Business context and reporting period
Oscar Health, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. Oscar sells Individual & Family, Small Group and Medicare Advantage plans and provides technology-enabled services through partnerships. Results are presented against the comparable 2020 periods.
Membership reached 594,284 at September 30, 2021, up 41% from 420,118 a year earlier. Growth reflected new and existing markets, Cigna + Oscar, and enrollment opportunities and subsidies under the American Rescue Plan.
Financial results and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $444.0m | $101.7m | $1,342.6m | $305.1m |
| Premiums earned, net of ceded reinsurance | $441.7m | $99.1m | $1,338.4m | $298.1m |
| Operating loss | $(212.9)m | $(80.1)m | $(347.7)m | $(215.4)m |
| Net loss | $(212.7)m | $(79.1)m | $(373.2)m | $(217.0)m |
| Adjusted EBITDA (non-GAAP) | $(188.7)m | $(71.0)m | $(265.3)m | $(186.0)m |
| Medical loss ratio (MLR) | 99.7% | 90.5% | 85.8% | 77.7% |
| InsuranceCo administrative expense ratio | 23.1% | 22.4% | 20.9% | 23.0% |
| InsuranceCo combined ratio | 122.8% | 112.9% | 106.7% | 100.7% |
All financial amounts above are in U.S. dollars; million amounts are converted from the filing’s reported thousands. The company reported basic and diluted net loss per share of $1.02 in Q3 2021 and $2.21 for the first nine months of 2021.
At September 30, 2021, cash and cash equivalents were $1,076.7m and investments totaled $1,425.2m, including short- and long-term investments. Total assets were $3,169.9m; current liabilities were $1,616.7m. Stockholders’ equity was $1,553.2m. Long-term debt was zero; the company had no borrowings on its $200m revolving credit facility. The term loan was repaid in March with IPO proceeds.
For the first nine months, operating cash flow was $(216.2)m, investing cash flow was $(754.7)m, and financing cash flow was $1,225.7m. Cash, cash equivalents and restricted cash increased $254.8m to $1,097.9m. Insurance subsidiaries reported combined statutory capital and surplus of $448.8m, above applicable minimums. Management stated that Holdco’s unrestricted cash, cash equivalents and investments should fund operating requirements for at least the next 12 months.
Material changes versus prior comparable periods
- Q3 revenue increased 337% and nine-month revenue increased 340%, primarily reflecting membership growth, new-market expansion and a shift toward higher-premium plans.
- Claims incurred, net rose 431% in Q3 and 407% year to date. The company cited more members, COVID-19 costs, resumed non-COVID care after pandemic-related utilization declines in 2020, and reduced quota-share reinsurance.
- The Q3 MLR rose to 99.7%; the combined ratio reached 122.8%. For the nine-month period, the combined ratio was 106.7%, versus 100.7% a year earlier. Ratios above 100% indicate insurance costs and related expenses exceeded the relevant premium base.
- Average quota-share premiums ceded fell from 80% in the 2020 comparable periods to 32% in Q3 2021 and 36% year to date. This increased reported net premiums while reducing reinsurance protection and commissions.
- Operating cash flow shifted from $133.7m provided in the first nine months of 2020 to $216.2m used in 2021. The company highlighted a $461.8m third-quarter payment into the risk-adjustment program for the 2020 policy year.
- The March 2021 IPO generated approximately $1.3bn of net proceeds; proceeds funded repayment of the term loan and increased cash and investments. A $20.2m debt-extinguishment loss was recorded in the nine-month results.
Outlook, management commentary and risks
The filing provides no specific financial guidance for future periods. Oscar described plans to expand Individual plans into Arkansas, Illinois and Nebraska for 2022 and broaden its footprint in other states; it also planned further Cigna + Oscar expansion and continued development of +Oscar platform services.
Management said COVID-19 and variants make future medical costs difficult to estimate. The company observed both COVID-related expenses and a return of care deferred during 2020; future utilization and costs remain uncertain. Management also cited uncertainty in risk-adjustment estimates, including CMS audit effects, and said actual transfers could differ materially from estimates.
Other material exposures include dependence on ACA marketplaces and subsidies, regulatory and statutory-capital requirements, reinsurance availability and counterparty performance, provider-network concentration and contracting, claims-reserve estimation, cybersecurity and privacy, and execution of growth and partnership plans. The company noted that most revenue is from ACA-regulated plans and that APTCs subsidized 72% of direct policy premiums in the first nine months of 2021.
State and federal regulatory reviews and ordinary-course legal claims continue. Oscar said it believed no pending legal proceeding would materially affect its business, financial condition or results, while noting that outcomes and potential losses can be difficult to estimate. The filing also states that Oscar expected to lose emerging-growth-company status at year-end 2021 and would then implement previously deferred accounting standards.
Important facts for investors to verify
- Whether elevated medical utilization and the Q3 MLR persist, and how they affect future combined ratios and profitability.
- The final impact of risk-adjustment calculations and CMS/RADV audits, including payments and any related adjustments.
- Whether growth and expansion produce sustainable margins, and how reduced quota-share reinsurance affects risk, capital needs and earnings.
- Cash-flow timing, statutory capital requirements, and the availability and covenant conditions of the unused revolving facility.
- Potential dilution and compensation expense from stock awards, including performance-based founder awards, and the governance implications of the dual-class voting structure.