Oscar Health (NYSE:OSCR) saw its shares climb 6.6% in premarket trading to $32.10 on Thursday, following the release of its second-quarter earnings that surpassed analyst expectations. However, the company's updated full-year outlook points to a challenging second half, with management projecting a net loss for the period.
The health insurer reported diluted earnings per share of $1.10 for the quarter, significantly above the consensus estimate of $0.40. Revenue surged 70.4% year-over-year to $4.880 billion, also beating forecasts of $4.73 billion. The strong performance was driven by robust membership growth and higher premium rates, partially offset by an increased net risk-adjustment transfer accrual.
Effectuated membership climbed 46% to 2.963 million, up from 2.027 million in the prior year. This scale allowed Oscar to improve its medical loss ratio (MLR) to 79.2% from 91.1% a year ago, a remarkable 11.9-point improvement. The selling, general and administrative (SG&A) expense ratio also fell to 14.2% from 18.7%, reflecting disciplined cost controls and better fixed-cost leverage.
Despite the stellar first-half results, Oscar's updated guidance for the full year 2026 projects operating income between $500 million and $700 million, up from the previous range of $250 million to $450 million. However, given that the company reported $1.093 billion in operating income for the first half, this implies an operating loss of $393 million to $593 million in the second half.
The company maintained its revenue outlook of $18.7 billion to $19.0 billion, meaning the projected profit growth is expected to come from improved claims and expense margins rather than increased sales. The guidance midpoint suggests a full-year operating margin of just 3.2%, compared to 11.5% in the first half, indicating a dramatic seasonal shift.
Investors are weighing the strong first-half performance against the anticipated second-half downturn. The market appears to be pricing in a stronger yearly profit baseline, but key questions remain about the extent to which the second-half loss is tied to seasonal claims patterns, risk recalibration, and one-time reserve movements.
The second-quarter results included a significant reserve benefit, as favorable prior-period development lowered medical costs by $164 million, representing roughly 42% of quarterly operating profit. Adjusting for reserves, an estimated MLR of approximately 82.6% would exceed the analyst consensus of 81.2%.
Wall Street analysts had mixed opinions ahead of the earnings release, with two buy ratings, four holds, and one sell among seven tracked by Google Finance. The mean price target was $23.57, about 27% below the premarket trading price of $32.10. All ratings were assigned before the earnings announcement.
CEO Mark Bertolini touted the company's "record profitability in the first half," crediting disciplined pricing measures and Oscar's technology platform. During the earnings call, investors were seeking more details on the factors driving the projected second-half loss and how the company plans to navigate the remainder of the year.
Oscar Health remains exposed to shifts in medical cost projections, adjustments to ACA policy, and updates to risk adjustment. Fluctuations in membership retention and reserve forecasts could also cause significant changes in reported margins from quarter to quarter.
