Oscar Health, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. Comparisons are primarily with fiscal 2021. Oscar sells Individual, Small Group and Medicare Advantage health plans and provides technology-enabled administrative services through +Oscar.
Financial and operating results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $3.964 billion | $1.839 billion | +116% |
| Premiums before ceded reinsurance | $5.335 billion | $2.713 billion | +97% |
| Premiums earned, net of ceded reinsurance | $3.871 billion | $1.831 billion | +111% |
| Net loss | $(609.6) million | $(571.4) million | Loss widened $38.1 million |
| Adjusted EBITDA (non-GAAP) | $(462.3) million | $(429.8) million | Loss widened $32.4 million |
| Members at year-end | 1,151,483 | 598,169 | +93% |
| Medical loss ratio | 85.3% | 88.9% | Improved 3.6 percentage points |
| InsuranceCo administrative expense ratio | 20.6% | 21.8% | Improved 1.2 percentage points |
| InsuranceCo combined ratio | 105.8% | 110.7% | Improved 4.9 percentage points |
| Adjusted administrative expense ratio | 24.6% | 28.9% | Improved 4.3 percentage points |
Revenue growth reflected higher membership, rate increases, a shift toward higher-premium Silver plans and growth in Cigna + Oscar. Claims incurred, net, rose 102% to $3.281 billion, primarily with enrollment growth. Administrative services revenue increased to $61.0 million from $5.4 million, largely following the launch of Health First services. The combined ratio remained above 100%, while the company continued to report substantial operating and net losses.
Cash flow, liquidity and debt
- Operating cash flow was positive $380.3 million, versus negative $181.7 million in 2021. Management attributed the improvement chiefly to membership growth and movements in receivables, reinsurance recoverables and risk-adjustment payables; it should not be read as evidence of profitability.
- Investing cash outflow was $226.5 million; financing cash inflow was $301.1 million. Year-end cash, cash equivalents and restricted cash totaled $1.580 billion.
- At Holdco, cash and investments totaled $342.0 million, including $9.8 million restricted. Management said unrestricted Holdco cash and investments were forecast to cover operating requirements for at least 12 months. Regulated insurance subsidiaries held $2.9 billion of cash and investments; these funds are subject to insurance regulation and are not freely interchangeable with Holdco funds.
- Insurance subsidiaries’ statutory capital and surplus was $701.5 million, above applicable minimum requirements. Parent contributed $423.5 million to subsidiaries during 2022.
- Oscar issued $305 million of 7.25% convertible senior notes due 2031; carrying value at year-end was $298.0 million. The $200 million secured revolving facility had no borrowings outstanding and matures in February 2024. The company reported compliance with its financial covenants at year-end.
Material changes and management outlook
- Membership nearly doubled, led by Individual-market growth, including Florida, Georgia and Texas. Direct and assumed policy premiums rose 99% to $6.842 billion.
- Management cited pricing actions, lower net COVID-related costs, member mix and medical management for the improved MLR; scale and operating leverage helped reduce expense ratios. Higher distribution expenses partly offset administrative improvements.
- Management said it was tracking toward profitability for the Insurance business in 2023, not necessarily consolidated-company profitability. It described 2023 membership as intended to be stable year over year and emphasized pricing discipline, cost management and portfolio optimization. This is a target, not a guarantee.
- To manage growth and capital, Oscar requested a limit on Florida enrollment above a threshold and temporarily stopped accepting new Florida members in Q4 2022; existing members could renew. Resumption of new enrollment was subject to regulatory approval.
- In January 2023, Oscar agreed to terminate its Health First +Oscar administrative-services arrangement effective December 31, 2022, provide run-off services through 2023 and forgo an immaterial amount of services revenue under a settlement.
Risks, contingencies and unusual items
- Estimation and risk adjustment: Year-end benefits payable was $937.7 million, including $251.1 million of settlement reserves for actual or potential provider disputes. The company estimated that a 1% difference in completion factors could change benefits payable by roughly $78.8–$83.3 million. The ACA risk-adjustment transfer payable was $1.517 billion; final amounts depend on estimates and later CMS settlement.
- Regulatory and market exposure: Approximately 99% of 2022 revenue came from ACA-regulated plans. APTCs supported about 85% of direct-policy-premium membership; subsidies are extended through 2025. Medicaid redeterminations beginning in 2023 could affect enrollment and underwriting margins. The business also faces medical-cost, utilization, competition, provider-network, reinsurance and capital requirements risks.
- Controls: Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2022 because of a material weakness in IT general controls, including access, change-management and software-development controls. The company reported no resulting financial-statement misstatement and is pursuing remediation.
- Litigation: A securities class action alleges inadequate disclosure in the IPO registration statement concerning controls and the 2019 risk-adjustment data validation audit. Oscar says it believes it has defenses; it could not estimate the outcome or any possible loss. Regulatory reviews and other claims are also ongoing, with outcomes uncertain.
- Other risks: The company has a history of losses and an accumulated deficit of $2.606 billion. Reinsurance is important to capital efficiency; without quota-share reinsurance, Oscar estimated subsidiaries would have needed approximately $447 million of additional capital at year-end. The dual-class structure concentrates voting power, and the 2031 notes and revolving facility impose debt-related restrictions.
Most important facts for investors to verify
- Whether 2023 Insurance-business profitability is achieved, and how that differs from consolidated results.
- Whether year-end claims reserves and the $1.517 billion risk-adjustment payable prove adequate when claims develop and CMS settlements are finalized.
- Whether operating cash flow remains sustainable after working-capital and risk-adjustment timing effects, and how much liquidity is available at Holdco versus regulated subsidiaries.
- Progress in remediating the IT-control material weakness and any subsequent audit or control findings.
- The outcome of the securities action, other regulatory reviews and the Health First transition, including any financial or operational effects.
- Renewal and terms of reinsurance, regulatory approval for Florida enrollment, and compliance with debt covenants ahead of the revolving facility’s February 2024 maturity.