Oscar Health's 2026 Guidance Sets High Bar Amid Persistent Underwriting and Capital Risks

What happened

A Seeking Alpha article projects Oscar Health's 2026 revenue at $18.7-$19.0 billion and operating earnings up to $450 million, citing technology-driven efficiency and strong member retention as catalysts for valuation upside. However, the DeepValue master report highlights that this guidance requires a sharp MLR improvement to 82.4-83.4% from 2025's 87.4%, a level driven by higher market morbidity and risk adjustment accruals that have historically been volatile. The report emphasizes critical risks, including ACA risk adjustment transfers that are hard to estimate and quota share reinsurance dependency, which masks a $671.8 million capital need as of September 2025. Recent financials show Oscar's MLR deterioration in 2025 undermines confidence in the reset narrative, with policy uncertainty and cost pressures adding to execution challenges. Thus, the next 3-6 months are pivotal for investors to see if Q1 and Q2 2026 results validate the guidance or expose ongoing vulnerabilities.

Implication

The optimistic 2026 guidance in the article overlooks the DeepValue report's warning that Oscar's profitability hinges on unpredictable risk adjustment outcomes and capital constraints, which could derail earnings. Oscar's heavy reliance on ACA subsidies and quota share reinsurance introduces policy and liquidity risks that are not fully priced in, potentially leading to dilution or funding issues if underwriting falters. Market sentiment is shifting from policy headlines to cost pressure debates, meaning stock movements may increasingly depend on operational metrics like MLR rather than subsidy news. Without clear progress in Q1 and Q2 2026, the equity faces significant downside, as failure to meet guidance could trigger capital needs and a reevaluation towards the bear scenario with implied value of $10. Therefore, aligning with the report's 'WAIT' rating is prudent, focusing on monitoring upcoming financial prints for evidence of sustainable improvement.

Thesis delta

The article's focus on 2026 guidance does not shift the core investment thesis, which remains dependent on Oscar proving underwriting discipline amidst high volatility. However, it underscores the urgency of validation, as any miss on MLR targets in early 2026 quarters would confirm the report's bear case and likely force a downward revision in valuation.