Oscar Health's 2025 Results Confirm Deep MLR Challenges and Subsidy Dependence

What happened

Oscar Health has announced its fourth quarter and full-year 2025 financial results, revealing medical loss ratios in the guided 86-87% range and substantial operating losses, consistent with the DeepValue report's warnings. These outcomes stem from elevated market-wide morbidity and repeated adverse risk-adjustment revisions, which management has struggled to forecast accurately. Despite potential optimism in the press release, the company's profitability remains critically tied to double-digit 2026 rate hikes and uncertain congressional extensions of enhanced ACA subsidies. Operational improvements in SG&A efficiency are insufficient to offset the underwriting volatility and binary policy risks that dominate earnings. This reinforces the view that Oscar's current valuation embeds unrealistic expectations for a swift recovery, with limited margin of safety.

Implication

The 2025 results validate the DeepValue report's base case of continued losses, highlighting Oscar's persistent exposure to uncontrollable factors like morbidity spikes and subsidy policy shifts. Upcoming catalysts, including 2026 rate approvals and congressional subsidy decisions, will be decisive for profitability, but past guidance misses erode confidence in management's forecasts. Without clear evidence of MLR improvement below 85% and stable subsidy support, the equity's premium valuation offers little protection against downside scenarios, such as membership declines or capital erosion. Market sentiment has already shifted to view Oscar as a high-beta, policy-sensitive play, increasing volatility risks without commensurate upside potential. Therefore, investors are advised to avoid new positions or reduce exposure until these binary outcomes are resolved, favoring a wait-and-see approach.

Thesis delta

The new results do not meaningfully shift the investment thesis; Oscar remains a 'Potential Sell' due to its overreliance on subsidy extensions and aggressive repricing to restore profitability. However, any deviation from guidance, such as MLR above 87% or subsidy lapses, would accelerate downside risks and could necessitate a lower valuation target. Conversely, only concrete progress on MLR reduction and multi-year subsidy certainty would justify a more bullish stance, which is not evident from this announcement.