Oct 29, 2026 earnings call — Q3 cost trends, claims work, and revised outlook
Company cut full-year targets to at least $575 million adjusted gross profit and $100 million adjusted EBITDA after Q3 cost pressure.
Revenue $1.4B (est $1.3B) · EPS $-0.04 (est $-0.04)
Key quotes
"We migrated off of something that we thought was subscale."
"We maintained a 4-star or higher rating in six of our seven eligible plans, demonstrating our ability to deliver strong stars performance across much of our portfolio."
"In our guidance, we have assumed a continuation of the elevated medical claims expense we experienced in Q3 with no contemplation of the stabilizing trends we observed in both September and October."
Analyst Q&A 10
new claims system and higher claims
Q (Matthew Gillmor · KeyBanc): Were higher claims caused by the new Facets system or did Facets just reveal existing higher claims?
A: Management said the Facets conversion created timing volatility in paid claims that peaked in July. They made configuration changes, appeals have dropped in August–October, and they remain cautious for the rest of the year.
"But really, what happened is, we saw volatility in our paid claims, and we started seeing that in July." — John Kao (CEO·CHAIR)
2027 bid positioning and California Stars
Q (Joaquin Eduardo Martinez · BofA): How are you positioning bids for 2027 and will you diversify large California membership concentration?
A: They reviewed bids deeply and adjusted product growth and network choices to balance growth and margin, targeting about 20% profitable growth. They are focused on fixing root causes in Stars, investing in automation and provider incentives in California rather than detail tactics now.
"But more so focused on really getting to the root issues in Stars." — John Kao (CEO·CHAIR)
Q4 guide assumptions and 2027 starting point
Q (John Stansel · JPMorgan): What assumptions underlie the lower back-half guidance and should Q4 be annualized into 2027?
A: They assumed continuation of higher appeals and disputes at peak rates, SNF length-of-stay and cat case issues, and did not assume payment integrity or clinical investment benefits. Management warned not to annualize Q4 MLR into 2027 because they expect initiatives to improve results next year.
"In our guide, we're assuming that we're continuing the higher appeals and disputes at what I describe a peak rate, okay?" — James Head (CFO)
why Q4 MLR looks worse than Q3
Q (Justin Lake · Wolfe): Why does implied Q4 MLR look about 200 bps worse than Q3—conservatism or new costs? Also, why is SG&A flat Q3–Q4?
A: They said Part D uptick and extra clinical investment add to Q4 baseline and they applied a full prudence assumption on appeals, disputes and other costs without offsets. On SG&A, incentive comp and planned investments track as expected and Q4 does pick up versus Q3.
"I think the one thing that we would say that was present in Q3 as well in terms of a little bit extra burden that was in the baseline was just Part D, which has a little bit of an uptick in the MBR in the fourth quarter." — James Head (CFO)
Stars recovery timing and mitigation impact
Q (Michael Ha · Baird): Can you restore 4 Stars by next October and how large is the Stars funding headwind after mitigations?
A: They said it is early to comment on Payment Year '29 but feel good about HEDIS gap closure and Part D fixes; HAS is still elusive. For the growth/Stars headwind sizing, they will follow up after Q4 because mitigation initiatives and risk adjustment work are material and still being detailed.
"Let us get back to you on that one, please, because the mitigation initiatives is pretty material." — John Kao (CEO·CHAIR)
medical cost stabilization and Stars investments
Q (Jonathan Yong · UBS): Is medical cost trend stabilizing to original guidance and are extra investments needed to recover Stars?
A: They saw an MBR uplift of 120 basis points in the quarter and trend is stabilizing below the quarter peak, but Q4 guide assumes peak levels out of prudence; they expect trend to normalize in 2027 due to payment integrity and clinical actions. For Stars, they are adding more staff in markets and those investments are embedded in guidance.
"We're putting more boots on the ground in the markets." — John Kao (CEO·CHAIR)
product mix, SNPs and provider delegation
Q (Scott Fidel · Goldman Sachs): Will you keep pursuing higher-acuity SNP growth for 2027 and what is the status of provider delegation and risk sharing changes?
A: They expect continued C-SNP growth in selected markets and more HMO growth; the Facets conversion and payment integrity work are key to control. They have de-delegated acute inpatient UM from IPAs and are about 80% through that process, and see more opportunity in preservice management to improve outpatient/professional spend.
"And so what we did was we started to de-delegate the IPAs and the medical groups for the acute inpatient part of the UM." — John Kao (CEO·CHAIR)
provider conversations and HOS remediation
Q (Matthew Shea · Needham): Did you make changes before the 2026 fielding window for HOS and how are providers reacting to downgrade and remediation plans?
A: They said they need to follow up with specifics about 2026 measurement details and member programs. Providers are engaged and collaborative; the situation has enabled constructive dialogue, alignment on incentives and risk adjustment, and joint remediation work through 2027.
"I think it's kind of in this category of not let any crisis go to waste." — John Kao (CEO·CHAIR)
reserve variability and clinical investments
Q (Ye Yuan · Barclays): Why did prior-year development swing between quarters and is the planned clinical investment still the same size?
A: They said reserves are strong and they bolstered prior-year reserves in Q2 due to volatility during the claims transformation; by Q3 they're essentially at 99% runout for those dates and feel well positioned. The double-digit clinical and SG&A investments remain as previously guided, split roughly 50/50 and weighted to Q3.
"As we migrated through this claims transformation, there was a lot of volatility, and as a result, it was more difficult to predict how the runout for dates of service '25 is going to play out." — James Head (CFO)
what “appropriately calibrated” bids mean
Q (Jessica Tassan · Piper Sandler): What does it mean that 2027 bids are appropriately calibrated—flat MBR vs targets—and which benefit design changes drive margin?
A: They reviewed MLR assumptions product-by-product and market-by-market against current trends and adjusted growth, product focus, and network choices accordingly. They cautioned not to annualize Q4 MLR, said some products or markets will be deemphasized while others get different networks or increased growth, and that bids were set conservatively overall.
"What I mean recalibrate is how far were our MLR assumptions for each product in each market?" — John Kao (CEO·CHAIR)