OSCR Q2 Deep Dive: Market Morbidity Pressures Offset by Strategic Cost Actions and Product Expansion

Health insurance company Oscar Health (NYSE:OSCR) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 29% year on year to $2.86 billion. Its non-GAAP loss of $0.89 per share was 6.5% below analysts’ consensus estimates.

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StockStory’s Take

Oscar Health’s second quarter was marked by robust top-line growth, but the company missed Wall Street’s revenue and non-GAAP EPS estimates. Despite the shortfall, management pointed to a 29% increase in membership and cited solid retention and above-market gains during open enrollment as key drivers. CEO Mark Bertolini highlighted that higher average market morbidity—reflecting sicker members joining the insurance pool—drove up medical costs, while Oscar’s expense management and technology-driven efficiencies helped partially offset these pressures. Bertolini stated, “We are focused on what we can control,” referencing both rate actions and administrative cost reductions undertaken in the quarter.

Looking forward, management believes Oscar’s actions to address market-wide morbidity and cost inflation will help stabilize performance in 2026. The company is repricing its plans, engaging with regulators on rate filings, and implementing a workforce reduction to eliminate $60 million in administrative expenses for next year. Bertolini added that Oscar’s newly acquired digital assets and the launch of an ICHRA product with Hy-Vee are expected to diversify revenue streams, stating, “Our new ICHRA assets will give us capabilities to meet and exceed the expectations of consumers and employers.” CFO Scott Blackley emphasized that conservative pricing and continued cost discipline underpin Oscar’s path to profitability.

Key Insights from Management’s Remarks

Management attributed the quarter’s operating loss and compressed margins to a sharp increase in market morbidity and higher risk adjustment payables, while highlighting progress in cost controls and new business initiatives.

• Market morbidity spike: Management noted a significant, industry-wide rise in market morbidity, or the average illness level of insured members, driven by Medicaid redeterminations and program integrity changes. This led to higher claims and a 12-point increase in Oscar’s medical loss ratio.
• Risk adjustment impact: The company reported a material increase in its risk adjustment payable—a payment mechanism in the ACA marketplace meant to balance out the risk among insurers. This adjustment negatively impacted margins but was consistent with broader market trends.
• Expense management progress: Oscar reduced its SG&A (sales, general, and administrative) ratio by 90 basis points year over year, due to fixed cost leverage, lower exchange fees, and ongoing rightsizing of headcount. Management expects $60 million in administrative cost reductions in 2026.
• Membership growth dynamics: Membership rose 28% year over year, fueled primarily by strong retention and new members during special enrollment periods. Management said the risk profile of new members was consistent with historical expectations, minimizing adverse selection concerns.
• Strategic asset acquisitions: The company acquired early-stage assets, including an ACA brokerage, a CMS-approved enrollment platform, and a consumer education website. Management described these as foundational for expanding its Individual Coverage HRA (ICHRA) offering and entering new distribution channels.

Drivers of Future Performance

Oscar Health’s outlook centers on recovering margins through repricing, ongoing cost reductions, and expansion of its product ecosystem despite a challenging risk environment.

• Rate increases to offset risk: Management believes double-digit rate increases across key markets, supported by state regulators, will help address the recent spike in market morbidity. These actions are expected to improve profitability and stabilize Oscar’s risk pool in 2026.
• Cost discipline and workforce reductions: The company is executing a workforce reduction and curbing vendor costs, targeting $60 million in annualized administrative savings. Management sees these measures as essential to restoring margins and returning to profitability next year.
• ICHRA and digital marketplace expansion: Oscar is investing in its ICHRA platform, new digital assets, and a partnership with Hy-Vee to diversify its growth drivers. Management expects these initiatives to attract new members and employer groups, reducing reliance on traditional ACA enrollment cycles.

Catalysts in Upcoming Quarters

In coming quarters, we will closely track (1) the effectiveness of repricing efforts and regulatory approvals on rate filings, (2) the realization of planned administrative cost savings from headcount and vendor reductions, and (3) early traction in Oscar’s expanded ICHRA and digital marketplace initiatives. Additionally, monitoring shifts in market morbidity and competitive rate actions will remain key to assessing the company’s margin outlook.

Oscar Health currently trades at $15.59, up from $13.82 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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