Oscar Health (OSCR): A Contrarian Play on Healthcare Disruption

In an era where healthcare companies face regulatory headwinds and pricing pressures, Oscar Health (NASDAQ: OSCR) is emerging as a contrarian gem. The company's Q1 2025 results, coupled with its strategic positioning in Medicare Advantage (MA) and the looming Medicare Part E legislation, suggest it is primed to capitalize on a shifting landscape. Despite near-term volatility, its tech-driven model, improving profitability, and undervalued stock make it a compelling investment for long-term investors.

Operational Transformation: Profitability Takes Center Stage

Oscar's first-quarter performance marked a pivotal milestone in its shift from a loss-making startup to a profitable disruptor. Revenue surged to $3.05 billion, a 42% year-over-year jump, while net income hit $275 million, up 55% from 2024. The star metric, however, was its EBIT margin, which expanded to 9.8%—a 110 basis-point improvement from 8.65% in Q1 2024. This was driven by aggressive cost-cutting: the SG&A expense ratio fell to 15.8%, a historic low, as fixed cost leverage and AI-powered efficiency gains offset a modest rise in the medical loss ratio (MLR) to 75.4%.

The company's focus on operational discipline is clear. By deploying AI in care coordination—such as its Oscar+ telehealth tool, which reduced emergency room visits by 20%—Oscar is proving that technology can bend the cost curve. This is critical as healthcare inflation remains sticky. The result? A $2.24 billion cash hoard and a $297 million EBIT beat that sent shares up 15% in premarket trading.

Regulatory Tailwinds: Medicare Part E and the Path to Dominance

While Wall Street fixates on ACA subsidy expiration and enrollment headwinds, Oscar is quietly building a moat in Medicare Advantage. The segment grew 15% YoY in Q1, outpacing its ACA business, which faces regulatory headwinds like CMS's proposed enrollment period cuts. Medicare Part E, a voluntary public option proposed in June 啐, could supercharge this growth. If passed, the legislation would allow individuals and employers to opt into expanded Medicare benefits, tripling Oscar's addressable market.

Oscar is uniquely positioned to win here. Its Guided Care HMO offering—designed for simplicity and affordability—is already resonating with seniors. Moreover, the company's Spanish-language platform, Buena Salud, now integrated into Medicare, taps into a growing demographic. Even if Part E stalls in Congress, Oscar's MA strategy remains a defensive play: MA plans are less subsidy-dependent and benefit from federal quality incentives.

The regulatory tailwind extends beyond Part E. Stricter CMS rules on broker compensation and drug price negotiations align with Oscar's data-driven underwriting and member-centric model. As traditional insurers struggle with rising costs and compliance, Oscar's tech stack is a comparative advantage.

Valuation Arbitrage: A Stock Undervalued by 50% or More

At current prices, Oscar trades at just 1.2x 2025 revenue estimates, a stark discount to its growth trajectory. Analysts at Morgan Stanley and Jefferies see the stock hitting $25+ over 18–24 months—more than double its current price of $11. The disconnect? Near-term risks like Q4 membership declines (projected to drop to 1.8 million due to subsidy expiration) and MLR volatility.

Yet the long-term math is compelling. Oscar's $4.9 billion cash reserves fund tech investments, acquisitions, and share buybacks. Meanwhile, its Medicare and Medicaid membership (up 41% YoY) ensures a recurring revenue stream. If Part E passes, the upside could be exponential.

Risks and the Contrarian Play

No investment is without risks. The Part E bill faces political gridlock, and CMS's proposed enrollment changes could crimp ACA membership. Oscar's MLR could also rise further if healthcare inflation accelerates. Yet these risks are priced into the stock.

The contrarian thesis hinges on three pillars:
1. Operational resilience: EBIT margins are expanding despite MLR headwinds.
2. Regulatory upside: Even partial wins on Part E or CMS reforms could unlock value.
3. Valuation asymmetry: The stock's discount suggests a 50%+ upside to conservative estimates.

Investment Advice: Buy the Dip, Hold the Trend

Oscar Health is a buy for investors willing to look past near-term noise. The company's Q1 results, tech-driven cost controls, and strategic Medicare focus create a moat in an industry ripe for disruption. With a cash-rich balance sheet and a stock trading at a 50% discount to peers, the risk-reward here is skewed to the upside.

Action Item: Accumulate OSCR on dips below $10/share, with a 12–18-month price target of $20+. Monitor enrollment trends in Q3 and regulatory updates on Medicare Part E. This is a stock to hold through volatility—for the next bull market in healthcare, Oscar's disruption will pay off.

This article is for informational purposes only and should not be considered financial advice. Always consult a professional before making investment decisions.