#118 Oscar Health - A Reality Check
Hype vs. Fundamentals
Oscar Health (OSCR) – Hype vs. Fundamentals
Intro: Hook & Context
Oscar Health is a tech-driven health insurance startup that’s suddenly the talk of the town. In early 2025, Oscar surprised Wall Street by posting its first-ever quarterly profit – $275 million in Q1 – on about $3 billion in revenue, as membership surged 45% year-over-year to roughly 2 million members. This “Obamacare” insurer, founded in 2012, has long promised to make health insurance easy through slick technology and customer-friendly design. Now, with its growth accelerating and red ink finally turning black, investors are buzzing that Oscar could be the next big thing in healthcare – an “AI-powered, full-stack” insurer with the growth trajectory of a tech company.
But is the hype justified? The health insurance business is notoriously tough, with razor-thin margins and heavy regulation. In fact, just months after its triumphal quarter, Oscar slashed its full-year 2025 outlook by roughly $500 million, forecasting a substantial operating loss instead of a profit, due to rising medical costs in the ACA marketplace. This whiplash – from euphoria to caution – encapsulates the central question we’ll explore: Is Oscar Health’s recent success a sign of sustainable disruption, or are investors overlooking fundamental challenges?
In this deep dive, we’ll unpack how health insurance companies make money, examine Oscar’s novel business model and financials, analyze the factors driving the current investor enthusiasm, and then scrutinize the risks and realities that could rain on Oscar’s parade. In the end, you’ll get my take on whether Oscar’s hype is warranted or overblown (spoiler: it’s complicated).
The Health Insurance Business – How It Really Works
Health insurance might seem opaque, but at its core the business model is straightforward. Insurers collect premiums from customers (or their employers/government), and then pay out medical claims for those customers’ healthcare bills. The goal is to take in more money in premiums than you pay out in claims – but not too much more, because regulations under the Affordable Care Act (ACA) require insurers to spend at least 80% of individual plan premiums on members’ medical care. This percentage of premiums spent on claims is called the Medical Loss Ratio (MLR). A lower MLR means more premium dollars left over for the insurer to cover overhead and profit, whereas a higher MLR means claims are eating up most of the premium income.
In simple terms, a health plan’s finances boil down to a few key components:
Premium Revenue: The money collected from members’ premiums (or government subsidies). This is the primary income for an insurer. Large insurers often also earn investment income by investing the premium reserves, but fundamentally premiums drive the business.
Medical Costs (Claims): The amount paid out for doctors, hospitals, medications, etc. Insurers use actuarial math to set premiums high enough to cover expected claims. The MLR = (Claims ÷ Premiums). In ACA markets, insurers must rebate customers if their MLR falls below 80%, effectively capping profit margins.
Administrative Costs: Running an insurance company isn’t cheap – marketing, customer service, billing, compliance, and technology all fall under Selling, General & Administrative (SG&A) expenses. These can easily consume 15-20%+ of premiums for smaller or less efficient insurers. Larger legacy insurers have scale advantages to keep admin costs lower as a percent of premiums.
Underwriting Margin: Premiums minus claims minus admin costs. If this number is positive, the insurer earns an underwriting profit (before any investment income). If negative, they’re operating at a loss. In practice, health insurance tends to be a volume game of narrow margins – a few percentage points of premium at best end up as profit in a good year. Many ACA insurers target just breaking even on underwriting and rely on other business lines or investment gains for profit.
Risk Pools and Regulation: Unlike other businesses, health insurers operate under strict rules intended to protect consumers. They generally cannot charge sick people more (within a given age band) on the ACA exchanges, so they must manage risk through broad pools. The ACA’s risk adjustment program further levels the playing field by redistributing funds between insurers: if one insurer’s customers are healthier than average for the market, that insurer must pay into the risk adjustment pool which then compensates insurers who ended up with sicker, higher-cost enrollees. This is crucial to prevent insurers from cherry-picking only healthy customers, but it also means a company can get a nasty surprise bill if they underpriced or attracted a healthier crowd than competitors. (We’ll see an example of this shortly.)
The U.S. Health Insurance Gauntlet: On top of that, consider the unique challenges of the U.S. market. Health coverage is fragmented across 50 states, each with its own insurance regulations, required benefits, and approval processes – an administrative headache. ACA marketplace insurers must navigate annual pricing scrutiny by regulators, limit their profit margins due to the MLR rules, and contend with adverse selection (sicker people being more likely to buy insurance). It’s a business of scale and data: the big players like UnitedHealth Group, Anthem (Elevance Health), Aetna (CVS Health), Humana, Cigna, and Centene have decades of claims data and diverse portfolios spanning employer plans, Medicare, Medicaid, and ACA markets. These giants can absorb losses in one segment (or one state) because they’re buoyed by profits elsewhere. Newer entrants lack that cushion.
To succeed, an upstart health insurer must either find an underserved niche or do something fundamentally better (cheaper, more efficient, or more appealing to consumers) than the incumbents. Many have tried. Most have failed or struggled. Keep this context in mind as we turn to Oscar Health – a company that believes its tech-focused approach can crack the code of this notoriously difficult industry.
Oscar Health’s Business Model
Oscar Health was founded in 2012 with a simple but ambitious mission: “to make health insurance easy, like having a doctor in the family.” The origin story is often told by Oscar’s co-founder (and longtime CEO) Mario Schlosser: he and his partners launched Oscar after experiencing firsthand the confusion of medical billing and insurance red tape. Their idea was to build a consumer-centric health insurer from scratch – one that uses technology and friendly design to guide members to the right care at the right time. In short, Oscar set out to be the antidote to the frustrating call-center and paperwork experience people typically associate with health insurance.
Tech-Driven “Full Stack” Insurance: Oscar likes to describe itself as a “healthcare technology company” as much as an insurer. What that means in practice is that Oscar built its own software platform for most aspects of the insurance process – enrollment, claims processing, provider directories, billing, mobile apps, etc. While a typical insurer might rely on old legacy systems or outsource certain functions, Oscar’s pitch was that owning the full tech stack would let it innovate faster and personalize the member experience. For example, every Oscar member is encouraged to use the Oscar mobile app or website, which provides:
Digital ID cards and provider search with price transparency. Oscar tries to show members which doctors and hospitals are in-network and give cost estimates up-front.
24/7 Telemedicine at $0. Long before telehealth became ubiquitous, Oscar offered virtual doctor visits free for members, hoping to nip small issues in the bud and reduce expensive ER trips.
Care Team Concierge: Oscar assigns members a dedicated care team (a nurse and support staff) that they can message or call for help with finding care, understanding benefits, or managing a health condition. This is meant to build trust and prevent people from falling through the cracks.
Incentives and wellness tracking: Oscar has used incentives like Amazon gift cards for meeting step-count goals, and it nudges members with reminders (e.g. to get preventive screenings). The idea is to engage members in their health, which in theory leads to better outcomes and lower costs.
Under the hood, Oscar’s data analytics play a big role. The company analyzes claims and member information to identify high-risk patients or care gaps, and its systems try to “route” members to cost-effective providers (Oscar calls this the “Care Router”, steering members to doctors who offer high quality at lower cost). Oscar claims its platform has yielded results like a 13% reduction in ER visits and 15% increase in annual wellness visits for its members – metrics that suggest the tech and engagement can indeed influence behavior. By behaving more like a proactive health guide than a passive bill-payer, Oscar aims to keep its members healthier and reduce unnecessary costs.
David vs Goliath differentiation: In summary, Oscar sets itself apart from the big insurers by its user-friendly tech and branding. Whereas many legacy insurers are conglomerates serving multiple masters (employers, Medicare, etc.), Oscar from day one focused on the individual market – people buying insurance on their own through the ACA exchanges. This was a deliberate choice. The founders saw the ACA individual market as ripe for a new entrant, since incumbent insurers initially tread cautiously there (and many dropped out during early turbulence around 2015-2016). By offering a slick product to individuals (who often lacked good service historically), Oscar believed it could capture a loyal member base. Its marketing featured bright, quirky ads promising “simple” and “smart” insurance, quite a contrast to the staid images of traditional insurers.
Of course, behind the friendly app, Oscar must operate like any insurer – contracting with hospitals and doctors to create provider networks, setting premiums, and managing claims. Oscar typically uses somewhat narrow networks (select groups of hospitals and doctors) in each city to negotiate better rates and coordinate care. Notably, Oscar has also partnered with larger insurers and health systems at times rather than going it completely alone in every market. For instance, it teamed up with the renowned Cleveland Clinic to co-brand plans in Ohio, and in 2020 announced a partnership with Cigna to jointly offer small-business health plans in select states (the “Cigna + Oscar” plans). These partnerships leveraged Oscar’s tech and Cigna or others’ provider networks. (However, it’s worth noting the Cigna+Oscar venture struggled to gain traction; it was recently wound down as of 2024, highlighting that even Oscar’s innovation hasn’t cracked every segment.)
How Oscar Makes Money: Oscar’s revenue comes primarily from insurance premiums on the health plans it sells to individuals, families, and a smaller number of small businesses. In 2024, Oscar pulled in $9.2 billion in total revenue, a 56% jump from the prior year. The vast majority of that is premium revenue (augmented slightly by investment income on its reserves and some “other” revenue). Like all insurers, Oscar’s profitability hinges on keeping the Medical Loss Ratio and admin costs in check. In 2024, Oscar’s full-year MLR was 81.7% (meaning it spent just under 82 cents of each premium dollar on members’ medical care). Its SG&A expense ratio was ~19%, and importantly that was down from over 24% the year before – a sign that Oscar is achieving better economies of scale as it grows. The result: Oscar achieved a small net profit of $25 million in 2024, marking the first time in its history it had a full-year profit. This was a milestone after years of operating losses and a cumulative deficit funded by venture capital and IPO proceeds.
To put the growth in perspective, Oscar started with just 16,000 members in 2014 when it first began selling ACA plans in New York. By 2019 it had a few hundred thousand. By 2022, it surpassed 1 million members. And as of early 2025, Oscar served roughly 2 million members across 18 states, making it one of the largest insurtechs in the country and giving it about 1 in 12 share of the ACA exchange enrollment. That scale – plus several rounds of cost-cutting and pricing discipline under new CEO Mark Bertolini (more on him soon) – finally brought Oscar to breakeven and slightly beyond.
It’s worth noting that Oscar has other potential revenue streams beyond just selling insurance policies. The company has touted a platform-as-a-service business called “+Oscar,” where it licenses its technology stack to other industry players. The vision was that hospitals or regional insurers could use Oscar’s software and services to run their own insurance plans more efficiently. In theory, this could become a high-margin, SaaS-like revenue source. In practice, it has been slow to take off. Oscar did sign a deal with a Florida health system (Health First) to run their health plan on +Oscar, but that arrangement ran into implementation difficulties and was ultimately terminated in 2022 – costing Oscar an estimated $60 million in lost revenue that year. Oscar paused pursuing new large platform deals after that, although it continues to market modular tech services and still counts a few partners (like Holy Cross Health for a Medicare plan, and the Cigna small-group tie-up) as +Oscar clients. The bottom line: Oscar today is still primarily an insurance company, not a software vendor. Its future will rise or fall on how well it can underwrite and manage health insurance risk for its growing membership.
The Hype – Why Investors Are Excited
Oscar Health’s stock has been on a tear recently, and the bullish sentiment boils down to a few key points. Let’s break down the drivers of the current investor excitement:
Rapid Growth in a Booming Market: Oscar is growing like a weed in the individual ACA market at a time when that market itself is hitting record enrollment. Thanks to expanded ACA subsidies in the past few years, more Americans are buying insurance on the exchanges than ever – over 16 million people as of 2023. Oscar’s individual exchange membership grew 45% year-over-year by Q1 2025, vastly outpacing the industry. It ended Q1 with 2 million members, up from 1.4M a year prior. This kind of membership surge translates directly into revenue growth (Oscar’s Q1 2025 revenue was $3.0B, up from $2.1B in Q1 2024). Investors love growth, and Oscar is delivering that in spades via the ACA market tailwind. Importantly, the company isn’t content to stop at 2 million members – it has publicly stated bold plans to double membership by 2027, expanding to 150 new metro areas. Such targets reinforce the narrative that Oscar has a long runway for expansion.
Tech & Data “Secret Sauce”: Oscar’s identity as a tech-forward insurer plays into investor enthusiasm, especially in an era where anything with AI or platform in the description gets extra attention. Oscar’s management has emphasized its AI and data analytics capabilities in guiding care and controlling costs. For example, they highlight that their systems can proactively flag high-risk patients for intervention, or steer members to telehealth and preferred providers to reduce unnecessary spending. Oscar’s member app and engagement metrics are touted as industry-leading (over 44% of members use the digital platform regularly, and the plan’s Net Promoter Score is high at 66 – unheard of for health insurance which typically has negative customer ratings). The hype here is that Oscar’s tech is a competitive advantage that could make their cost structure better over time. If Oscar can consistently achieve even a few percentage points lower medical costs than peers by keeping members out of ERs and in cheaper care settings, that’s huge for margins. There’s also speculation that Oscar could monetize its data or platform by re-entering the licensing game once it proves it out internally. In short, some investors see Oscar as a “healthtech” company, not just an insurer, which implies a higher potential valuation multiple (more like a software company than a traditional insurance company). Indeed, one analyst noted that Oscar is evolving into a profitable “full-stack health insurance platform” yet is still “valued like a traditional insurer” – suggesting an opportunity for multiple expansion if the market recognizes its tech credentials.
Big-Name Partnerships and Leadership: Oscar’s narrative has been bolstered by alliances and people that inspire confidence. The Cigna partnership for small-group plans, even though it’s ending, initially validated Oscar’s model (a Fortune 100 insurer was willing to partner and share risk). Oscar also teamed up with names like Cleveland Clinic and the Mayo Clinic in the past for co-branded offerings. These partnerships signaled that Oscar isn’t just a scrappy startup; it can play with the big boys and leverage established networks to grow. On the leadership front, Oscar made a splash by bringing on Mark Bertolini as CEO in 2023. Bertolini is the former CEO of Aetna, one of the nation’s largest insurers, and a highly respected figure in the industry. His arrival was a turning point – under his watch, Oscar aggressively cut expenses, repriced its products, and charted a path to profitability. Investors often view such seasoned leadership as a big plus: Bertolini provides credibility that Oscar’s strategy and operations are being honed by someone who previously took a major insurer to great profitability. It’s no coincidence Oscar hit its first profit milestones shortly after his onboarding. This leadership stability contrasts with some other healthtech startups that had less experienced management.
Signs of Improving Economics (Path to Profitability): Perhaps the biggest factor exciting investors is that Oscar’s financial trendlines are moving in the right direction. The company’s medical loss ratio improved into the low 80s% range in 2023-2024, which is roughly on par with or even better than many established insurers in the individual market. Its admin cost ratio has been dropping fast as membership scales. All this culminated in Oscar reaching adjusted EBITDA positive and even a modest net profit for full-year 2024 – a feat that few, if any, of the other 2021-era health insurance startups managed. (For context, fellow insurtech Bright Health never got near profitability and ended up exiting its core insurance markets under massive financial duress, and Clover Health, another high-profile health tech IPO, has continued to rack up losses in Medicare Advantage.) Oscar proving it can actually make money, even if just barely, set it apart from the “growth at all costs” stories that soured in this sector. Additionally, Oscar had forecasted continued improvement with an initial 2025 guidance projecting $11.2–11.3B in revenue and a $225–275M operating profit. That kind of outlook – implying a solidly profitable year ahead – understandably got investors optimistic that Oscar had turned the corner financially. (We’ll discuss the reversal of that guidance in the next section, but the key is that the underlying business seemed to be reaching sustainability.)
Comparisons to Other HealthTech Darlings: Oscar’s hype is also riding a general wave of enthusiasm for companies that aim to disrupt healthcare using technology. We’ve seen telehealth providers like Teladoc, digital health platforms like Hims & Hers, and value-based care startups attract lofty valuations on the promise of tech-enabled efficiency. Oscar, by being a “neo-insurer,” taps into a similar narrative – that it’s not your grandma’s insurance company but a Silicon Valley-esque innovator. In a June 2025 Motley Fool piece, an analyst even teased Oscar as “the next monster healthcare stock” in the making, urging investors to “move over Hims & Hers” and look at this insurance player as an underappreciated gem. The gist is that Oscar could ride not only the insurance premium growth of its members, but also potentially layer on high-margin tech revenues or achieve superior margins via its model, which might deserve a higher stock valuation than boring old insurers like UnitedHealth (which, while massively profitable, grows slowly and trades at lower multiples). Some bulls essentially argue that Oscar offers a rare combo of high growth and improving profitability – a blend that, if sustained, is the recipe for a stock that can outperform.
To sum up, the investor excitement around Oscar Health comes from seeing a disruptor story actually deliver results. Oscar has captured a large and growing slice of an important market, differentiated itself with technology and customer experience, proven it can at least reach profitability, and is helmed by leaders with proven experience. In a healthcare sector starved for innovation success stories, Oscar’s narrative is a breath of fresh air. However – and this is a big however – the optimism must be weighed against very real challenges and risk factors. As we turn to next, there are critical questions about whether Oscar can scale its model profitably and sustainably, or whether the recent good news is fragile. In other words, we’ve seen the “hype” – now let’s scrutinize the fundamentals and risks.
What’s Critical – Risks and Realities
Every coin has two sides. For all of Oscar’s promise, there are significant risks and uncertainties that savvy observers are keeping in mind. Here are the critical issues and questions that cast doubt on the rosy scenario:
Can Oscar Scale Profitably (Not Just Grow)? Oscar’s rapid growth has been impressive, but profitable growth is the real test. Health insurance, especially in the individual ACA market, runs on thin margins – and missteps can quickly lead to losses. Oscar benefitted in 2023-2024 from a very favorable environment: pandemic-era healthcare utilization was somewhat suppressed and the ACA risk pool was bolstered by more healthy sign-ups due to subsidies. Those trends can reverse. In fact, we’ve just seen a harsh reminder: Oscar had to cut its 2025 earnings outlook dramatically, swinging from a projected +$250M operating profit to a -$200M to -$300M loss. Why? Higher-than-expected medical claims. As pandemic effects waned, people started using more healthcare, and Oscar’s members turned out to be higher-risk (or higher utilizers) than anticipated in its pricing. Its MLR is now expected to jump to ~86-87% for 2025, about 5 percentage points worse than initially planned. This margin erosion shows how quickly the economics can turn. The risk is that Oscar might have to keep choosing between growth and profit – if it prices too low to grab members, it might rack up big losses (as happened to others like Bright Health). If it prices responsibly, growth could slow and competitors might undercut it. Sustainable profitability in insurance often requires years of claims data and adjustment; Oscar is still relatively new in many of its markets, so it may face a learning curve (and costly surprises) as it scales. Bottom line: There is no guarantee that Oscar’s recent profitability will be consistently repeatable. One quarter’s profit can become the next quarter’s loss if actuarial assumptions prove wrong. This uncertainty will hang over Oscar until it can string together multiple years of solid underwriting results through varying conditions.
Regulatory and Policy Wildcards: Oscar’s fortunes are tightly linked to government policy, given its focus on ACA plans. One immediate concern: those generous enhanced ACA subsidies (from the 2021 American Rescue Plan, extended through 2025) are set to expire at the end of 2025 unless Congress extends them. If they do expire, premiums would effectively rise for millions of members, and some healthier people might drop coverage, shrinking the market or making the remaining pool sicker. That could dent Oscar’s membership growth and increase its MLR – a bad combo. Oscar’s CEO has already flagged another policy risk: a potential shortening of the annual Open Enrollment period by CMS, which he warned could “constrain” enrollment and make it harder for insurers to attract new members. Beyond the ACA, there’s always the overarching political risk that future administrations or Congress could attempt to repeal or overhaul the ACA marketplace (remember the repeal debates of 2017). While outright repeal seems unlikely now, tweaks to the rules (like changes to risk adjustment formulas, minimum MLR requirements, or introduction of a public option) could fundamentally alter the playing field. Oscar, as a smaller and ACA-centric insurer, is more exposed to ACA policy changes than diversified giants. Even state-level regulatory decisions – say, a state requiring richer benefits or capping rate increases – could hurt Oscar in that state. In short, the regulatory winds can shift quickly, and what helps Oscar today (e.g. subsidies) could be gone tomorrow, so investors must account for that unpredictability.
Is Oscar’s Tech Moat Real or Replicable? Oscar’s differentiation rests largely on its technology and user experience. However, one must ask: how durable is that advantage? In the early 2010s, incumbent insurers were indeed tech dinosaurs, and Oscar’s slick app was a revelation. But in 2025, virtually every major insurer has a competitive app, telehealth options, and care management programs. UnitedHealth, for example, has poured resources into its Optum tech and data analytics division; Aetna and CVS are integrating insurance with retail healthcare; startups like Devoted Health (in Medicare) also tout “full stack” tech. It’s arguable that any specific feature Oscar has – say, 24/7 telemedicine or transparent pricing tools – can and has been imitated by others. The incumbents also have one big edge: vast troves of historical data and larger medical networks. They might not be as nimble culturally, but they can hire software developers too (and have far bigger IT budgets). So the concern is that Oscar’s tech may not be a long-term moat but rather table stakes, and its rivals may neutralize any tech lead quickly. Additionally, Oscar’s attempt to monetize its tech externally (+Oscar) stumbled on implementation challenges, which suggests its platform isn’t a plug-and-play solution yet. It’s also worth noting that healthcare is not a pure software business – human relationships and contracts (with providers, regulators, employers) matter a lot. Oscar doesn’t have the deep provider integration or care delivery ownership that some competitors do (for instance, Kaiser Permanente or United’s Optum clinics). If Oscar’s app is great but its provider networks are narrower or its claims prices aren’t lowest, some consumers or employers might still opt for the big name insurer. Thus, one risk is that tech alone may not overcome the structural advantages of scale and integration that the healthcare behemoths enjoy.
Dependence on the ACA and Concentration Risk: Oscar has essentially all its eggs in the individual market basket (aside from a small Medicare Advantage experiment and the soon-to-end small-group venture). This focus has benefits but also big risks. The individual market can be volatile – enrollment can swing with economic conditions and policy changes, and medical cost trends can vary. For example, Aetna (CVS), despite being a huge insurer, recently decided to pull out of the ACA individual markets for 2024 after dabbling back in, due to profitability concerns. If a player like Aetna doesn’t find the market attractive enough to stay, it shows how tough that space can be. Oscar doesn’t have other product lines (like employer insurance or a large Medicare book) to offset an ACA downturn or exit unprofitable regions. In fact, Oscar has had to exit some markets itself in the past (it left New Jersey in 2016 amid losses, and more recently exited Colorado and Arkansas for 2023). Its geographic concentration – while improving as they expand – means that a problem in one state’s risk pool can materially hurt their overall results. For instance, if healthcare costs spike in Florida or Texas (two big Oscar states) due to an outbreak or new expensive drug, Oscar will feel it disproportionately. Competitors like Anthem or Centene can spread that risk over dozens of states. Additionally, Oscar’s plan to double membership by 2027 implies entering many new markets; new market entry is inherently risky since you have no historical data on local enrollees and often lose money in the first year or two while building scale. Execution risk in expansion is high – Oscar will need excellent actuarial accuracy and local provider contracting to avoid costly missteps as it grows footprint. The ACA market is also getting more crowded with returning players (some Blue Cross plans that left have come back, etc.), so Oscar faces heavyweight competition in each new area it enters.
Medical Cost and Risk Adjustment Wild Cards: Healthcare costs are notoriously unpredictable. A few high-cost patients can blow up an insurer’s costs in a given year (think new gene therapies costing millions, or a surge in hospitalizations). Oscar is still relatively small, so it has less law of large numbers to smooth things out. Furthermore, the ACA risk adjustment program can be a double-edged sword. It’s supposed to protect insurers with sicker members, but if Oscar’s population is healthier than average, it must pay out to others. We saw insurtech peer Bright Health essentially drown under a $1.9 billion risk adjustment bill for its ACA plans – an extreme case, but a cautionary tale. Oscar itself noted that for 2024, risk adjustment resulted in a $23 million favorable swing compared to what it had accrued, but going forward risk adjustment is becoming more challenging as overall market morbidity rises. In Q2 2025, Oscar disclosed that industry risk scores spiked higher than expected, meaning all insurers’ members were sicker on average. Oscar had to reflect that by upping its projected claims and reducing profit outlook. This indicates that even factors outside Oscar’s direct control (like an overall sicker population or competitors’ dynamics) can hurt its earnings. If one or two insurers underprice and attract a ton of healthy people, Oscar could end up on the hook to pay large risk adjustment transfers. Or if Oscar itself underestimates how sick its new members are, it could face big liabilities (or have to hike premiums drastically, which then risks a membership exodus). Managing medical risk is an ongoing chess game, and Oscar’s relatively short operating history means it doesn’t have decades of claims experience to draw on. There’s a risk that Oscar’s recent favorable medical trends could be temporary and that an unexpected jump in utilization (say, a new costly drug or pent-up demand for surgeries) could whack its MLR in the future.
High Burn Rate and Need for Capital: While Oscar has improved its finances, it is not yet consistently self-funding. Prior to 2024, the company lost hundreds of millions per year (for example, a net loss of $270 million in 2023, and similar or higher losses in years before). Those losses were funded by venture capital rounds and the IPO in 2021 (which raised $1.2 billion). Oscar’s total accumulated deficit is likely close to $2 billion since inception. Now, to its credit, Oscar still has significant cash and investments on hand (over $4.8 billion in assets as of 2024, though much of that is reserved for insurance claims). But if the company returns to making losses (as 2025 is now projecting), it will burn cash again. Rapid growth also uses capital, since insurance regulators require certain surplus levels for each member covered. The risk here is twofold: If Oscar cannot quickly course-correct to profitability, it might eventually need to raise more capital through equity or debt, which could dilute shareholders or add interest costs. And if investors’ sentiment sours (for instance, if Oscar hits a string of bad results), accessing new capital on good terms could be hard – a fate that befell Bright Health and others. Basically, Oscar doesn’t have unlimited runway: it needs to execute well in the next couple of years to solidify its finances, or it could face tough choices (scaling back growth plans, selling a stake, etc.). The stock’s volatility reflects this reality – it booms on good news and can bust on bad news. For example, Oscar’s share price, which once traded above $30 after IPO, fell into the single digits during 2022’s insurtech crash, then rebounded above $15 in mid-2025 when profits appeared, and could as easily swing again with the latest guidance cut. That volatility means the market is still unsure about Oscar’s long-term trajectory and is pricing in a lot of hope. If Oscar stumbles, that hope premium could evaporate quickly.
Valuation – Pricing in Too Much Hope? On a related note, even after pulling back from initial post-IPO highs, Oscar’s valuation might still be baking in optimism. The company is trading at a price-to-sales ratio higher than some established insurers, reflecting expectations of rapid growth. Bulls argue that Oscar should be valued more like a high-growth tech company, but if Oscar ultimately behaves more like a traditional insurer (low margin, cyclical, etc.), there’s a risk of multiple compression. Additionally, Oscar’s plan to double membership by 2027 is aggressive – if it only grows, say, 10% per year instead of the ~19% CAGR needed to double in 4 years, its revenues would undershoot bullish models. Any sign of growth deceleration or margin pressure could lead investors to reassess and possibly punish the stock. It’s also worth mentioning that competition isn’t sitting still: heavyweights like UnitedHealthcare, Humana, and others are investing in their individual market offerings, and new entrants (or Medicaid plans shifting into ACA markets) could heat up price competition. Oscar might find it harder to maintain share or margins if competitors decide to underprice to gain market share (since some larger players can sustain losses longer). All told, there’s a concern that today’s stock price might be “pricing in” a fairly rosy scenario of continued high growth and improving margins – any deviation from that, and the hype could indeed prove overblown.
Finally, a broader reality check: health insurance is a low-margin slog, not a get-rich-quick business. Even market leaders typically see only 3-5% profit margins in good years. Oscar is trying to change the game, but it faces the same fundamental constraints – it can only bend the cost curve so much with tech and needs to comply with the same rules as everyone else. Some skeptics wonder if Oscar’s model is truly disruptive or if it’s essentially a nicely packaged traditional insurer that will ultimately converge to industry-average performance. If the latter is true, then the enthusiasm should be tempered – Oscar might carve out a decent business, but not a radically profitable or dominant one, especially considering the giants it competes with.
Conclusion
After weighing both the hype and the fundamentals, where do I land on Oscar Health? I’d say cautiously optimistic, but far from all-in. Oscar has undoubtedly made impressive strides – going from a newcomer to 2 million members and reaching profitability (albeit briefly) is no small feat in under a decade. The company’s focus on user experience did fill a void in the market, and it pushed the industry toward friendlier, more tech-enabled insurance. In a sector that often feels stuck in the 20th century, Oscar is a refreshing agent of change. I also believe having leaders like Mark Bertolini at the helm gives Oscar a fighting chance to mature into a stable, scaled insurer. The fact that Oscar successfully navigated to an 81% MLR and positive earnings in 2024 proves that its model can work – at least under favorable conditions.
However, as an analyst (and as a potential investor), I have to be realistic about the road ahead. The fundamental challenges of the health insurance business haven’t been magicked away by Oscar’s app. The company is entering a phase where it must execute nearly flawlessly – pricing accurately, controlling costs, expanding wisely, and adapting to external changes – to justify the current excitement. Missteps will happen (we just saw one with the 2025 guidance cut), and how Oscar responds will be critical. Can they adjust premiums quickly enough for 2026 to account for higher risk scores? (They’re already filing rate increases in many states for next year.) Will membership growth slow if those premiums jump double-digits? Can the technology truly bend the cost curve, or will Oscar eventually have to play by the same cost structure as everyone else? These are open questions that will determine if Oscar’s story is a transformative success or just a well-intentioned experiment that hit a ceiling.
For now, I view Oscar Health as a high-upside, high-risk stock. It has the ingredients to potentially “disrupt” a huge industry – which is why the hype exists. But it also runs the risk of disruption by reality, meaning the forces of regulation and medical inflation could grind down its edge. My personal take is that the recent hype is a bit ahead of fundamentals. The excitement is understandable given Oscar’s momentum, but the next 1-2 years will need to confirm that momentum is sustainable. I wouldn’t be surprised by continued volatility – big swings on earnings news, etc. If you’re an investor, this is definitely a story to follow closely rather than set-and-forget.
For readers (and investors) interested in Oscar, here are a few things I’m watching next:
Upcoming Earnings and MLR Trends: Each quarterly earnings release will be telling. Watch that medical loss ratio figure – is it staying in the low 80s% or creeping up? Oscar’s ability to manage claims cost as it grows is crucial. Q2 2025’s results (due in August) will show if the higher cost trend is persisting and how Oscar is coping.
Membership Growth vs. Pricing: When 2026 ACA Open Enrollment comes around (late 2025), we’ll see Oscar’s new premiums. If they take significant rate increases (which looks likely given higher cost trend), will they still grow membership or will it plateau? The balance between maintaining growth and moving to profitability will play out here.
Regulatory Updates: Keep an ear out for any extension of ACA subsidies (a political decision that could happen in late 2025). If subsidies are extended, that’s a tailwind for Oscar; if not, 2026 could be a tougher year. Also, any news on risk adjustment methodology changes or other ACA program tweaks could impact Oscar materially.
Execution of Expansion Plans: Oscar said it wants to be in 150 new metro areas by 2027. We’ll see annual announcements of new state entries or exits. Success in new markets (or lack thereof) will tell us how replicable Oscar’s model is beyond its initial strongholds. If we see Oscar pulling back from markets or slowing expansion, that might signal difficulties. Conversely, smooth launches in, say, big states like Illinois or Pennsylvania (hypothetical examples) would be very encouraging.
Competition’s Response: Are big insurers cutting prices or enhancing their offerings in response to Oscar? Any evidence of price wars or loss of market share to a competitor in a key state would be concerning. On the flip side, if major players like Aetna continue to bow out of ACA markets, Oscar could capitalize. The competitive landscape in each state is something to monitor.
Oscar’s Next Strategic Moves: Finally, any strategic shifts by Oscar itself will be telling. Will they double down on technology licensing (perhaps reviving +Oscar if internal finances stabilize)? Will they seek partnerships to enter new segments (Medicare Advantage, Medicaid, etc.)? Do they become an acquisition target if a big insurer or tech company decides it wants Oscar’s tech and member base? All of these are possibilities in the coming years.
In conclusion, Oscar Health presents a fascinating case of hype vs. fundamentals in today’s market. It has a compelling story and real achievements under its belt, which justifies a level of excitement. But it also faces the same fundamental grind that any insurer does, which urges caution. My view is that Oscar is neither a sure-fire home run nor a hyped-up mirage – it’s somewhere in between, with a trajectory that will depend on solid execution and maybe a bit of luck in how the external environment treats it.
As always, this analysis is for informational purposes and not investment advice. Health insurance isn’t for the faint of heart – and neither is investing in a company like Oscar. The best we can do is stay informed and keep a clear eye on both the promise and the pitfalls.
Disclosure: I have no positions in Oscar Health (OSCR) or any companies mentioned. This post reflects my opinions as of the publishing date. I’ll be eagerly watching Oscar’s journey, and I’m sure there will be plenty more to write about as this story unfolds. Stay tuned, stay healthy, and let’s see if Oscar can live up to the buzz!
Fantastic!
Great read, thanks a lot for the detailed and unbiased analysis!