Oscar Health, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; most comparisons below are full-year versus full-year 2020. Oscar sells Individual, Small Group and Medicare Advantage plans and also provides technology and administrative services through +Oscar.
Financial and operating performance
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Total revenue | $1.839 billion | $462.8 million | +297% |
| Premiums before ceded reinsurance | $2.713 billion | $1.672 billion | +62% |
| Net loss | $571.4 million | $406.8 million | Loss widened $164.6 million |
| Adjusted EBITDA | $(429.8) million | $(402.4) million | Loss widened |
| Members at year-end | 598,169 | 402,044 | +49% |
| Medical loss ratio | 88.9% | 84.7% | +4.2 percentage points |
| InsuranceCo administrative expense ratio | 21.8% | 26.1% | Improved 4.3 points |
| InsuranceCo combined ratio | 110.7% | 110.8% | Broadly flat |
| Adjusted administrative expense ratio | 28.9% | 34.3% | Improved 5.4 points |
Revenue growth reflected membership expansion, new markets and a shift toward higher-premium plans. GAAP premiums earned rose to $1.831 billion from $455.0 million, in part because ceded reinsurance premiums fell to $882.0 million from $1.217 billion as the average quota-share cession rate declined to 34% from 77%. Claims incurred, net, rose to $1.624 billion from $309.4 million, driven by greater membership, resumed non-COVID care, COVID-related costs and reduced quota-share reinsurance.
The combined ratio remained above 100%, indicating insurance costs and administrative expenses exceeded the relevant premium base under the company’s metric. Administrative ratios improved, which management attributed largely to operating leverage and repeal of the health insurance industry fee; increased medical utilization raised the MLR. Loss per share was $(3.20), compared with $(14.16) in 2020; share counts changed substantially after the IPO and share reclassification.
Cash, liquidity and debt
- Cash and cash equivalents were $1.104 billion at year-end; total assets were $3.322 billion. Investments totaled $1.432 billion, and $28.1 million of restricted deposits were reported.
- Holdco reported $738.6 million of cash, cash equivalents and investments, excluding $11.0 million restricted; regulated insurance subsidiaries held $1.8 billion of cash and investments. These pools are not freely interchangeable: insurance subsidiary capital and dividends are subject to regulatory limits.
- Operating cash flow was negative $181.7 million, versus positive $222.7 million in 2020. Investing cash outflow was $774.5 million; financing cash inflow was $1.239 billion, primarily reflecting IPO proceeds.
- Combined statutory capital and surplus at insurance subsidiaries was $474.8 million, up from $199.1 million, and subsidiaries met applicable minimum RBC requirements. Holdco contributed $540.9 million to subsidiaries during 2021.
- No borrowings were outstanding under the $200 million revolving credit facility at year-end; the $150 million term loan was repaid using IPO proceeds, with a $20.2 million extinguishment loss. Subsequent to year-end, Oscar issued $305 million of 7.25% convertible senior notes due 2031, closing February 3, 2022.
Material developments, outlook and risks
- Oscar completed its IPO in March 2021, receiving approximately $1.3 billion in net proceeds. Membership expanded to 22 states and 607 counties; Oscar reported more than one million members as of January 31, 2022. It also launched +Oscar in 2021 and began a Health First Health Plans arrangement in January 2022.
- Management cited strong growth and improved administrative leverage, but did not provide specific financial guidance in the supplied filing text. Growth plans include expanding insurance membership and monetizing the technology platform through fee-based, risk-sharing and potential SaaS arrangements.
- COVID-19 made medical-cost trends uncertain: lower non-COVID utilization in 2020 was followed by resumed care in 2021, alongside COVID treatment, testing and vaccine costs. Management said it could not accurately estimate the future net impact.
- Key exposure includes medical-cost and claims-reserve estimation, ACA and APTC policy changes, risk-adjustment transfers, regulatory capital requirements, reinsurance availability, provider concentration, competition, privacy and cybersecurity, and the ability to reach profitability. Approximately 98% of 2021 revenue came from ACA-regulated plans, and about 73% of members’ direct premiums were subsidized by APTCs.
- Risk-adjustment transfer payable was $794.4 million at year-end, and benefits payable was $513.6 million, including estimated claims and out-of-network provider disputes. These estimates are sensitive to actuarial assumptions; the auditor identified both benefits payable and risk-adjustment valuation as critical audit matters.
- The company reported a material weakness in IT general controls over financial reporting, including change management, user access and software-development controls. Management said remediation began in Q1 2022; the weakness did not cause a reported financial-statement misstatement, but disclosure controls were deemed ineffective at December 31, 2021.
- Unusual items included a $20.2 million debt-extinguishment loss and a $55.3 million premium-deficiency-reserve release in 2021. The filing also reports ongoing regulatory reviews and ordinary-course claims and litigation; Oscar stated it believed no pending proceeding would have a material effect, while noting outcomes can be difficult to estimate.
Most important facts for investors to verify
- Whether membership growth can translate into improved underwriting results, given the 110.7% combined ratio and higher 2021 MLR.
- How final CMS risk-adjustment settlements compare with the $794.4 million payable estimate, and whether claims reserves develop favorably or adversely.
- How much liquidity is available at Holdco after regulated-subsidiary capital needs, risk-adjustment payments and the 2022 convertible-note issuance.
- Progress in remediating the IT-control material weakness and whether management can demonstrate sustained control effectiveness.
- Whether +Oscar partnerships generate meaningful recurring revenue and whether growth can be achieved without further substantial losses or capital requirements.