Oscar Health, Inc. (OSCR): Investment Thesis
Oscar Health, a technology-driven health insurance company, presents a compelling investment opportunity within the evolving US healthcare landscape. Its vertically integrated model combines insurance underwriting with a proprietary technology platform, +Oscar, aiming to streamline operations and enhance member engagement. This report analyses Oscar Health’s business model, growth prospects, and valuation to provide an investment recommendation.
Industry Overview
The US health insurance market, estimated at $4.5 trillion[1], is undergoing significant transformation driven by rising costs, increasing consumerism, and technological advancements. Key segments relevant to Oscar Health include:
- Affordable Care Act (ACA) Exchanges: This market, addressing individual and family plans, faces ongoing regulatory uncertainty but continues to offer growth potential.
- Medicare Advantage (MA): The MA market is experiencing robust growth as the aging US population seeks more comprehensive and flexible healthcare coverage.[2]
- Medicaid: This market, catering to low-income individuals and families, presents expansion opportunities through managed care programs.
Competition within these segments is intense, with established players like UnitedHealth Group and Humana leveraging scale and market share. However, Oscar Health differentiates itself through its technology-focused approach, targeting improved member experience and operational efficiency.
Company Analysis
Oscar Health operates across 18 states, deriving a significant portion of its revenue from Florida, Texas, California, and New York. Its core business segments are:
- Insurance Services: This comprises premiums generated from individual & family plans (ACA), MA, and Medicaid segments. As of Q1 2025, Oscar Health reported 1.2 million ACA members, 650,000 MA members, and over 150,000 Medicaid members.[3]
- +Oscar Platform: This proprietary technology platform facilitates claims processing, member engagement, and provider contracting. Oscar Health has also begun licensing this platform to external partners, generating a growing revenue stream.
Key strengths of Oscar Health include:
- Technology Infrastructure: The +Oscar platform enables faster claims processing, contributing to lower administrative costs compared to traditional insurers.[4]
- Data Analytics: Oscar Health leverages its data network to improve risk modelling and underwriting accuracy.
- Member Engagement: The company’s mobile app enjoys higher usage rates than industry averages, potentially leading to increased member retention.[4]
Investment Thesis
Our investment thesis rests on Oscar Health’s ability to disrupt traditional health insurance models through its technology-driven platform. We believe the company is well-positioned to capture market share within the growing ACA, MA, and Medicaid markets. The +Oscar platform offers a scalable solution that can drive both internal efficiencies and external licensing revenue. Furthermore, Oscar Health’s focus on member engagement can lead to improved customer retention and brand loyalty. While the company currently trades at a discounted valuation relative to peers, we anticipate multiple expansion as the market recognizes the potential of its technology and growth trajectory.
Valuation & Forecasts
We have employed a combination of valuation methodologies to assess Oscar Health’s intrinsic value:
- Discounted Cash Flow (DCF): Using a weighted average cost of capital (WACC) of 8.5%, we arrived at a target price of $34.50.
- EV/EBITDA Multiple: Based on a 2025 EV/EBITDA multiple of 29.2x, we derive a target price of $29.20.
- Sum-of-the-Parts (SOTP): Valuing the insurance and technology segments separately, we arrive at a combined target price of $31.80.
These valuations are based on financial forecasts incorporating revenue growth, margin expansion, and cash flow generation over the next 3-5 years. Our base case assumes a revenue CAGR of 30% and an improvement in Medical Loss Ratio (MLR) to below 75%. We also conducted scenario analysis to assess the potential impact of varying MLR and revenue growth assumptions.
Risks
Key risks to our investment thesis include:
- Regulatory Changes: Potential changes to ACA subsidies or other healthcare regulations could impact Oscar Health’s profitability.
- MLR Volatility: Fluctuations in MLR can significantly affect earnings. Our sensitivity analysis highlights the potential downside risk of higher-than-expected MLR.
- Competition: Intense competition from established players and emerging insurtech companies poses a challenge to market share gains.
- Technology Adoption: Slow adoption of the +Oscar platform by external partners could limit licensing revenue growth.
Recommendation
Based on our analysis, we initiate coverage on Oscar Health with a Buy rating and a 12-month price target of $32.00. This target price represents a significant upside potential from current levels and reflects our confidence in the company’s long-term growth prospects. Key monitoring metrics include quarterly MLR, platform revenue growth, and market share trends in key segments. We believe that Oscar Health’s innovative business model, strong management team, and favourable market dynamics position it for continued success in the dynamic health insurance market.
[1] Centers for Medicare & Medicaid Services, National Health Expenditure Data.
[2] Kaiser Family Foundation, Medicare Advantage 2024 Spotlight: Enrollment Market Update.
[3] Oscar Health, Inc. Q1 2025 Earnings Release, https://ir.hioscar.com/news-events-presentations/news-press-releases/news-details/2025/Oscar-Health-Announces-Strong-Financial-Results-for-First-Quarter-2025-And-Reaffirms-2025-Guidance/default.aspx.
[4] Makings of a MultiBagger.pdf
