Oscar Health Shares Advance Amidst ACA Subsidy Extension Debate

Market Focus on ACA Subsidies Drives Oscar Health Performance

Oscar Health (OSCR) has seen its stock appreciate by 31% year-to-date, as investors closely monitor developments surrounding the future of Affordable Care Act (ACA) enhanced subsidies. This sustained interest underscores the critical role these subsidies play in the company's marketplace operations and broader investor sentiment.

The Looming Expiration of ACA Enhanced Subsidies

The current ACA enhanced subsidies, initially bolstered by the American Rescue Plan in 2021 and subsequently extended by the Inflation Reduction Act until the end of 2025, are a pivotal element for millions of health insurance consumers. These subsidies significantly reduce health insurance premiums for individuals purchasing plans through the ACA marketplace. However, the prospect of their expiration in 2026 introduces substantial uncertainty. According to KFF, the non-extension of these credits could result in an average 75% jump in annual premiums for consumers. Given that more than 90% of ACA buyers benefit from these enhanced subsidies, a substantial portion of the over 20 million enrolled individuals might cancel their insurance upon renewal, profoundly impacting the Health Insurance Industry.

Investor Reaction Amidst Policy Uncertainty

The potential expiration of subsidies represents a significant policy risk for Oscar Health, which is heavily exposed to the ACA marketplace. Insurers across the country are already factoring this uncertainty into their 2026 rate filings, with a median proposed premium increase of 18%. Some insurers are even preparing for a scenario where healthier members disproportionately exit the marketplace, leading to increased underlying premiums. This volatile environment has, however, not deterred OSCR shares, which have recorded notable gains. The prevailing market sentiment suggests that a decisive move by the U.S. Congress to extend these subsidies could serve as a powerful catalyst, potentially triggering a further rally in OSCR shares. Conversely, a failure to extend them could severely impact membership growth and revenue projections across the sector.

Oscar Health's Strategic Trajectory and Financial Context

Oscar Health is actively pursuing long-term financial objectives and membership expansion. Management has articulated a goal of achieving 5% operating margins on over $10 billion in revenue, which would translate to a significant $500 million in operating income given the company's current enterprise value of $2.5 billion. To realize these ambitions, Oscar Health is focusing on ICHRA growth, implementing AI-driven cost reductions, and enhancing the customer experience. The company's second-quarter 2024 results demonstrated robust growth, with revenue soaring to $2.2 billion, a 46% increase from the previous year, and a medical loss ratio (MLR) improving to 79%. Adjusted EBITDA for Q2 2024 stood at $104.1 million, with membership growing 63% year-over-year to approximately 1.6 million members.

However, more recent performance from Q2 2025 highlighted some challenges, with revenue growing 29% year-over-year to $2.86 billion but the company reporting a net loss of $228.4 million, a reversal from a $56.2 million profit in Q2 2024. The MLR temporarily spiked to 91.1% in Q2 2025, up from 79.0% in Q2 2024, attributed to higher healthcare costs and increased morbidity in the ACA market. Despite this, Oscar Health has proactively resubmitted 2026 rate filings in most markets to align premiums with higher acuity, anticipating double-digit rate increases. Management also identified $60 million in administrative cost reductions for the next year, partially through staff reductions and process efficiencies, bringing the operating cost as a percentage of premiums to 18.7% in Q2 2025, a decrease from 19.6% in the prior year.

"Oscar trades at approximately 0.45x trailing 12-month revenues against ~3.19x median of the insurance industry. This implies that investors discount Oscar's revenues to less than half of a median insurer's value."

This analytical perspective suggests that despite short-term fluctuations and policy uncertainties, Oscar Health may be undervalued relative to its peers, especially when considering its growth prospects and market positioning as a leader in the ACA individual insurance market.

Outlook: Awaiting Legislative Clarity

The immediate future for Oscar Health and the broader Health Insurance Industry remains closely tied to legislative action in Washington D.C. While Oscar Health has integrated the potential expiration of subsidies into its 2027 targets (with an estimated EPS of -$2.25), the increasing pressure within Congress to extend these subsidies provides a potential positive inflection point. The cost of extending these subsidies in 2026 could range from $25 billion (according to political analysts) to $350 billion (as estimated by the CBO). Investors will closely monitor congressional debates and upcoming economic reports that could influence the decision on ACA enhanced subsidies, as this will significantly shape Oscar Health's revenue trajectory, membership base, and ultimately, its stock valuation in the coming years. The company anticipates an operating loss of up to $300 million in 2025, underscoring the importance of these policy decisions for its path to sustained profitability. Investors will be observing whether Oscar Health can maintain its growth momentum and operational efficiency gains amidst these external policy dynamics.