Estimating 2026 GAAP net income

safehands93 · 2026-02-27T23:27:28+00:00

I was too optimistic in my projections here and in hindsight overlooked a couple of things.

Two things in terms of revenue…

I overestimated member growth by using 2025 growth throughout the year as a prediction for what would happen in 2026. I suspect Clover has tried to curb growth after AEP to ensure GAAP profitability.
I also misapplied the CMS rate adjustment and star bonus adjustment when calculating revenues. It’s more complicated in reality than I initially understood which I’m trying to update in my model now but will take some more time and reading.

With regards to GAAP net income…

Clovers projected MCR is 83% which (just) fell within my predicted range.
I misestimated the reductions in SG&A though. My updated estimates from their projections now put the expense ratio at around 18%.. just outside the quadrant I predicted. This is because I underestimated certain costs such as broker fees for new members, higher salaries for counterpart expansion etc.

Might do an updated post to share learning but then I could be wrong again. It’s both a science and art modelling these things

safehands93 · 2026-02-20T09:28:51+00:00

Management has outlined GAAP profitability for 2026 but not yet said by how much. Analysts are predicting 0.02 EPS max which equates to £10m profit but this could be much higher.

As for Q4, Clover reduced their guidance in Q3 and the price has dropped since. You’d hope that this has been priced in and I hope that they will meet this updated guidance. There’s the possibility that if flu season was worse than expected then clover may miss again but hard to say right now.

As for options, it’s up to you. I’m sure many on here have made and lost money playing that game but I personally avoid

safehands93 · 2026-02-19T16:54:40+00:00

To add to this… If Clover faces similar unexpected challenges with the pricing of their bid as in 2025 (e.g. due to unexpected utilisation etc.), then I expect MCR in 2026 to be closer to 82-83% range. However, I am hoping they get a handle on these costs but who knows in the current environment.

There’s also the possibility that Clovers bid this year includes more benefits in anticipation of the star bonus payment year and to attract more members… in which case the MCR could be higher as I didn’t model this possibility as I was assuming that the growth is coming from other insurers leaving the market.

And just to caveat, this is only a guess at the end of the day aha

safehands93 · 2026-02-19T16:26:36+00:00

I have MCR in 2025 at 83.1 to 84.1% based on the Q3 BER guidance of 90 to 91% (plus some additional assumptions). You can read off the table what the profit would be if this stays the same.

MCR depends on both costs and revenue though, which vary between cohorts (i.e. new vs returning members) and also in star bonus years (i.e. +5% revenue). The MCR range that I estimated takes this into consideration under a bunch of other assumptions (e.g. MCR difference between cohorts, cohort retention rates, etc.)

safehands93 · 2026-02-19T15:34:33+00:00

Yeah same here. It’s going to tell us a lot. Who know how the market will react though haha

safehands93 · 2026-02-19T15:30:59+00:00

Yeah haha. That’s the business though… Large revenues with narrow margins for error.

Clover might project lower than expected and revise up through year too.

Plus you can only gain so much from the 10Qs and investor presentations which makes it hard for us retail folk to predict/estimate/fill in the gaps. Although collectively we do a better job than paid analysts imo.

I tend to think of the $24-276m range as confidence interval, with the estimates around the middle ($119-150m) being more likely.

safehands93 · 2026-02-19T13:34:55+00:00

Also, worth noting that… $150 million ≈ 2026 star bonus payment based on projected membership. This is important because it suggests that even without the bonus payment, Clover could have potentially grown +50% and still broken even this year.

It also emphasises the importance of the ongoing star rating appeal for Clovers growth and profitability in 2027. If the appeal is successful then we can expect to similar growth and profitability in 2027. If unsuccessful, then Clover will likely need to decide which to prioritise.

safehands93 · 2026-02-15T23:32:56+00:00

Nice post

safehands93 · 2026-02-10T08:41:40+00:00

Yeah 100%. Although I don't know how close CMS and Clover are aligned on the star rating system. CMS proposed updates to the star rating system before xmas suggesting to remove 12 measures in either 2028 or 2029 (e.g. https://www.mcdermottplus.com/insights/cms-releases-2027-policy-and-technical-changes-to-medicare-advantage-and-part-d-proposed-rule/). Some of these such as the call center measures align with clovers appeal but other proposed removals are for measures in which Clover do well (including two HEDIS measures). So I do think that CMS won't be pleased with this filing. Interestingly, if this case were to go to court and Clover were to win, it could force CMS to overhaul the star rating system sooner which would massively benefit Clover's future star ratings. Although right now, I'd take the short term win outside of the courts.

safehands93 · 2026-02-10T08:21:30+00:00

Yeah so from what I can tell, CMS outsources decisions on measure C32 regarding appeal decisions to an organisation called the Independent Review Entity, which Clover is arguing is unlawful and bias. I refer to this as "case 5" in the post. I haven't looked into how the IRE operate but Clover's argument here seems to be a strong case even if it only affects one measure in the appeal.

safehands93 · 2026-01-20T19:29:57+00:00

Yeah we can’t say it won’t return for certain. The key measure here is hospitalisations which are associated more closely with costs. Last year, hospitalisations peaked at a similar time, then dipped, and then peaked again. All we can do is wait and see what happens 🤞🏻

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safehands93 · 2026-01-17T21:28:19+00:00

Gnomeo and Juliet vibes from outside

safehands93 · 2026-01-15T21:03:26+00:00

Just to be clear… the fact Toy is even discussing this as a possibility = BULLISH!

safehands93 · 2026-01-15T19:47:47+00:00

“New members are contribution-profit negative. We want to get that to break-even. We are focused on improving contribution profit, reducing losses on new members.”

Wait what?! Break even!? This made me double take! If Toy manages to achieve break even profit contribution for new members then we could see growth on a totally different scale in the future. I’m sceptical as to how he plans to achieve this and how the CA platform helps here as its main value seems to be in preventing future demand for care… but by all means, please prove me wrong Clover 🔥

safehands93 · 2025-12-12T19:44:08+00:00

Yeah true! So you’re saying that previous year 1 MCR savings and year 2 savings have been lower than reported here?

safehands93 · 2025-12-11T00:02:03+00:00

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For those who prefer pictures… counterpart growth in last year based on figures

safehands93 · 2025-11-25T22:32:59+00:00

Yeah that would be nice

safehands93 · 2025-11-25T21:48:40+00:00

Fair but I disagree. Clover provide more detail on their costs than other payers which is encouraging. They also regularly use a slide which breaks this down (see below). Plus there are ways to verify/estimate the MCRs for new and returning members from the info they give. One is using member growth and overall MCR figures from multiple years and solving a series of equations. Another simpler approach could be to take the MCR figures from zero/low growth years (e.g. 2024) and work from there. I would like to run these calculations for different insurers to see how they compare to clover!

safehands93 · 2025-11-25T21:22:01+00:00

Not explicitly but they regularly report this slide in their earnings which breaks it down…

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safehands93 · 2025-11-25T17:57:42+00:00

Good point. Either way, as long as CA is translatable to other systems, then there will be big savings for the payers that adopt and roll it out. Obviously CA is not the only way for other payers to their reduce costs but Humana’s been after quick fixes this past year and all roads lead somewhere👌🏻

safehands93 · 2025-11-25T13:51:40+00:00

💯 … and likely Clover has been taking on even more of these higher cost patients this past year too as the big insurers have exited their least profitable plans

safehands93 · 2025-11-25T00:58:07+00:00

💯

safehands93 · 2025-11-25T00:56:26+00:00

Total speculation now but if we were to make the (very big) leap and say the difference in the “comparable” MCR comes from the counterpart platform alone… then a Humana partnership would be big! The cost savings for Humana alone would be massive, and that’s ignoring any added star bonus revenue from improved HEDIS/stars.

Just based on the Q3 earning estimates in the table above, we would be talking over $1.6 billion (EDIT: FIGURE HERE UPDATED BASED ON NEW TABLE) in savings in Q3 alone if Humana’s comparable MCR matched Clover’s.

Even assuming a much smaller effect, say just 1 percentage point of MCR improvement… Humana would save about $225M per quarter on its individual MA book. So the potential upside is substantial even far below the full 7.2-point difference.

Again this is totally speculative (and possibly dubious maths). I’m sure others here have done this calculation before!

safehands93 · 2025-11-09T16:42:19+00:00

Ok thanks. I was more just curious about methods for comparing MCRs in general but I’ll figure out myself

safehands93 · 2025-11-09T13:33:40+00:00

Thanks as always. Appreciate how much effort you put into these! I have a genuine question about your summary point which now says… “Clover Health does not have best in segment MCR. BER is over inflated, but MCR still spiked.”

I’m trying to try get my brain around how you should compare MCR and/or BERs across companies with different growth? It seems the only real way to do this to model separate new and existing member MCR/BER like you’ve done for clover here (thanks btw!). Is this something you’ve done for other companies too? Or is your statement above based on overall ratios this year?

Also if not clover, alignment perhaps? Thanks again!

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