Oscar Health: Riding Regulatory Tailwinds to Medicare Dominance

The Medicare Part E proposal, introduced in June 2025, has reignited debates over healthcare access and affordability in the U.S. While the legislation faces political hurdles, it presents a strategic opportunity for insurers like Oscar Health (OSCR), which has already positioned itself as a leader in Medicare Advantage (MA). By leveraging its technology-driven platform and financial resilience, Oscar is primed to capitalize on regulatory tailwinds, even as rivals retreat from unstable ACA markets.

Medicare Part E: A Catalyst for Growth, Not a Silver Bullet

The proposed Medicare Part E creates a voluntary public option, allowing individuals and employers to opt into expanded Medicare benefits. While its passage remains uncertain—Republicans oppose it due to fiscal concerns—Oscar's strategy already aligns with its core principles: broadening access to affordable coverage and reducing out-of-pocket costs.

Oscar's Medicare Advantage business has grown 15% year-over-year in Q1 2025, outpacing its ACA book, which faces headwinds from expiring subsidies and rising administrative costs. Even without Part E, Oscar's focus on MA markets is a defensive play: MA plans are less sensitive to subsidy expiration and benefit from federal incentives for quality outcomes. The Part E proposal, if passed, would further expand the pool of potential members by simplifying enrollment and reducing costs for employers—a demographic Oscar is targeting through partnerships like its Guided Care HMO offering.

Financial Resilience: A Strong Foundation for Expansion

Oscar's Q1 2025 results underscore its ability to navigate volatility while investing in growth. Key metrics include:
- Revenue: $3.05 billion (+42% YoY), driven by MA and Medicaid membership gains.
- Net Income: $275 million (+55% YoY), reflecting improved operational efficiency.
- Medical Loss Ratio (MLR): 75.4%, up slightly from Q1 2024 but within a sustainable range.

The company's $4.9 billion cash reserves provide ample liquidity to weather regulatory uncertainty. This financial flexibility allows Oscar to:
1. Double down on tech-driven cost controls (e.g., its AI-powered Oscar+ telehealth platform, which reduces ER utilization by 20%).
2. Pursue strategic acquisitions in digital health, such as Buena Salud (its Spanish-language MA offering).
3. Buy back shares if undervalued—its stock trades at 1.2x 2025 revenue estimates, near historical lows.

Regulatory Tailwinds: Beyond Part E

Even if Part E stalls, Oscar benefits from broader Medicare reforms:
- CMS Final Rules: 2025 updates to Medicare Advantage, including stricter broker compensation rules, favor insurers with strong brand loyalty (a strength for Oscar's member-centric model).
- Drug Price Negotiation: Federal price caps, now a staple of MA plans, reduce financial risk for members—a selling point for Oscar's data-driven underwriting.

Risks and Realities

• Political Gridlock: Part E's fate hinges on bipartisan compromise, which is unlikely in the near term.
• MLR Volatility: Rising healthcare costs could pressure margins, though Oscar's tech platform mitigates this risk.
• ACA Enrollment Declines: CBO projects 7.9 million fewer ACA members by 2026, but Oscar's focus on MA and Medicaid shields it from most downside.

Investment Thesis: Contrarian Opportunity in a Discounted Stock

Oscar's valuation reflects pessimism about ACA markets, but its Medicare strategy and financial strength suggest significant upside. Key catalysts include:
- Policy Clarity: If Part E progresses or ACA enrollment declines are less severe than feared.
- Margin Stability: Q1's MLR spike was due to one-time adjustments; 2025 MLR could revert to ~75%, boosting EBITDA.
- Competitor Exit: As rivals like Aetna abandon ACA markets, Oscar's scalable platform can capture stranded members.

At current levels, Oscar's stock offers a compelling risk-reward profile:
- Downside: Near its cash value of $14.65/share, limiting losses.
- Upside: Analysts' $17.38 average price target suggests a 25% gain, with potential for $25+ over 18–24 months as Medicare growth accelerates.

Historical performance further supports this thesis. A backtest of buying OSCR on the announcement date of quarterly earnings releases and holding for 20 trading days since 2020 showed an average compound annual growth rate (CAGR) of 11.05%, with a maximum drawdown of -37.42% and a Sharpe ratio of 0.35. This suggests the stock has historically rewarded patient investors during earnings-driven volatility, aligning with its current undervalued status.

Conclusion: A Play on Healthcare's Future

Oscar Health is not just a beneficiary of Medicare Part E—it's a pioneer in modernizing healthcare delivery. With a tech-driven model, robust balance sheet, and strategic focus on high-growth segments, it's well-positioned to thrive regardless of legislative outcomes. For investors seeking exposure to a resilient healthcare innovator, OSCR offers both defensive characteristics and asymmetric upside.

Recommendation: Buy OSCR at current levels, targeting $25+ over the next two years as Medicare tailwinds and financial discipline take hold.