Oscar Health, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024, compared with the three months ended March 31, 2023. Oscar sells health insurance, primarily through ACA individual plans, and provides technology-enabled services through +Oscar. The company exited Medicare Advantage for plan year 2024 and reports as one segment.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $2.142 billion | $1.470 billion |
| Premium revenue | $2.094 billion | $1.429 billion |
| Medical expenses | $1.555 billion | $1.092 billion |
| Operating income (loss) | $185.6 million | $(25.4) million |
| Net income (loss) | $177.5 million | $(39.6) million |
| Net income attributable to Oscar | $177.4 million | $(39.8) million |
| Diluted EPS | $0.62 | $(0.18) |
| Operating cash flow | $634.4 million | $414.7 million |
| Medical loss ratio (MLR) | 74.2% | 76.3% |
| SG&A expense ratio | 18.4% | 27.1% |
| Adjusted EBITDA (non-GAAP) | $219.3 million | $51.1 million |
Revenue rose approximately 46%, with premium revenue up 47%. Total operating expenses increased to $1.957 billion from $1.495 billion, principally due to higher medical costs as membership expanded. Investment income increased 19% to $43.0 million, which management attributed to higher yields and interest rates. The effective tax rate was approximately 0.56% in Q1 2024.
Balance sheet, liquidity, and debt
- At March 31, 2024, cash and cash equivalents were $2.231 billion and investments totaled $1.353 billion. Total assets were $4.419 billion; total liabilities were $3.385 billion; stockholders’ equity was $1.034 billion.
- Current liabilities included $1.248 billion of benefits payable and $1.336 billion of risk adjustment transfer payable. Total current assets were $3.504 billion versus current liabilities of $3.019 billion.
- Long-term debt had a $299.0 million carrying value. The 7.25% convertible notes due 2031 became convertible at holders’ option during Q2 2024; their estimated fair value was $560.3 million at quarter-end. Oscar may settle conversion in shares, cash, or a combination, subject to the agreement.
- The $115 million revolving credit facility had no borrowings outstanding. Availability through December 2025 is subject to covenants.
- Health insurance subsidiaries held $3.5 billion in cash and investments and had $989.0 million of statutory capital and surplus, above stated minimum requirements. The parent company held $159.0 million in cash and investments. Management expects available cash, cash equivalents, and investments, excluding restricted cash, to fund operating requirements for at least 12 months.
Key changes and management commentary
- Membership increased 42% year over year to 1,448,408, driven by retention, new enrollment, expansion markets, and ACA marketplace growth. Individual and Small Group membership was 1,386,980; Cigna + Oscar membership was 61,428.
- Management attributed the MLR improvement to targeted rate actions, disciplined pricing, and medical-cost initiatives. Medical expenses nevertheless rose 42%, reflecting membership growth. Prior-year claims developed favorably by $53.8 million in the quarter, primarily because claims experience was better than initially estimated.
- The SG&A expense ratio improved 8.7 percentage points, reflecting lower expenses, variable-cost efficiencies, fixed-cost leverage, and lower risk adjustment as a share of premiums. Q1 2023 SG&A included $46.3 million of accelerated stock compensation from cancellation of the founders’ awards, affecting year-over-year comparability.
- Operating cash flow increased to $634.4 million, primarily due to higher premium receipts, partly offset by higher claim payments. Investing activities used $300.6 million, chiefly reflecting purchases of securities; financing activities provided $27.3 million, mainly from stock-option exercises.
- On March 26, 2024, Oscar notified Cigna that it will not renew the Cigna + Oscar Small Group arrangement after December 31, 2024. The product will be offered through December 15, 2024; transition and run-off services continue through 2026, and Oscar will continue sharing premiums and claims for plans sold or issued by year-end 2024.
- A February 2024 Change Healthcare cybersecurity incident disrupted claims-clearinghouse services. Oscar implemented workarounds and reported no material financial impact to date; Change Healthcare had not notified Oscar of a member-data breach as of the filing.
- No specific full-year financial guidance is provided in the supplied filing text. Management notes that medical costs are seasonal and typically higher in the second half of the year, and that risk adjustment estimates are uncertain and may change as CMS data develops.
Risks, contingencies, and unusual items
- Risk adjustment transfers are subject to significant estimation uncertainty. The payable balance rose to $1.336 billion from $1.057 billion at year-end; actual transfers could differ materially from estimates.
- Medical reserves depend on estimates of claims incurred but not reported; reserve revisions are recorded as new information becomes available. Favorable prior-period claims development benefited Q1 2024 results.
- Oscar faces continuing insurance and healthcare regulatory reviews, which could result in fines, sanctions, or required practice changes. It also faces ordinary-course litigation and a securities class action concerning alleged IPO disclosures. The company says it cannot predict the securities action’s outcome or reasonably estimate a possible loss.
- A hypothetical immediate 1% increase in interest rates would reduce investment fair value by approximately $17.4 million, according to the filing.
- Other stated risks include medical-cost estimation, regulatory and capital requirements, competition, reinsurance and counterparty exposure, data security, and the ability to sustain profitability. The filing reports no material changes to the risk factors in its 2023 Form 10-K.
Important facts for investors to verify
- Whether membership growth and pricing actions continue to support margins as medical utilization and second-half seasonality evolve.
- How much of Q1 profitability and cash generation reflects durable underwriting performance versus favorable claims development and timing of premiums, claims, and risk-adjustment payments.
- The eventual CMS risk-adjustment transfers and settlement of the $1.336 billion payable, along with adequacy of medical-claims reserves.
- Implications of the Cigna + Oscar non-renewal for future membership, revenue, costs, and run-off obligations.
- Whether the convertible notes are converted in Q2 2024 and the resulting cash, dilution, and debt effects; also monitor credit-facility covenant compliance.
- Developments in regulatory reviews and litigation, including any material update to potential losses or required business changes.