Oscar Health Revisited
A case study in optimism, realism, disruption, and doubt
I published about Oscar Health (OSCR) only a few days ago, and it's already time for an update. My first post aligned with the prevailing opinion, though with a cautious tone. This one, I believe, takes a more controversial stance. It consists of several concise yet essential points, including the recent stock drop, the reliability of Oscar’s forecasts, and the company's perception among its members.
The recent sell-off
OSCR dropped about 18% on July 2, precisely when I was writing my first post. Did something groundbreaking happen? Not necessarily, in my view.
First, a Barclays analyst initiated coverage with an Underweight rating and a $17 target price. His rationale includes a 50% increase in the stock price in June due to “speculative retail interest” despite heightened policy risks.
With all due respect, I tend to ignore sell-side analysts. They may have various motives, but “skin in the game” is not one of them. I do not remember a single month without heightened policy risks in regards to the US healthcare.
Simultaneously, Centene (CNC) pulled its outlook, citing underperformance in its ACA plans business among other reasons. This one deserves more attention as Centene is the biggest ACA player. It operates in 29 states under the name of Ambetter Health and covers more than 5 million lives. In 2024, its ACA membership increased 12% yoy.
Centene has received its first view of 2025 of the ACA Marketplace data from an independent actuarial firm, Wakely, covering 22 of its 29 ACA states. Below is a quote from their press release (you may need to refresh your memory about risk adjustment transfers, explained in my first Oscar post):
Based upon the Company's preliminary interpretation of the data and discussions with Wakely, the overall market growth in the 22 states is lower than expected and the implied aggregate market morbidity in those states is significantly higher than, and materially inconsistent with, the Company's assumptions for risk adjustment revenue transfer used in the preparation of its previous 2025 consolidated guidance.
If this is due to an industry-wide development, it may affect Oscar’s results. However, the implications are not straightforward.