Telemedicine, AI, And Demographics Will Forge A New Insurance Era

Key Takeaways

• Aggressive AI-driven cost reductions and digital adoption could significantly expand margins and drive faster-than-expected profitability and operating leverage.
  
• Strong membership and revenue growth, helped by market share gains and new strategic partnerships, position Oscar to outpace competitors and capitalize on long-term healthcare trends.
  
• Oscar Health faces profitability and growth challenges due to market dependence, regulatory risks, high medical costs, strong competition, and ongoing operating losses.

Catalysts

Operates as a healthcare technology company in the United States.

• While analyst consensus anticipates a return to profitability and margin expansion via administrative efficiencies and improved medical loss ratios, these projections likely understate the cascading impact of Oscar's aggressive AI-driven cost restructuring and fixed cost reductions, which could enable Oscar to materially outperform expectations on net margins and achieve sustained double-digit operating margins faster than forecast.
  
• Analysts broadly agree revenue growth will be strong, but with Oscar's growing market share leadership in both SEP and core open enrollment, and its highly competitive pricing validated by state regulators, membership growth could consistently surpass consensus estimates, setting up a powerful revenue and earnings compounding effect over multiple years.
  
• The rapid acceleration of digital health adoption, with patients and providers increasingly comfortable with app-based management and telemedicine, is set to drive outsize consumer demand for Oscar's technology-centric insurance platform, opening structural growth levers and supporting long-term, above-market premium growth.
  
• Oscar's strategic entry into the ICHRA ecosystem-now amplified by proprietary marketplace assets and the partnership with a leading US retailer-positions the company to rapidly capture share from traditional group and supplemental products, creating cross-sell opportunities and significantly expanding its total addressable market, with a transformative effect on top-line revenue and lifetime customer value.
  
• Demographic shifts, most notably an aging population and rising rates of chronic disease, will continuously expand the addressable pool for individual and Medicare Advantage coverage over the next decade, positioning Oscar to capture a disproportionate share of this secular growth and structurally increasing both topline revenue and embedded earnings power.

Oscar Health Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Oscar Health compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Oscar Health's revenue will grow by 10.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -1.5% today to 3.8% in 3 years time.
• The bullish analysts expect earnings to reach $560.3 million (and earnings per share of $1.64) by about August 2028, up from $-161.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.6x on those 2028 earnings, up from -24.3x today. This future PE is lower than the current PE for the US Insurance industry at 14.0x.
• Analysts expect the number of shares outstanding to grow by 6.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Oscar Health Future Earnings Per Share Growth

Risks

• Oscar Health's continued reliance on individual ACA exchange market growth exposes it to headwinds from persistent income inequality and affordability challenges in the U.S., which could constrain long-term membership growth and future revenue expansion.
  
• Heightened regulatory risk around changes to government subsidies, enhanced premium tax credits, and possible public option expansion could disrupt Oscar's business model and reduce its revenue streams and long-term net margins.
  
• Ongoing high medical loss ratios resulting from rising average morbidity, medical inflation, and volatility in member risk pools may pressure Oscar's ability to sustainably improve underwriting profitability and limit the company's path to positive earnings.
  
• Fierce competition from larger, better-capitalized insurers, continued industry consolidation, and the commoditization of health plans could erode Oscar's pricing power and differentiation, making it difficult to drive premium growth and maintain margins.
  
• The company's persistent operating losses, coupled with a need for significant technology and customer acquisition investment and lower negotiating leverage with providers, may hinder its ability to achieve scale and attain long-term sustainable profitability, threatening future earnings stability.

Valuation

• The assumed bullish price target for Oscar Health is $14.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Oscar Health's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $14.6 billion, earnings will come to $560.3 million, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $15.16, the bullish analyst price target of $14.0 is 8.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.