Oscar Health, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are with Q1 2020 unless noted. Oscar sells Individual & Family, Small Group and Medicare Advantage health plans, and operates as one reportable segment. It completed its IPO in March 2021.
Financial and operating results
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total revenue | $369.4 million | $88.1 million | Up 319%; premiums earned increased to $368.5 million from $85.2 million. |
| Premiums before ceded reinsurance | $610.1 million | $424.4 million | Up 44%, reflecting membership, market expansion and higher-premium plan mix; partly offset by higher risk-adjustment amounts. |
| Claims incurred, net | $268.0 million | $84.2 million | Up 218%, primarily with membership growth and less quota-share reinsurance. |
| Operating loss | $(62.5) million | $(95.9) million | Loss narrowed. |
| Net loss | $(87.4) million | $(96.9) million | Loss narrowed; includes $20.2 million debt-extinguishment loss and $3.7 million interest expense. |
| Net loss per share, basic and diluted | $(0.98) | $(3.36) | Share counts reflect the IPO-related reclassification and 1-for-3 reverse split. |
| Medical loss ratio (MLR) | 74.4% | 81.1% | Improved; management cited non-recurring unfavorable prior-year adjustments in Q1 2020 and operational improvements. |
| InsuranceCo administrative expense ratio | 19.8% | 23.6% | Improved, including from the health insurance industry fee repeal and scale, partly offset by investment in offerings. |
| InsuranceCo combined ratio | 94.2% | 104.6% | Improved; defined as MLR plus administrative expense ratio. |
| Adjusted EBITDA | $(26.3) million | $(86.2) million | Non-GAAP loss narrowed, primarily with improved underwriting margin; includes specified adjustments. |
| Members at quarter end | 542,220 | 420,552 | Up 29%; includes 535,001 Individual and Small Group members, 3,628 Medicare Advantage members and 3,591 Cigna + Oscar members. |
Cash flow, balance sheet and debt
- Cash and cash equivalents were $2.32 billion at March 31, 2021, versus $826.3 million at December 31, 2020. Short- and long-term investments totaled $718.6 million; restricted deposits were $26.4 million. Cash plus investments therefore totaled approximately $3.04 billion, before considering restrictions and the distinct capital needs of regulated insurance subsidiaries.
- Operating cash flow was $317.7 million, compared with $106.4 million in Q1 2020. The filing attributes the increase mainly to membership-related working-capital movements, including reinsurance balances, benefits payable and risk-adjustment payable; it should not be read as equivalent to earnings.
- Investing cash flow was $(34.3) million, compared with $48.0 million provided in Q1 2020, as investment purchases exceeded sales and maturities. Financing cash flow was $1.21 billion, primarily reflecting IPO proceeds.
- The March IPO sold 36.4 million Class A shares at $39 per share and generated approximately $1.3 billion of net proceeds. Oscar used part of the proceeds to repay its term loan in full; no term-loan debt remained at quarter end. The $200 million revolving facility was undrawn.
- Current liabilities were $1.81 billion, including $922.1 million of risk-adjustment transfer payable and $358.1 million of benefits payable. The company reported $375.9 million of statutory capital and surplus at its insurance subsidiaries, above applicable minimum requirements.
Changes, outlook and significant items
- Quota-share reinsurance cessions fell to 43% of premiums before ceded reinsurance from 83% in Q1 2020. The change increased reported premiums and net claims retained by Oscar, and reduced ceding commissions; it is a major factor in interpreting year-over-year revenue and expense changes.
- Oscar recognized a $9.5 million premium-deficiency-reserve release, versus a negligible release in Q1 2020. The 2021 quarter also had no health insurance industry fee, which was repealed effective 2021.
- On May 12, 2021, Oscar disclosed termination of its Canada Life quota-share arrangements, effective April 1, 2021. Canada Life had received approximately 10% of premiums before reinsurance in Q1. Oscar said amounts due under the agreements for Q1 would be paid. Reduced reinsurance may affect revenue, risk exposure and subsidiary capital requirements.
- The company gave no specific numerical financial guidance in the provided filing text. Management said it expected continued investment in technology, membership growth, new markets and products, partnerships and public-company requirements; it also cautioned that profitability is not assured.
- Management reported no significant negative impact to operations, liquidity or capital resources from COVID-19 to date, but warned that deferred care could return and raise future claims. The American Rescue Plan expanded premium subsidies and enrollment opportunities beginning after quarter end; Oscar cited these changes as contributing to membership growth.
- Key uncertainties include medical-cost and claims-reserve estimates, risk-adjustment transfers, reinsurance availability and recoverability, regulatory and ACA changes, COVID-related utilization, provider relationships, cybersecurity and privacy, and continued losses. The company reported an accumulated deficit of $1.51 billion at March 31, 2021.
- The filing describes ongoing regulatory reviews and ordinary-course legal matters, but says it believed no pending lawsuit or claim was likely, individually or in aggregate, to have a material effect. It also states estimates of possible losses can be difficult or unavailable for certain matters.
Important facts for investors to verify
- How the lower reinsurance cession rate and Canada Life termination affect retained claims, net premiums, risk protection and statutory capital after Q1.
- Whether the $922.1 million risk-adjustment payable and management’s expected approximately $680 million 2021 payment for the 2020 policy year match later settlements and cash flows.
- Whether Q1’s improved MLR and combined ratio persist as deferred care resumes and membership, markets and plan mix change.
- How much reported operating cash flow reflects timing and working-capital movements versus repeatable operating performance, and what liquidity is available at the holding company versus regulated subsidiaries.
- The impact of continued losses, stock-based compensation—including the founders’ performance awards—and the dual-class structure, under which Class B shares carry 20 votes per share.