental and vision coverage. In addition, our new Allstate Health Solutions Partnership pairs OSCAR plans with low-cost supplemental coverage to help Bronze members manage out-of-pocket costs. Each product meets a distinct consumer need that extends our reach into high-value, underserved segments. Our Oscar team is also scaling choice.

Our Hy-Vee Health with Oscar product is expanding from Iowa into Nebraska, Missouri, and Kansas. products concierge care model earns a 92% satisfaction rate and can now serve more small businesses, part-time employees, and gig workers. We are also launching HelloMeno off-exchange to better serve women across the workforce. Employer demand is building. Choice adoption is growing fastest in healthcare, technology, construction, and manufacturing sectors across Oscar states. Oscar's Health Technology puts consumers in control of their healthcare decisions across two platforms. The Oscar platform now includes new AI capabilities that make our product suite easy to understand. The LUCI platform serves the broader market, personalizing the healthcare shopping experience at scale. LUCI instantly matches consumers with plans from major ACA carriers and select supplemental carriers and guides brokers through CMS eligibility.

No other platform brings these capabilities together in one place. LUCI is on track to sell approximately 800,000 new policies in 2027, driven by growing broker and consumer demand. Oscar Health's third quarter performance puts us on track to deliver strong results one year ahead of plan. high-discipline pricing, product innovation, and technology-powered support are delivering superior member experiences and efficiency across the company. The individual market opportunity is growing. People expect healthcare to work like the best consumer products, simple, transparent, and personalized. We are building a consumer healthcare company that meets those expectations and serves a much larger market. the team is positioned to grow market share.

Operator

Some technical difficulties with the call. some of the audience was only able to hear the call after we had started so we're going to go ahead and start over I apologize for of the challenges, but please bear with us. We're going to start the call from this point forward.

Unknown Speaker

Good morning, everyone. Thank you for joining us for our third 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.oscarhealth.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.oscarhealth.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. The 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 31st, 2025, and the quarterly report on Form 10-Q for the period ended June 30th, 2026. Each as filed with the Securities and other filings with the SEC, including our quarterly report on Form 10-Q for the period ended September 30, 2026, to be filed on the SEC.

Such forward-looking statements are based on current expectations as of today. And 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 third quarter earnings press release available on the company's investor relations website at ir.oscarhealth.com. have not provided a quantitative reconciliation of estimated full year 2026 adjusted EBITDA as described in 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.

Unknown Speaker

Good morning. Thank you, Chris, and thank you all for joining us. 2026 is the strongest year in Oscar Health's history. We've delivered record profitability for the first nine months of the year, with supporting earnings from operations of 1.1.2 billion. We also expect to achieve several of our 2024 Investor Day commitments one year ahead of plan. Based on our performance year to date, we are raising 2026 earnings from operations guidance for a third time to a range of 850 million to $950 million. Our strong third quarter performance exceeded our expectations with improvement across all core metrics. Revenue grew roughly 70 percent year-over-year to $5.1 billion. Our SG&A expense ratio improved 350 basis points year-over-year to 14 percent. another record low reflecting disciplined execution, greater fixed cost leverage, and AI-driven efficiencies.

MLR improved 450 basis points over the prior year period to 84%. Earnings from operations increased 307 million year-over-year to 178 million, and adjusted EBITDA increased 308 million to 207 million. dollars. Before I turn to our business highlights, I will share our perspective on current market trends. The ACA is the foundation of a rapidly developing individual market. Americans are building careers on their own terms. They are starting businesses, combining part-time work, participating in the gig economy, and retiring early. More than 19 million people rely on the ACA, yet 28 million American workers remain uninsured.

Affordable coverage gives people greater financial security to pursue new opportunities and helps employers build a more stable workforce. Both parties understand health care is a priority for the American people. We have a significant opportunity to expand the ACA into a competitive marketplace that improves affordability and supports a resilient economy. Our 2026 performance demonstrates the strength of our operating model. We remain focused on growing market share and expanding margin in 2027. The weighted average rate increase of approximately 14% for the 2027 open enrollment period reflects elevated trend and higher market morbidity. Pricing is one lever of our growth model.

We also target markets where our products and distribution network address consumer needs, including opportunities created by competitor exits. These strengths, combined with our medical cost management, operating efficiency, and superior technology, will drive sustainable financial performance in 2027 and beyond. Now I will review our business highlights. Oscar Insurance ended the third quarter with 2.7 million members, up 27% year over year. We are entering open enrollment with a 24% larger footprint, spanning 713 counties. We are also expanding into South Carolina. our expansion increases our total addressable market to approximately 10 million consumers across 21 states. Oscar is launching a new wave of consumer lifestyle products.

Our newest product, RetireEase, is live in select markets and serves a growing segment of 2.5 million early retirees in the ACA. Members keep their trusted doctors and receive set prices for preventative services, physical therapy, and heart, bone, and joint care. We're also addressing affordability through bundled benefits. Hundreds of OSCAR plans now include dental and vision coverage. In addition, our new Allstate Health Solutions Partnership pairs OSCAR plans with low-cost supplemental coverage to help bronze members manage out-of-pocket costs. Product meets a distinct consumer need that extends our reach into high-value underserved segments. Our Oscar team is also scaling choice.

Our Hy-Vee Health with Oscar product is expanding from Iowa into Nebraska, Missouri, and Kansas. This product's concierge care model earns a 92% satisfaction rate and can now serve more small businesses, part-time employees, and gig workers. We are also launching HelloMeno off exchange to better serve women across the workforce. Employer demand is building. Choice adoption is growing fastest in healthcare, technology, construction, and manufacturing sectors across OSCAR states. Accolade's health technology puts consumers in control of their healthcare decisions across two platforms. The Oscar platform now includes new AI capabilities that make our product suite easy to understand. The Lucy platform serves the broader market, personalizing the healthcare shopping experience at scale.

Lucy instantly matches consumers with plans from major ACA carriers and select supplemental carriers through CMS eligibility. No other platform brings these capabilities together in one place. Lucy is on track to sell approximately 800,000 new policies in 2027, driven by growing broker and consumer demand. Oscar Health's third quarter performance puts us on track to deliver strong results one year ahead of plan. disciplined pricing, product innovation, and technology-powered support are delivering superior member experiences and efficiency across the company. The individual market opportunity is growing. People expect healthcare to work like the best consumer products, simple, transparent, and personalized. We are building a consumer healthcare company that meets those expectations and serves a much larger market. team is positioned to grow market share and expand margin in 2027. we are all We're also on track to deliver our long-term targets, including at least $4 earnings per share by 2029.

Thank you to the Oscar Health team for giving people power over their healthcare. With that, I will turn the call over to Scott. Scott?.

Operator

Thank you, Mark, and good morning, everyone. Sorry for the voice. I'm recovering from a cold today. Through the first nine months of 2026, we delivered net income of approximately 1.2 billion, or $3.59 per diluted share. Our earnings from operations were approximately 1.3 billion. Based on these strong results and underlying trends, we are raising our full-year 2026 outlook. Turning now to third quarter results. We ended the quarter with approximately 2.7 million members, an increase of 27% year-over-year.

Sequential decline in membership primarily reflects disenrollments from CMS's industry-wide eligibility review, which was in line with expectations. From a second, smaller CMS review, we expect a small number of additional disenrollments in the fourth quarter. Total revenue increased approximately 70% year-over-year to 5.1 billion, driven by rate increases and higher membership. During the quarter, we received updated risk adjustment data. We saw significant improvement in OSCAR's risk relative to the market, and market morbidity was modestly favorable to our expectations. These factors drove the 250 million revenue benefit in the quarter. Risk adjustment as a percentage of premiums was 11.8% in the third quarter and 17.2% through the first nine months.

While the additional data gives us greater visibility and more confidence in our risk adjustment accruals, we continue to take a cautious approach to our risk adjustment reserves. The third quarter medical loss ratio was 84%, an improvement of 450 basis points year over year. Improvement was primarily driven by our disciplined pricing strategy. Overall, year-to-date utilization was moderately favorable to our expectations. By category, inpatient, professional, and pharmacy utilization were favorable, while outpatient was elevated. believe some of the elevated outpatient utilization reflects a rotation from inpatient to outpatient care driven in part by our affordability initiatives. Switching to administrative costs, the third quarter SG&A expense ratio was 14 percent, the lowest in the company's history. The approximately 350 basis point year-over-year improvement was driven by lower risk adjustment as a percentage of premium, higher fixed cost leverage, and disciplined expense management, including an increasing impact from technology and AI initiatives.

We reported earnings from operations of 178 million in the third quarter, about 307 million year-over-year improvement. Operating margin was 3.5%, an improvement of approximately 780 basis points year-over-year. Net income was 167 million, a 305 million increase year-over-year. Adjusted EBITDA was 207 million in the quarter, an increase of 308 million year over year. Shifting to the balance sheet, we ended the third quarter with approximately 9 billion of cash investments, including 360 million of cash investments at the parent. The sequential decline in cash investments primarily reflect the payment of our 2025 risk adjustment payable during the third quarter. As of September 30th, our insurance subsidiaries had approximately 2.3 billion of capital in surplus, including 1.4 billion of excess capital, which was driven by our strong operating performance.

Turning now to our 2026 full year guidance. Based on our results through the first nine months, we are raising our full year earnings from operations guidance to a range of 850 million to 950 million. At the midpoint, this is 200 million above our prior outlook and 550 million above our original guidance. Our improved outlook reflects favorable risk adjustment and utilization that was moderately favorable to our expectations. We now expect total revenue in the range of 19 billion to 19.3 billion, an increase of 300 million from our prior outlook. We expect to end the year with approximately 2.5 million members, which reflect the additional disenrollments from the second CMS review. We expect risk adjustment as a percentage of premiums to be between 17 and 18 percent, compared with our prior expectation of 20 percent, which is based on year-to-date risk adjustment experience. 19's medical loss ratio, we now expect a full year MLR in the range of 80.5 percent to 81.5 On administrative expenses, we expect our SG&A expense ratio to be in the range of 15.1% to 15.6%. expect adjusted EBITDA to be roughly $110 million higher than our income from operations.

Our performance this year positions us well for 2027. We'll provide a formal guidance on the fourth quarter earnings call. Let me spend a moment on underlying assumptions. We expect overall ACA marketplace membership to be stable compared with year-end 2026, where we are positioned to gain market share. We continue to take a disciplined approach to pricing, balancing growth, and profitability. As Mark mentioned, our weighted average rate increase for 2027 is approximately 14%. Our pricing reflects incremental increases in medical cost trends and higher market morbidity plus ongoing program integrity initiatives.

Our competitive positioning, differentiated products, and strong member experience gives us confidence as we head into 2027. We expect improved medical cost performance and administrative efficiency to drive further margin expansion next year. Closing, we are on track to deliver a strong financial performance in 2026. We remain focused on driving sustainable earnings growth and achieving our long-term target of at least $4 in earnings per share by 2029. With that, I'll turn the call over to the operator for the Q&A portion of our call.

Operator

Thank you. If you would like to ask a question, please press the star and 1 on your keypad. leave the queue at any time, please press star 2. We do ask that limit yourself to one question and one follow-up. Once again, that is star one to ask a question. We'll pause momentarily for questions to queue. And we'll take our first question from Andrew Mok with Barclays. Please go ahead. Your line is open.

Preguntas y respuestas

Andrew Mok

Hi, good morning. G&A came in meaningfully better in the quarter, but updated guidance appears to imply a 400 basis point sequential increase. Can you elaborate on the drivers of the strong 3Q outperformance and what's driving the higher than normal step up for 4Q? Thanks.

Operator

Good morning, Andrew. So on SG&A, I think that is... you're seeing the benefit of our continuous disciplined expense management. and the growing impact of AI that we're deploying across the business and those are the themes that I would call out. We're also picking up you know a pretty healthy amount of fixed cost leverage. So those are the drivers of Q3 performance. As you think about Q4, there is a step up in the Q4 SG&A ratio. portion of that is you know being driven by things like, I would say these are Q4 specific stuff, things like OE ramp, some of our risk adjustment operations where we do a lot of our chart collection activity in the fourth quarter. And then we've got some, you know, typical investments to be made for the quarter growth in the fourth quarter. So I would say these are kind of seasonally expected spends, but we'd like to see some.

Andrew Mok

that's your best chance. Great. And I think I heard you say membership is expected to be stable with the year-end 2026 results while you take market share. Can you flesh out a little bit more how you're thinking about your share gains in the context of how market growth might play out for 2027? Thanks.

Mark Bertolini

Sure. Thanks, Andrew. This is Mark. So we'll start with the market growth that both Scott where we're now going to be 713 markets. We've added South Carolina. Secondly, I would offer new program extensions and products into the marketplace like retirees. We tend to have very high retention and opportunistic growth in those marketplaces. And then finally, there's about 850,000 lives coming to market as a result of competitor exits. So all of that, as we add that into our mix and our ability to price appropriately, disciplined, and competitively in the marketplace, we believe that we'll pick up share.

Operator

Thank you. And our next question comes from Jessica Tassin with Piper Sandler. Please go ahead. Your line is open.

Jessica Tassan

Hi, thanks very much for the question and congratulations on the phenomenal results. Um, so our estimates imply I think that year-over-year MedEx PMPM increased 19.9% in 3Q from down 1.5% in 2Q. So can you maybe just give us some color on the utilization behavior you're observing by metal level? Curious to know how MLR sees... is evolving both for bronze members and then also whether you're observing any changes in silver member behavior year over year or relative to your historical, relative to historicals or relative to expectations and why that might be. Thanks.

Operator

Yes, Jess, let me start with the claims PMPM. one of the challenges that you guys have this year in looking at claims PMPM is that we do do have our member months because of some of these CMS changes and adjustments. The member months are reported are a little bit different than those that are actually actually generating claims. So there is a little bit of a skew in that. So when I unpack that and kind of put Humpty Dumpty back together, what I see is that Q1 to Q2, there's a meaningful step up in claims PMPM. You see another step up in Q3 from there. And in Q4, we're anticipating an assistive in the case that there's less movement, you know, a fairly stable Q3 and Q4 PMPM score. When I look at utilization, you know, we're seeing utilization across the metals, which is consistent with the risk that we see.

We're not seeing any specific things that I would call out from one metal to the next. The risks that we have in the book is being supported by the claims that we're seeing. And as you think about the MLR that we've got embedded for our fourth quarter, we are expecting a normal seasonal uptick and MLR into the fourth quarter from where we are at Q3.

Jessica Tassan

Got it. That's really helpful. Thank you. And then, appreciate that the midterms changed the EAPTC outlook considerably for 28, but maybe hoping you can help us better understand just the membership outlook for 2027. Where are we in terms of CMS's fraud and marketplace integrity efforts, and how do you expect those efforts to you know evolve in 27 and then can you just clarify that despite the expectation for flat enrollment year over year in 2027 you all are priced for an increase in market morbidity within that 14 percent thanks again.

Mark Bertolini

Jeff, I'll start and then I'll turn it over to Scott on market morbidity. So we do expect stable membership year over year. We do still see more program integrity programs coming through. We believe that will have an impact on the marketplace. Obviously, as I said before, you know, it's going to be offset by some of the other things, new markets entered, new products and other competitors leaving. So overall, we see the whole market being relatively stable. I don't think the midterms are going to have much of an effect, if anything, in in the near term because there's a lot of bargaining that would need to go on given that the administration still will hold the veto pen.

And so getting the kind of things we would need to get done to, for example, reintroduce enhanced subsidies and others would have to be part of a grander deal. And we're not quite sure how the dynamics of that will move forward. We always plan for these things in our operating plans and risks and opportunities. And we always see what we would need to do should these things begin to happen. But right now, I don't know that much of anything is going to happen over the next year at least.

Operator

Yeah, so Jeff, with respect to, you know, market morbidity, I have a couple of thoughts there. You know, one is we are seeing and expecting to see a stable ACA In 27, a lot of the big change events happened in 26, and we expect change. you were going into 27. We are expecting that program integrity will have, you know, an impact and we have built that into our pricing. So I would comment that on our average 14% rate increase, the three things that are really driving that 14% kind of in rank order of impact, number one is trend, which is in the low to mid range, you know, call it high single digits, and then, you know, market morbidity coverage second, and then we also, you know, have built in a little bit of margin expansion in pricing. So, we feel like we've got a very competitive price and some really terrific products in markets, so we're optimistic about our ability to grow share this year.

Operator

Thank you. And we'll take our next question from Parker Snur with Raymond James. Please.

Parker Snure

Yes, thanks and good morning. So just kind of piggybacking on the previous few questions, just curious on your view for this annual enrollment period. There's some additional friction that's being added to the enrollment process, some enhanced Social Security verification, verification, things like that. I understand that you think the market will be flat, but just curious if you view these procedural measures as being a material driver in this year's annual enrollment process, and could this lead to some people being thrown off, and I guess just kind of general expectations in terms of market morbidity. I know you touched on that, but just related to that,.

Mark Bertolini

specific dynamic? Parker, I'll start by describing Obviously, we've had a lot of preparation to try and get in front of the things for brokers and the enrollment program this year. So it will slow down the start. These systems are new to them. We did a lot of training over the summer. We even built our own capabilities on our own platform to help them as they as they navigate through this. But there will be a learning curve. It will be something new for them and it will have an impact on their productivity.

But I think that is something that they will pick up quickly enough. We're watching it every day. They're watching how it evolves. And obviously we only have four or five days under our belt anyway from the standpoint of enrollment. Scott, you want to talk about market morbidity?.

Operator

Yes, I would maybe call out two things. So first of all, just to reiterate, we're expecting that 27 will be flat to year-end 26. We do expect that some of these enhanced eligibility checks will result in some of the the membership from 26 not being able to continue into 27, but we also anticipate that we're going to see a continuation of new people coming into the marketplace. We saw that in 26. We expect to see similar types of drivers for 27. So, you know, net-net, we expect the market overall to be flat to the 26-year.

Parker Snure

Okay, super helpful. And if I can just get one more, just curious on the fourth quarter guidance as it pertains to medical costs and MLR, it appears that it implies actually a decline in actual medical costs sequentially. I understand you'll have fewer members in the fourth quarter. But if I look back over the last five years or so, I don't know if 4Q medical costs have actually declined sequentially ever. So just curious. Just curious if you can give more color on that dynamic, if there were some one-time items in the third quarter or fourth quarter, or is it just simply lower enrollment that's driving that?.

Operator

Yes, I think you and I probably don't have the same math because when I look at implied fourth quarter MLR, you know, it's in the range of let's call it low 90s. And, you know, we finished the third quarter with an MLR of 84, if you add back PPD, that gets you to something like 84.8. I think it's important when you think about the $250 million benefit of risk adjustment, all of that doesn't fall to the bottom line. It comes with claims. And so you really shouldn't be taking the risk adjustment out of the numbers. Like I think that's fundamental to the business and it is offsetting the actual claims, that we're getting so you know I think if you want to think of a comparison I would say I would start with the MLR in the third quarter of roughly 84.8 and you can add you know a couple points if you want to do you know kind of say some of that favorable risk adjustment related to the first half of the year, but from there it is still a step up into Q4 based on everything we're seeing around people reaching their maximum out-of-pockets, utilization, that continues to be favorable to our expectations. You know, we feel like the step up in Q4 MLR makes sense to us and, yes, is consistent with the trends we're seeing through this part of the year.

Operator

Thank you, and we'll take our next question from Stephen Baxter with Wells Fargo. Please go ahead. Yes, hi, thanks. Kind of similar email.

Stephen Baxter

question. So you're lowering the risk adjustment payable expectation by 200 or 300 basis points. You're improving the MLR by 50 basis points. and then you're pointing to medical costs that I think you're saying are modestly favorable to your expectations. So it seems like there's a pretty big difference there. And I know that you're a conservative company, but just thinking about the difference between those two items, if you could maybe help us bridge that, that would be super helpful.

Operator

Yes. So, Steve, I would say a few things. So, you know, we have 250 million favorable risk adjustment and then we've got 45 million of PPD. As I talked about, not all of that favorable risk adjustment drops the bottom line. There's a portion that's being offset by claims which are appropriate given the risk of the book but aren't creating higher claims costs for us. When I think about full year guidance that we just put out, I would say, we've only got waitly through July. We're being prudent and making sure that we are able are thoughtful about the continued morbidity risk that's inherent in this marketplace. We feel like we have more than adequately covered for that in the guidance. and we're not wiring in the good news.

So, you know, feel like we've got a very balanced, target for full-year operating earnings. Got it. Okay, thanks.

Stephen Baxter

And then, yes, just be curious on your latest thinking on the latest CMS regulation governing 2028 open enrollment. I mean, I think this was mostly codifying changes that were already made by OB3, but I'd just love to have your feedback on that. And I guess, how are you thinking about this potential dynamic around maybe having less to the ability to utilize auto enrollments in 2028. Thank you. Yes, Steve, we're working on that.

Mark Bertolini

for our 2027 plan and we'll prepare ourselves to handle those new provisions and believe it's in the guidance that, it will be in the guidance that we provide going forward. But it's just, from our perspective, program integrity is really important because it stabilizes the risk pool. And we wanna keep those programs moving forward. Our biggest fear is that we make sure that the people who should be excluded are excluded and that the people who need coverage get coverage. And so that work with CMS because the sort of eligibility and enrollment responsibilities are split between CMS and the plans. We have to make sure that our data synchronizes And so in our latest review of this information, we have information going back and forth between CMS and us, and I'm sure our competitors as well, to say, well, wait a minute, let's look at this population and talk about what you see versus what we see and what we need to do to make sure these people, if they are eligible, get access to coverage. So that's an ongoing, I would call it a flaw in the system, is that we have dispersed eligibility too far between plans and CMS.

You don't see that much anywhere else. And so we're working through those changes as we go through program integrity. But we support program integrity and we believe it's important.

Operator

Thank you. And our next question will come from Scott Fidel with Goldman Sachs. Please go ahead. Your line is open.

Scott Fidel

Hi, thanks, and good morning. Mark, what might be helpful, just given the midterm elections results yesterday, if you want to, one, talk us through, like, in terms of as, you know, now as you go to the Hill and sort of speak with members of the House, and the expanded Blue Dog Caucus. You know, from a policy perspective, what in particular you'll maybe be advocating for the ACA? I know that in the prepared comments you talked about opportunity to expand the ACA, but just curious in terms of is it, I don't think it's probably as simple as you'll just advocate for, you know, sort of renewing the enhanced subsidies. You know, I would assume that there's probably suggestions that you'd want to make as well around, you know, strengthening the foundation of the program longer term. And then from a timing perspective, do you think that 28 would be, you know, possible in terms of potentially getting the subsidies restored or just curious on your thoughts on timing you know as the congress you know sort of starts in 27 thanks.

Mark Bertolini

So I think the first thing, Scott, you should know is that we have been working both at the state level and at the federal level. And we've actually made a lot of progress at the state level around things like choice. and I mean at the state level versus federal. And at the federal level, we've been pushing through CMS and through the administration ideas about how do we best support the children changes that we need to make to make the ACA TAM bigger. And part of that is this whole eligibility issue. How do we get that right? And one of our suggestions has been that we create wallets, enhanced HSAs, if you will, that will allow people, by having KYC criteria, will allow them to be more sure of eligibility as people come into the program. We can stabilize that piece of the business that does great things for the risk pool and for growth and for our distribution channel that has to work through all these issues. Piecemeal every so often, as it has happened over the last couple of years, is difficult.

On the enhanced subsidies, We shall see. That's a financial discussion. We shall see how much of that comes back in. Will it change in form? It's going to have to be a deal before 28 between the administration and the new caucus. And we don't know how that's yet going to work. The president has made comments that he can work with the caucus. We have the caucuses. and talking about the things that they want to have happen, we need to see how that relationship is actually going to work and evolve into legislation and then regulation. So I'm not holding out a whole lot in 27 toward 28 at this point. this moment other than we will keep going forward.

We continue to work with the administration on working on the eligibility piece and on regulations like tax treatment for HSA purchases and defined contribution for employers where we see huge opportunity if we can clear some of that road blockage out of the way for the for them in the future. That makes the TAM bigger, that makes the ACA framework work. And we've also been talking to the Democrats as well, while we've been talking to the administration about what we could do to make choice a reality. In a lot of ways, my point of view is that what we are talking about in making a bigger individual market is very much what some of the aims of the ACA were in its initial construction. So I think we have a lot of common ground there. It could be a great place for both parties to get together and actually do something that could advantage the American public and more importantly, our economy.

Scott Fidel

That's helpful. Thanks. And for my follow-up question, I wanted to toggle just over to pricing and it sounds like the average rate increases that you talked about are, you know, right in line with the market. I'm curious just if, you know, from the average perspective, obviously every, you know, pricing MSA is going to be different. But sort of a general sort of breakdown, if you think about those sort of 15%, 14% or so sort of pricing, how would you say that sort of breaks down between underlying cost trend versus morbidity versus any other sort of key actuarial underwriting factors? And.

Mark Bertolini

me. Thanks. I'll start off and then I'll toss it to Scott on the morbidity stuff. So the very basis of our pricing structure and our plan design in every market starts with the network. And so where we have a great network relationship and where we can, again, all the most successful players in the ACA use narrow networks. And so you get a discount. And that passes through to the customer, number one. Number two, what are your distribution relationships like and what can you rely on in getting distribution done? Those are the two first most important requirements. We assess when we go into the market and then we look at the competitive framework, the pricing tolerance in the marketplace, and then we build our models.

But think of it as us underwriting that network and distribution model. first as a way of deciding where our price points need to be in the market. Relative to morbidity and the intricacies of pricing, Scott, I'll just toss it over to you to add anything that you would.

Operator

Yes, Scott, a few other thoughts. So first off, we're starting from a position of strength in 26. our relative price increase this year was probably a bit lower than some of our competitors So, you know, we've already got a very advantaged price position. Then you go to a 14% price increase from there. So we think that from a competitive position, our pricing looks, you know, as you said, it's an MSA by MSA game, but we like how we look, you know, on the book in aggregate. When you think about the buildup of that 14%, again, it's in rank order, starts with trend, which we've built in something that's in the the high six digits for trend. Then you've got that impact for market morbidity related to some of the GI initiatives that we've discussed. And then on top of that, you know, we've got a bit of margin enhancement that we also built in.

So those are the building blocks on the pricing.

Operator

Thank you. And as a reminder, it is the star and one to ask a question. And we'll go next to the line. of Jonathan Young with UBS. Please go ahead. Your line is open.

Jonathan Yong

Thanks for taking the question. I guess just based on the landscape while it does look like one of your competitors has gotten a little bit more aggressive in terms of how they're pricing and coming in the cheapest option in the market. I guess from your perspective, um, you know, how do you consider, you know, your pricing relative to that and is it most important to be at the cheapest end of the market or, um, how are you viewing that alongside, you know, metal tier mix for 2027? Thanks.

Mark Bertolini

Mark Benthien, Chief of Staff at Covered California, I'll stay on. I was just going to say that obviously, metal mix matters very much, number one. Number two, we believe that it's not just price. It's the quality of the product, quality of customer service. We tend to have higher retention than our competitors do. As a result, we have higher MPS scores. So as we look at all of that, it's a mix of capability and our relationship with our customers and our distribution channel that matter.

It's not just the price point. Scott?.

Operator

Yes, I think you hit on it, the point I was going to make, Mark, is that it's really a question of you have to be within a relatively reasonable range of the lowest. We feel like we've got, you know, really strong price positions in our markets and are talking about the the distribution and the right products. And we feel like we've got great relationships with our distribution partners and we have product that you know we're a member-centric company we've got a very good brand when it comes to supporting members and that's a big part of our selling package that you know we think that matters beyond just price.

Jonathan Yong

Okay, great. And then just going back to the proposed rules for Payment Year or for 2028, I guess in relation to the pre-verification open enrollment period that is being proposed, do you see this as kind of a benefit in terms of making sure members, you know, get enrolled given the pressure on auto-enrollment? And then similarly, does this create pressure on G&A from your perspective where brokers may ask for more in terms of commissions, et cetera? Just curious how you're thinking about that. Thanks.

Mark Bertolini

We solved that problem first, Jonathan, by going after, I always like to say brokers like to maximize revenue per joule of energy expended. And so if we could provide tools to them, which we have through LUCI and and our EDE, the opportunity is for them to be able to keep their productivity while being able to go through each of these steps. And so that's part of what we've been doing all along. That's what we did when the enhanced subsidies went away. We made it easy for them to move people to new products and they moved some of our competitors' people to our new products. So I think you have to look at it from the again from the perspective of what do they need to do? How can we help them with tools? It doesn't necessarily mean that we have to have the highest commissions as a matter of fact And I'm Scott I'd check with you on this. I believe we are not the highest commission program in the country.

Operator

That's right. I mean, our commission strategy generally is to be competitive, but we don't feel like we need to be the highest. think that the products and the service helps itself.

Operator

Thank you. And we'll take our next question from Michael Hall with Baird. Please go ahead. Your line is open.

Michail Paraskevopoulos

Thank you. As you look at 27, I know you're expecting stabilizing metal mix next year. But I wanted to ask your thoughts on like a potential scenario where bronze members could trade up into gold, meaning could there be an environment where bronze members, maybe they deferred care this past year because of the higher deductibles. Could that have worsened their health or acuity? they shift to gold lower deductibles, unlock care for members that previously deferred. How are you thinking about the possibility of that happening? How much of that migration have you assumed? What allowance did you build in your 27 pricing that has a some sort of catch-up utilization beyond your normal gold plan assumptions?.

Operator

Well, I will start off by saying, you know, you are correct. We do expect a similar level mix. We're not seeing any kind of thematic things that would suggest that there's some delay in you It's not like 2026 where we were worried and we built in an expectation of, you know, of higher fourth quarter utilization because people knew that we're losing their subsidy. I don't think that's quite what we're seeing. And on the MOOP side, maximum out of pockets, we We are seeing a progression there, which looks to us like behavior that we have seen over a long period. So again, it doesn't look like people are not using care because, you know, they've got a deductible um that they have to cover a portion of those costs. So when I kind of pull back and I look at the pricing build that we did for 2017, and we think we've done the appropriate amount of risk analysis of where in the metals do we see people growing, what its utilization looks like.

And we're excited about the products we've got out in the market and about our opportunity for the year.

Mark Bertolini

Michael, I would add just one thing about LUCI. So LUCI helps people find the right plan in the ACA, not necessarily an Oscar plan, but also connects them to a thing called Allstate Health Solutions that offer coverage for higher deductibles on a premium basis. So people can actually buy protection based on that underlying cover. So they have more than an option of just going up to gold. They could consider a plan like Allstate Health Solutions that helps cover some of those expenses when they occur.

Michail Paraskevopoulos

Interesting, helpful. Thank you. And my next question, just one key remaining question to me after your I-Day was really the latest weekly data that confirmed the stabilizing risk pool even after all these CMS lives were removed, identified lives. Just wanted to ask if you could provide a little bit more detail and what that weekly file showed about market morbidity relative to assumptions, and also of all the new integrity measures, all the verification checks, everything new happening next year. I'm curious, which one do you think has the biggest range of uncertainty and how it could impact medical care?.

Operator

in the next year. Thank you. I would say that, you know, with respect to weighting,.

Michail Paraskevopoulos

Well, what a vector I got to work with.

Operator

The latest weekly white paper shows market volatility moving as we would have anticipated. And I think that it just reaffirms that the estimates that we've been making are appropriate. slightly favorable to our pricing expectations. I do think it's important to note that, you know, the first, the weekly risk report we got in the first quarter was quite favorable. The, we got that in the second quarter and report that we received in the third quarter, you know, is now moderately favorable. We think that is the effect of the CMS program integrity efforts and removing some lives and those are mainly not utilizers. So, you know, we still believe, though, that that market morbidity continues to be moderately favorable to where we priced. And we think that gives us a good chance position we're posting out 26.

Operator

Thank you. And we'd like to take our next question from Kevin Fishbeck with Bank of America. Please go ahead.

Unknown Speaker

Hey, this is Joaquin Delgado-Martinez on for Kevin. I just wanted to ask about on the 17 to 18 percent risk adjustment range that you guys gave, is this something that will continue in 2027 or does that reset back to the 20 percent range? Thanks.

Operator

Yes, I would say that the 17 to 18% for this year is specific to the risk of the book. next year is going to come out. And it really depends on the books and the markets. So I wouldn't want to get ahead of our guidance.

Unknown Speaker

All right, thank you. And could you give us some more color on the trend commentary? What specifically in outpatient is higher and how are you translating that to your initiatives?.

Operator

Yes, you know, we do see a bit of a tradeoff between inpatient and outpatient. which is honestly beneficial for the cost of the member, it's beneficial to us, it's a lower, typically a lower cost of care and this is really doing things that are the, some of it is being driven by affordability initiatives we're executing, which is really kind of just the fundamental blocking and tackling of how you run a health plan. You know, it's things like making sure that we're doing clinical reviews that, you know, are looking at distinguishing observation from inpatient admissions, things like discharge planning, making sure that that is done in appropriate time frames. So nothing that I think is out of the ordinary in terms of what we see with the health plan. As Mark likes to say, we're constantly trying to progressively eliminate failure and you we're seeing the benefits of that strong operating cadence to both the results on the MLR side, on lower DCPs, So, overall, I think that you can see the evidence that we're running a very effective.

Operator

At this time, we have reached our allotted time for questions. We'd like to thank everybody for joining today's conference call. Please feel free to disconnect at any time. Everyone else has left the call.

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