Oscar Health's Stock Surge on ACA Subsidy Extension Masks Underlying Operational Risks

What happened

Oscar Health's stock soared roughly 25% after reports indicated a two-year extension of Affordable Care Act subsidies, which could temporarily stabilize enrollment and reduce policy uncertainty. However, the company is in a 2025 reset phase, guiding to operating losses and a high medical loss ratio of 86-87% due to a sicker risk pool and elevated utilization. The DeepValue report notes that while Oscar has strong liquidity and a tech-enabled cost advantage, near-term earnings are clouded by these operational challenges. Key risks, such as the adequacy of 2026 rate approvals and potential policy shifts, are not fully resolved by this subsidy extension. Investors should remain cautious, as the rally may overstate the impact without evidence of sustained MLR improvement and execution on pricing.

Implication

In the near term, the subsidy extension reduces the risk of enrollment declines but fails to mitigate Oscar's guided 2025 operating losses and high MLR driven by a sicker risk pool. Investors must watch for 2026 rate approvals to ensure they cover cost trends, as inadequate pricing could exacerbate losses and pressure the stock. The report highlights that MLR trajectory and policy outcomes, such as enrollment integrity rules, remain critical swing factors that could derail recovery. While Oscar's strong liquidity and tech advantages provide a buffer, the subsidy news alone does not justify a buy rating without clearer signs of execution. Overall, maintaining a HOLD stance is prudent until the company demonstrates sustained operational improvements and navigates policy uncertainties.

Thesis delta

The subsidy extension slightly reduces policy risk but does not alter the core HOLD thesis, which hinges on Oscar proving 2026 pricing adequacy and MLR stabilization. Investors should await concrete evidence from upcoming rate decisions and operational metrics before considering a stance change, as the underlying challenges of high utilization and execution risks persist.