10-Q: Oscar Health Reports Q2 Loss Amid Rising Medical Costs

Oscar Health, Inc. reported a significant net loss in Q2 2025 despite strong revenue and membership growth, driven by increased medical expenses and risk adjustment transfers.

Summary

• Oscar Health, Inc. reported a net loss attributable to Oscar Health, Inc. of $228.4 million for the three months ended June 30, 2025, a significant decline from a net income of $56.2 million in the same period of 2024.
• Total revenue increased by 29% to $2.86 billion for Q2 2025, up from $2.22 billion in Q2 2024.
• Premium revenue grew by 30% to $2.80 billion in Q2 2025, compared to $2.16 billion in Q2 2024, primarily due to higher membership.
• Medical expenses surged by 49% to $2.55 billion in Q2 2025, up from $1.71 billion in Q2 2024, driven by increased membership and medical cost trends.
• The Medical Loss Ratio (MLR) increased to 91.1% for Q2 2025, compared to 79.0% for Q2 2024, mainly due to an increase in average market morbidity and the net risk adjustment transfer accrual.
• Selling, general, and administrative (SG&A) expenses increased by 23% to $534.5 million in Q2 2025, but the SG&A Expense Ratio improved by 90 basis points to 18.7% due to lower exchange fee rates and greater fixed cost leverage.
• Membership grew by 28% year-over-year, reaching approximately 2.03 million effectuated members as of June 30, 2025, primarily from above-market growth during the 2025 Open Enrollment period.
• The company significantly increased its estimate of the net risk adjustment payable for the 2025 policy year, based on new third-party data indicating a meaningful market-wide increase in morbidity.
• In May 2025, Oscar Health acquired three businesses: INSXCloud, Inc., IHC Specialty Benefits, Inc., and Healthinsurance.org, LLC, operating in the individual market.

Sentiment

Score: 3

Explanation: Despite strong revenue and membership growth, the significant net loss, increased Medical Loss Ratio, and substantial increase in risk adjustment payable due to higher market morbidity indicate severe profitability challenges. The numerous regulatory changes and their potential negative impact on market participation and morbidity add considerable uncertainty and risk to future performance. While operational efficiency improved in SG&A, it was insufficient to offset the medical cost pressures.

Positives

• Total revenue increased significantly by 29% to $2.86 billion for the three months ended June 30, 2025, and by 35.5% to $5.91 billion for the six months ended June 30, 2025.
• Premium revenue saw substantial growth of 30% in Q2 2025 and 36% in the first six months of 2025, driven by higher membership.
• Membership increased by 28% year-over-year, reaching over 2.0 million effectuated members as of June 30, 2025, indicating strong market penetration and growth.
• The SG&A Expense Ratio improved by 90 basis points in Q2 2025 and 180 basis points for the six months ended June 30, 2025, reflecting lower exchange fee rates and better fixed cost leverage.
• Net cash provided by operating activities increased to $1.39 billion for the six months ended June 30, 2025, up from $1.13 billion in the same period of 2024.
• The company's health insurance subsidiaries maintain strong capital, with an estimated $579 million of excess capital as of June 30, 2025, above minimum statutory requirements.
• Quota share reinsurance arrangements saved an estimated $655.0 million in additional capital requirements as of June 30, 2025.
• The securities class action lawsuit (Carpenter v. Oscar Health, Inc., et al.) was dismissed with prejudice on April 22, 2025.
• An estimated net recovery of $24.1 million from the ACA Cost-Sharing Reduction (CSR) program settlement was recorded in Q1 2025.
• Acquired three businesses (INSXCloud, IHC Specialty Benefits, Healthinsurance.org, LLC) in May 2025 to strengthen its individual market presence.

Negatives

• Reported a net loss attributable to Oscar Health, Inc. of $228.4 million for Q2 2025, a significant reversal from a $56.2 million net income in Q2 2024.
• Earnings (loss) from operations turned negative, reaching $(230.5) million in Q2 2025, compared to $67.8 million in Q2 2024.
• The Medical Loss Ratio (MLR) significantly increased to 91.1% in Q2 2025 from 79.0% in Q2 2024, indicating higher medical costs relative to premiums.
• Medical expenses increased disproportionately to premium revenue, rising 49% in Q2 2025 compared to a 30% increase in premium revenue.
• A significant increase in the net risk adjustment transfer payable for the 2025 policy year was recorded due to new data indicating a meaningful market-wide increase in morbidity.
• The Cigna+Oscar Small Group membership decreased significantly to 10,090 members as of June 30, 2025, from 58,293 in 2024, due to non-renewal of the arrangement.
• Net income attributable to Oscar Health, Inc. for the six months ended June 30, 2025, decreased substantially to $46.9 million from $233.6 million in the same period of 2024.

Risks

• Ability to execute strategy and manage growth effectively, including integrating strategic acquisitions.
• Ability to retain and expand the member base, which is critical to revenue, and potential negative impacts from competitive pricing, network adequacy, and broker relationships.
• Inability to accurately estimate incurred medical expenses or effectively manage medical and administrative costs, which could be impacted by incomplete data, changes in healthcare regulations, increased costs of services/products, and market morbidity.
• Unanticipated results of, or changes to, risk adjustment programs or estimates thereof, which can materially differ from assumptions and require additional capital contributions.
• Evolving federal or state laws or regulations, including changes to the ACA, non-renewal of enhanced Advanced Premium Tax Credits (APTCs) after 2025, and implementation of new program integrity rules (CMS Program Integrity Rule, OBBBA).
• Potential for proposed tariffs on pharmaceutical products, medical devices, and supplies to increase medical costs and impact member health.
• Heightened competition in the markets, with some competitors having greater financial resources, broader product scopes, and more competitive pricing.
• Incurrence of data security breaches of company and partner information and technology systems.
• Potential for material weaknesses or significant control deficiencies in internal controls over financial reporting.
• Adverse publicity or other adverse consequences related to the dual class structure or controlled company status.
• Uncertainty regarding ACA plan enrollment patterns and the potential impact of recent and future enrollments on market morbidity, and the related impact on underwriting margin, risk adjustment payables, and MLR.
• Risk adjustment data submitted to CMS is subject to audit for several years, potentially leading to refunds, penalties, or sanctions if data is found to incorrectly overstate health risk.

Future Outlook

The company anticipates that the expiration of enhanced Advanced Premium Tax Credits (APTCs) at the end of 2025, if not renewed, along with new CMS Program Integrity Rules and the One Big Beautiful Bill Act (OBBBA), will likely reduce overall participation in the Health Insurance Marketplaces and could negatively impact market morbidity. These regulatory changes are expected to make it more difficult for individuals to enroll in new plans, switch plans, or obtain APTCs, potentially leading to market contraction and adverse effects on membership and financial results. The company also expects any future impact from Medicaid redeterminations on membership to be less significant than previously experienced, noting that members from this process are higher utilizers of care, increasing overall market morbidity. Proposed tariffs on medical products could also lead to higher medical costs.

Management Comments

• Our technology drives superior experiences, deep engagement, and high-value clinical care, earning us the trust of approximately 2.0 million effectuated members as of June 30, 2025.
• The increase in premium revenue was driven by higher membership, partially offset by an increase in the net risk adjustment transfer accrual.
• The increase in medical expenses was primarily due to increased membership and medical cost trend.
• The MLR increased primarily driven by an increase in average market morbidity that resulted in an increase in the net risk adjustment transfer accrual.
• The improvement in the SG&A Expense Ratio was primarily due to lower exchange fee rates and greater fixed cost leverage, partially offset by the impact of higher risk adjustment as a percentage of premium.
• We believe the Company's cash, cash equivalents, and investments, not including restricted cash, will be sufficient to fund our operating requirements for at least the next twelve months.

Industry Context

The health insurance industry, particularly the ACA marketplace, is facing significant regulatory changes and evolving market dynamics. The potential expiration of enhanced APTCs, new CMS Program Integrity Rules, and the OBBBA are expected to reduce overall market participation and increase verification hurdles, potentially leading to market contraction and shifts in member demographics. The observed increase in market morbidity, partly attributed to Medicaid redeterminations, suggests a higher cost burden for insurers. Heightened competition and the potential for new tariffs on medical supplies further complicate the operating environment, putting pressure on medical loss ratios and profitability across the sector. Oscar Health's membership growth, while strong, is occurring in a challenging and uncertain regulatory and cost environment.

Comparison to Industry Standards

• The filing does not provide direct comparisons to specific comparable companies, projects, or results within the industry.
• The significant increase in Medical Loss Ratio (MLR) to 91.1% in Q2 2025 suggests that Oscar Health's medical costs are consuming a larger portion of its premium revenue compared to prior periods, potentially indicating a less favorable position relative to industry peers who might be managing medical costs more effectively or operating in less volatile markets.
• The substantial increase in risk adjustment transfer payable due to higher market morbidity aligns with broader industry concerns about the health profile of ACA marketplace enrollees, particularly those transitioning from Medicaid, which has been noted by other insurers as a factor impacting profitability.
• The improvement in the SG&A Expense Ratio, driven by lower exchange fees and fixed cost leverage, indicates operational efficiency gains that could be competitive within the industry, especially if other insurers are struggling with administrative cost control amidst market changes.

Legal Proceedings

• The securities class action lawsuit (Carpenter v. Oscar Health, Inc., et al.) was dismissed with prejudice on April 22, 2025.
• The company recorded an estimated net recovery of $24.1 million from the ACA Cost-Sharing Reduction (CSR) program settlement during the three months ended March 31, 2025.

Related Party Transactions

• In February 2022, the company issued $305.0 million in convertible senior notes due 2031 to funds affiliated with, among others, Thrive Capital. These notes are subject to registration rights under the Investors' Rights Agreement.

Stakeholder Impact

• **Shareholders**: Significant net loss and increased MLR could negatively impact shareholder value and future profitability expectations. The convertibility of senior notes could lead to dilution if converted into Class A common stock.
• **Members**: Regulatory changes like the expiration of enhanced APTCs, CMS Program Integrity Rules, and OBBBA could make health insurance less affordable or harder to access for certain populations, potentially impacting member retention and acquisition.
• **Employees**: No direct impact mentioned, but overall company performance and strategic shifts could influence employment stability and growth opportunities.
• **Providers**: Increased medical costs and changes in claims processing or risk adjustment could affect relationships and payment timeliness, though no specific issues were highlighted.
• **Regulators**: Ongoing scrutiny of business practices, compliance with capital requirements, and adherence to new regulatory rules (CMS Program Integrity, OBBBA) will remain a focus.

Next Steps

• Monitor the renewal status of enhanced Advanced Premium Tax Credits (APTCs) beyond 2025.
• Observe the implementation and impact of the CMS Program Integrity Rules and the One Big Beautiful Bill Act (OBBBA) on Health Insurance Marketplace participation and member eligibility.
• Continue to evaluate risk adjustment transfer estimates as new information and market data become available, especially given the recent increase in market morbidity.
• Manage medical costs and administrative expenses to improve profitability amidst increasing membership and evolving market dynamics.
• Assess the impact of potential new tariffs on pharmaceutical products and medical devices on medical expenses.

Key Dates

Recommendation

While Oscar Health demonstrates strong top-line growth in revenue and membership, the significant deterioration in profitability, evidenced by a substantial net loss and a sharply increased Medical Loss Ratio in Q2 2025, is a major concern. This is largely driven by higher medical costs and a material increase in risk adjustment payable due to market morbidity. The regulatory landscape, with the impending expiration of enhanced APTCs and new restrictive rules (CMS Program Integrity, OBBBA), introduces considerable uncertainty and potential headwinds for future market participation and profitability. The company's strong cash position and operational efficiency improvements in SG&A provide some stability, and the dismissal of a class-action lawsuit is a positive. However, the core business's ability to achieve sustainable profitability in this challenging environment remains unproven. A 'hold' recommendation is appropriate for investors who believe the company can navigate these challenges and eventually leverage its growth into profitability, but it warrants close monitoring due to the significant risks and recent negative financial performance.

Keywords

Oscar Health, OSCR, Health Insurance, ACA, Medical Loss Ratio, Risk Adjustment, SEC Filing, 10-Q, Healthcare Technology, Insurance Marketplace, Advanced Premium Tax Credits, CMS, Financial Results, Membership Growth, Medical Expenses, Regulatory Risk, Convertible Notes