To The Moon

$Oscar Health, Inc.(OSCR)$  

$UnitedHealth(UNH)$ 

$Humana(HUM)$  

$CVS Health(CVS)$ 

On Friday, The Wall Street Journal revealed that the U.S. Justice Department has opened a civil fraud investigation into UnitedHealth Group, targeting its approach to documenting diagnoses to extract additional payments for Medicare Advantage plans. The inquiry, which began in recent months, has unsettled investors, causing UnitedHealth Group’s stock to tumble 7.33%—trading at approximately $480.83 on February 21, 2025. This downturn weighed on the Dow Jones Industrial Average, which slipped nearly 1.33%, and pulled peers like Humana (down 4.7%) and CVS Health (down 2.2%) into the slide. UnitedHealthcare, a UnitedHealth Group division, claimed ignorance of any fresh probe, but the report has reignited unease over billing practices in the Medicare Advantage space.

Against this backdrop, the outlook for Oscar Health’s stock has shifted sharply (down 6.66%), with analysts suggesting that the market’s dour mood may be exaggerated, especially when viewed alongside UnitedHealthcare’s mounting troubles. Oscar, a tech-savvy insurer, has slashed its Medicare Advantage membership to below 2,000—a fraction of UnitedHealthcare’s 7.8 million enrollees—prompting experts to argue that the sell-off in Oscar’s shares, trading at roughly $15 as of February 21, 2025, overstates its vulnerability in this market. Meanwhile, UnitedHealthcare is squarely in the Justice Department’s sights over its Medicare billing practices, rattling the industry.

Late 2023 data shows Oscar Health’s Medicare Advantage enrollment dropped to 1,793, a 61% decline from the year prior, as it intentionally pulled back to focus on ACA exchange plans. This move has left Oscar with a negligible presence next to UnitedHealthcare, the leading Medicare Advantage provider nationwide. Yet, despite this retreat, Oscar’s stock has faced unrelenting pressure, with some contending that its valuation—around a $3.6B  market cap —doesn’t account for its shift away from the increasingly policed Medicare Advantage sector. “The market’s overreacting to Oscar,” said Ben Hendrix, an RBC Capital Markets analyst. “UnitedHealthcare’s locked in a major probe tied to its Medicare Advantage heft, while Oscar’s tiny slice of that pie leaves it mostly unscathed. Investors are hitting Oscar for a crisis it’s sidestepped.”

Oscar’s executives have highlighted its pivot to ACA plans, where it served over 948,000 members by early 2023—a less congested market with fewer regulatory burdens than Medicare Advantage. Opponents of the sell-off argue that Oscar’s stock is underpriced, given its potential in the individual and small-group arenas, which giants like UnitedHealthcare often bypass.

UnitedHealthcare, conversely, is under intensifying scrutiny. The Justice Department’s investigation focuses on claims that it padded diagnoses to inflate Medicare payouts—a practice that could lead to steep fines if proven. This isn’t new territory for the insurer; unresolved 2017 DOJ lawsuits over similar overbilling are headed to trial in October 2025. With over 7.8 million Medicare Advantage members, UnitedHealthcare’s dominance amplifies the stakes of the probe.

The market’s take reflects this divide. “UnitedHealth’s struggles expose the downsides of scale in Medicare Advantage,” said James Harlow, senior vice president at Novare Capital Management. “Oscar’s scant presence there is an unrecognized edge, but investors haven’t caught on.” As UnitedHealthcare prepares for a potentially bruising legal fight, Oscar’s pared-down profile might quietly make it a dark horse in the health insurance shakeup.

More than $2.7 trillion in notional options exposure reached its expiration on February 21, 2025, encompassing $1.2 trillion in SPX (S&P 500 index) options and $615 billion in single-stock options, as estimated by Goldman Sachs, which could be part of the reason for the heavy sell-off today. I expect a rebound later in the day to clear both call and put options.

For now, the focus stays on UnitedHealthcare as the DOJ probes further, while Oscar’s shrunken Medicare Advantage roster could prove a surprising safeguard. Whether the market will reassess Oscar—or keep it swept up in the sector’s wider malaise—is still unclear.

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