Oscar Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited consolidated results compared with Q1 2021. Oscar sells Individual, Small Group, and Medicare Advantage health plans and provides technology and administrative services through +Oscar.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $972.8 million | $369.4 million | +163% |
| Premiums earned, net of ceded reinsurance | $955.4 million | $368.5 million | +159% |
| Net loss | $77.3 million | $88.9 million | Loss narrowed |
| Net loss per share, basic and diluted | $0.36 | $1.00 | Loss per share narrowed |
| Adjusted EBITDA, non-GAAP | $(37.0) million | $(27.8) million | Loss widened |
| Net cash provided by operating activities | $562.8 million | $317.7 million | +$245.2 million |
Membership reached 1,073,595, up 98% year over year. Individual and Small Group membership was 1,032,768; Medicare Advantage was 4,607; and Cigna + Oscar was 36,220. Management attributed growth principally to Individual market enrollment and the Cigna partnership.
Claims incurred, net, rose 174% to $734.6 million, primarily reflecting membership growth and lower utilization in the 2021 pandemic period, partly offset by favorable prior-period claims development. The medical loss ratio (MLR) increased to 77.4% from 74.4%, which management attributed mainly to a shift toward Silver plans and prior-period development, partly offset by the net COVID-19 impact. The InsuranceCo administrative expense ratio was unchanged at 19.8%; the combined ratio rose to 97.2% from 94.2%. Adjusted administrative expense ratio improved to 23.8% from 26.0%, which management linked to operating leverage and platform efficiencies.
Liquidity, debt, and balance sheet
- At March 31, cash and cash equivalents were $2.07 billion; short- and long-term investments totaled $1.31 billion. Total assets were $4.35 billion, total liabilities $3.02 billion, and stockholders’ equity $1.34 billion.
- Current liabilities included $1.17 billion of risk-adjustment transfer payables and $761.3 million of benefits payable. Management said it expected to pay more than $700 million into the risk-adjustment program for the 2021 policy year during 2022.
- In February 2022, Oscar issued $305 million of 7.25% convertible senior notes due 2031; the balance-sheet carrying amount was $297.4 million. The notes have a conversion price of approximately $8.32 per share and include holder repurchase rights on specified dates in 2027–2030. No borrowings were outstanding under the $200 million revolving credit facility.
- Management stated that Holdco’s unrestricted cash, cash equivalents, and investments were expected to fund its operating requirements for at least the next 12 months. Insurance subsidiaries held $2.7 billion in cash, cash equivalents, and investments and reported $688.7 million of statutory capital and surplus, above minimum requirements. Holdco contributed $216 million to insurance subsidiaries during the quarter.
- Operating cash flow increased, but management attributed it in part to timing and growth-related balance-sheet movements, including benefits payable and risk-adjustment payables. It should not be read as equivalent to operating profitability.
Material changes, outlook, and risks
- Revenue growth substantially exceeded expense growth in absolute dollars: total operating expenses rose 140% to $1.04 billion, including claims, insurance costs, and assessments that increased with membership. The net loss narrowed partly because Q1 2021 included a $20.2 million debt-extinguishment loss; however, Adjusted EBITDA loss widened.
- Administrative services revenue rose to $18.5 million from $0.3 million, driven by the January 2022 launch of Health First Health Plans on +Oscar. Investment income and other revenue was a $1.1 million loss versus $0.5 million of income, attributed mainly to market conditions and interest rates.
- The filing provides no clear numerical full-year financial guidance. Management highlighted uncertainty around medical utilization, COVID-19 and deferred care, risk-adjustment transfers, and the expected end of the COVID-19 public health emergency in July 2022, with Medicaid redeterminations expected to begin in August. It said the net future impact of COVID-19 on claims could not be accurately estimated.
- Key exposures include potentially material differences between estimated and final risk-adjustment transfers; medical-claim reserve estimation; reliance on quota-share reinsurance and reinsurer performance; regulatory, litigation, privacy, and cybersecurity risks; and the ability to sustain growth while managing medical and administrative costs. Oscar noted that reinsurance does not remove its primary obligation to pay member claims.
- Disclosure controls and procedures were concluded to be ineffective because of a previously identified material weakness in IT general controls, including program-change, user-access, and software-development controls. Remediation was at an early stage and required sustained testing; management had not concluded that the weakness was remediated.
- The company reported an accumulated deficit of approximately $2.1 billion and a continuing history of losses. It stated that it may not achieve or maintain profitability.
Important facts for investors to verify
- Whether the expected 2021 policy-year risk-adjustment payment exceeds $700 million, and its effects on cash flows and regulated-subsidiary capital.
- Whether the higher MLR and 97.2% combined ratio persist as utilization, plan mix, and claims estimates develop.
- Progress in remediating the IT-controls material weakness and any subsequent conclusions on control effectiveness.
- Cash available at Holdco versus regulated subsidiaries, statutory capital needs, and continued access to reinsurance.
- The cash, dilution, and refinancing implications of the 2031 convertible notes, including conversion and holder repurchase provisions.