Executive Summary / Key Takeaways

• Strategic Adaptation in a Dynamic Market: Oscar Health, a tech-forward disruptor in the ACA marketplace, is undergoing a significant market realignment in 2025 due to a sector-wide morbidity shift. Despite a projected loss for the year, the company is taking aggressive, disciplined actions to return to profitability in 2026, leveraging its technology and strategic repricing.
• Technological Edge Driving Efficiency: Oscar's proprietary +Oscar platform and deep AI integration are critical differentiators, yielding tangible benefits such as a 90% decrease in member response times and a 28% boost in provider efficiency in Virtual Urgent Care, and a nearly 10% reduction in ER readmission rates for a major client. These innovations are foundational to its long-term cost control and member engagement strategy.
• Financial Reset and Reaffirmed Long-Term Vision: After achieving its first-ever adjusted EBITDA and net income profitability in 2024, Oscar faces a projected operating loss of $200 million to $300 million in 2025, primarily due to a $316 million increase in risk adjustment payable. However, management reaffirms its 2027 targets of at least 20% revenue CAGR and a 5% operating margin, signaling confidence in its strategic adjustments.
• Aggressive Cost Management and Pricing for 2026: In response to market morbidity, Oscar has resubmitted 2026 rate filings, anticipating double-digit rate increases, and is implementing $60 million in administrative cost savings for 2026 through workforce reductions and efficiency gains. This proactive stance aims to stabilize margins and ensure future profitability.
• Expanding Market Opportunity with ICHRA: Recent acquisitions of INSXCloud, IHC Specialty Benefits, and Healthinsurance.org, coupled with new ICHRA product launches like the Hy-Vee partnership, position Oscar to capitalize on the evolving employer-sponsored health market, diversifying its revenue streams and strengthening its long-term growth potential.

Oscar Health: Forging a Path Through Healthcare's Shifting Sands

Oscar Health, Inc. (NYSE:OSCR) embarked on its mission in 2012, aiming to transform healthcare by making it accessible and affordable through a technology-first approach. The company's core business revolves around offering health insurance plans to individuals, families, and employees via the federal and state-run exchanges established under the Affordable Care Act (ACA). This foundational strategy, centered on a full-stack technology platform and a relentless focus on member experience, has positioned Oscar as a challenger in an industry dominated by much larger, more established players.

The broader healthcare landscape, particularly the ACA market, has seen significant evolution. It has driven the U.S. uninsured rate to historic lows, currently below 8%, and maintained a cost trend below the Consumer Price Index (CPI) for several years. This environment, characterized by increasing consumer choice and a growing gig economy, forms the backdrop for Oscar's strategic growth. However, it is also a market subject to dynamic regulatory shifts and evolving member demographics, which Oscar, as a smaller, innovative player, must adeptly navigate.

Oscar's competitive differentiation is deeply rooted in its proprietary +Oscar technology platform. This full-stack platform is not merely a digital interface; it is an integrated ecosystem designed to drive superior experiences, deep engagement, and high-value clinical care. The platform leverages advanced data analytics and artificial intelligence (AI) to optimize operations and enhance member and provider interactions. For instance, its Virtual Urgent Care live chat feature has demonstrably decreased member response times by 90% and boosted provider efficiency by 28%. Similarly, a new AI tool for care guides is accelerating the addressing of member needs, while AI-powered tools for ER follow-up have shown a nearly 10% reduction in readmission rates for a major health system client. Over 50% of onboarding and post-care instructions in Oscar Urgent Care are now AI-powered, significantly reducing administrative burdens for providers and improving speed to care. Furthermore, Oscar is actively deploying Agentic AI in the clinical space to direct members to the right care at the right time and prototyping AI tools to prevent fraud, waste, and abuse, as well as pre-populating preventative screening recommendations based on medical history. These technological advancements are not just features; they are foundational to Oscar's competitive moat, enabling more efficient operations, better cost management, and a superior member experience that can command loyalty and potentially higher value in the marketplace.

A Year of Milestones, Followed by a Market Reset

The year 2024 marked a pivotal turning point for Oscar, as the company achieved its first-ever adjusted EBITDA and net income profitability. Total company adjusted EBITDA reached $199 million, a substantial $245 million year-over-year improvement, while net income stood at $25 million, a $296 million increase from the prior year. This financial turnaround was underpinned by robust growth, with total revenue soaring by 57% year-over-year to $9.2 billion, and membership expanding by 37% to 1.8 million as of February 1, 2025, significantly outpacing the overall market's 13% growth. The company's Medical Loss Ratio (MLR) remained stable at 81.7%, and its Selling, General, and Administrative (SG&A) expense ratio improved by over 500 basis points to 19.1%, reflecting strong operating leverage and disciplined expense management.

This positive momentum continued into the first quarter of 2025, with Oscar reporting strong results. Total revenue increased 42% year-over-year to $3 billion, net income reached $275 million, and earnings from operations grew to $297 million, with an operating margin of 9.8%. The SG&A ratio hit a company-low of 15.8%, driven by fixed cost leverage, lower exchange fees, and variable cost efficiencies.

However, the second quarter of 2025 brought a significant "reset moment" for the individual market, directly impacting Oscar's financial performance. The company reported a loss from operations of $230 million and a net loss of $228 million. Total revenue still grew by 29% year-over-year to $2.86 billion, driven by higher membership, which reached approximately 2.03 million effectuated members by June 30, 2025. The primary driver of the Q2 loss was a substantial 12-point increase in the MLR to 91.1%, largely due to an incremental $316 million increase to the 2025 risk adjustment payable. This increase stemmed from a market-wide rise in morbidity, estimated at mid- to high single digits across Oscar's markets, attributed to sicker members entering from Medicaid redeterminations and healthier, low-utilizing members exiting due to program integrity efforts. While inpatient utilization remained elevated, it was partially offset by favorable pharmacy trends, and overall Q2 utilization moderated compared to Q1.

Strategic Response and Outlook

In response to these market dynamics, Oscar has swiftly implemented a multi-pronged strategy to regain profitability. For 2026, the company has resubmitted rate filings in states covering nearly all its current membership, incorporating these morbidity increases, program integrity changes, and the anticipated expiration of enhanced premium tax credits (APTCs). Management expects "double-digit rate increases" in the market next year, which they believe will adequately address the current morbidity pressures. Oscar's 2025 average rate increase was approximately 6% compared to the market's 7%, reflecting a disciplined pricing strategy aimed at balancing growth and profitability without attracting adverse risk.

Concurrently, Oscar is aggressively managing its administrative costs. The company is rightsizing its cost structure in the second half of 2025, targeting approximately $60 million in administrative cost savings for 2026. These savings will come from a reduction in force, closing open roles, and reducing vendor costs, with a focus on fixed costs. This initiative, combined with ongoing AI-driven efficiencies, is designed to solidify its path to profitability.

For the full year 2025, Oscar has reaffirmed its updated guidance:

• Total Revenues: $12 billion to $12.2 billion (an increase of $850 million at the midpoint from prior guidance, driven by better-than-expected retention and higher SEP member additions).
• Loss from Operations: $200 million to $300 million.
• Adjusted EBITDA Loss: Approximately $120 million less than the loss from operations.
• Medical Loss Ratio (MLR): 86% to 87%.
• SG&A Expense Ratio: 17.1% to 17.6% (an improvement of 50 basis points at the midpoint from initial guidance).

The company's outlook assumes continued higher market morbidity, a continuation of first-half utilization patterns with a modest increase in the fourth quarter (as members may seek additional care if APTCs are not extended), and risk adjustment as a percentage of premiums remaining in the mid-teens range. Special Enrollment Period (SEP) member additions are expected to moderate in the second half of 2025, as continuous monthly SEP for low-income individuals ends on September 1.

Oscar remains committed to its long-term targets of achieving at least 20% revenue compound annual growth rate (CAGR) and a 5% operating margin by 2027. Management views the current market reset as a temporary challenge, asserting that the individual market is resilient and offers significant long-term growth opportunities.

Competitive Landscape and Strategic Diversification

Oscar operates in a highly competitive environment, vying with industry giants like UnitedHealth Group (UNH), Elevance Health (ELV), Cigna (CI), and Humana (HUM). These larger competitors benefit from immense scale, established provider networks, and diversified revenue streams, often leading to stronger profitability margins and cash flow generation. For instance, UNH's integrated care delivery and Optum division provide significant operational efficiencies and broader service offerings that Oscar, as a smaller player, cannot yet match. Similarly, ELV's extensive network and regulatory expertise, and CI's strengths in cost management and pharmacy benefits, present formidable competitive barriers.

Oscar's competitive strategy centers on its agility and technological innovation. While it may lag in sheer scale and some financial metrics compared to these incumbents, its +Oscar platform provides a qualitative edge in user experience, digital engagement, and faster product iteration. This allows Oscar to attract tech-savvy customers and differentiate its offerings, such as its new multi-condition plan for chronic diseases, a tech-first HMO designed for frictionless care, and the Spanish-first Buena Salud solution catering to its significant Hispanic and Latino member base.

The company is also strategically expanding into the Individual Coverage Health Reimbursement Arrangement (ICHRA) market, which it sees as a significant long-term growth driver. In May 2025, Oscar acquired INSXCloud, Inc. (a direct enrollment platform), IHC Specialty Benefits, Inc. (an insurance agency), and Healthinsurance.org, LLC (a consumer education website). These acquisitions, while not immediately impactful on near-term results, are crucial building blocks for Oscar's ICHRA strategy, enabling it to offer a more comprehensive marketplace solution for employers and employees. The partnership with Hy-Vee, Inc. to launch a branded ICHRA plan in Des Moines, Iowa, is a concrete example of this diversification, aiming to provide concierge medicine at an affordable fixed price. Oscar believes ICHRA will drive a growing and stable risk pool over the long term, offering a pathway to take market share from traditional group plans and engage employers not currently offering insurance.

Risks and Challenges

Despite its strategic responses, Oscar faces several pertinent risks. The market-wide increase in morbidity and the associated rise in risk adjustment payables highlight the inherent volatility in estimating healthcare costs. Regulatory changes, such as CMS's Program Integrity Rules (shorter open enrollment periods, stricter eligibility verification) and the One Big Beautiful Bill Act (OBBBA, limiting APTC eligibility), could reduce overall market participation and negatively impact market morbidity. The potential expiration of enhanced APTCs at the end of 2025, if not renewed, could make insurance unaffordable for many, further shrinking the market. While Oscar has factored these into its 2026 pricing, the ultimate impact remains subject to legislative and market developments. Additionally, the company's reliance on technology investments, while a strength, also presents a vulnerability, requiring continuous R&D and exposure to potential data security breaches or system disruptions.

Conclusion

Oscar Health stands at a critical juncture, demonstrating resilience and strategic foresight in the face of a challenging market reset. Its journey from a decade of losses to achieving profitability in 2024, followed by a temporary setback in 2025 due to market-wide morbidity shifts, underscores the dynamic nature of the ACA marketplace. However, Oscar's core investment thesis remains compelling: a tech-driven approach to healthcare that prioritizes member experience and operational efficiency, backed by a clear roadmap to renewed profitability in 2026.

The company's aggressive repricing for 2026, coupled with significant administrative cost reductions and continued investment in its differentiated AI-powered platform, positions it to absorb current headwinds and capitalize on long-term growth opportunities, particularly in the evolving ICHRA market. While regulatory uncertainties and the scale of larger competitors present ongoing challenges, Oscar's strategic acquisitions and product innovations are building a more diversified and robust business. For discerning investors, Oscar represents a high-growth, technology-forward player poised for a rebound, with its ability to execute on its strategic plan and leverage its technological leadership being paramount to achieving its ambitious 2027 financial targets.