Oscar(OSCR) - 2021 Q1 - Quarterly Report

FORM 10-Q General Information This section provides general information about Oscar Health, Inc.'s Form 10-Q filing, including registrant details, filing status, and outstanding shares as of March 31, 2021 Registrant Information This section identifies Oscar Health, Inc. as the registrant filing a Quarterly Report on Form 10-Q for the period ended March 31, 2021, detailing its incorporation, address, and contact information - Registrant is Oscar Health, Inc., filing a Form 10-Q for the quarterly period ended March 31, 2021[2] - The company's Class A Common Stock trades on the New York Stock Exchange under the symbol 'OSCR'[3] Filing Status The company indicates it has not filed all required reports in the preceding 12 months but has submitted all Interactive Data Files, classified as a non-accelerated filer and an emerging growth company - Registrant has not filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months[3] - Registrant has submitted electronically every Interactive Data File required during the preceding 12 months[3] Filer Type Status | Filer Type | Status | | :-------------------- | :----- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☐ | | Emerging growth company | ☒ | Outstanding Shares As of April 30, 2021, Oscar Health, Inc. had 172,266,017 shares of Class A common stock and 35,115,807 shares of Class B Common Stock outstanding Shares Outstanding (as of April 30, 2021) | Class of Stock | Shares Outstanding (as of April 30, 2021) | | :--------------- | :---------------------------------------- | | Class A Common Stock | 172,266,017 | | Class B Common Stock | 35,115,807 | Table of Contents This section provides an organized list of all major sections and subsections within the Form 10-Q report, facilitating navigation Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to various risks and uncertainties, which may cause actual results to differ materially Overview of Forward-Looking Statements This section highlights that the report contains forward-looking statements, intended to be covered by safe harbor provisions, which are predictions based on current expectations and projections about future events and financial trends - The report contains forward-looking statements covered by safe harbor provisions, including future results, financial position, business strategy, and market growth[9] - Forward-looking statements are predictions based on current expectations and projections, subject to known and unknown risks and uncertainties[10] Key Risks and Uncertainties Key risks include the impact of COVID-19, ability to retain and expand members, execute growth strategy, maintain profitability, changes in healthcare laws (like ACA), accurately estimate claims, comply with regulations, and manage market changes and data security - Risks include the impact of COVID-19 on markets and operations, ability to retain and expand member base, and execution of growth strategy[10] - Challenges involve achieving and maintaining profitability, changes in federal/state laws (e.g., ACA), accurately estimating claims, and complying with regulatory requirements[10] - Other significant risks are changes in health insurance markets, data privacy/security compliance, maintaining provider networks, and potential costly legal outcomes[10] Basis of Presentation This section outlines the foundational principles and key definitions used in preparing the financial statements, including reclassification and reverse stock split details Key Definitions This section provides definitions for key terms used throughout the report, such as 'Company,' 'ACA,' 'direct policy premium,' 'full stack technology platform,' 'health insurance subsidiary,' 'health plans,' 'MLR,' 'member,' and various enrollment periods, ensuring clarity and consistent understanding of the financial and operational context - Key terms defined include 'ACA' (Patient Protection and Affordable Care Act), 'direct policy premium' (premiums before risk adjustment and reinsurance), and 'full stack technology platform' (cloud-based end-to-end solution)[14] - Definitions also cover 'health insurance subsidiary' (licensed entities, 14 as of March 31, 2021), 'health plans' (Individual, Small Group, Medicare Advantage, including co-branded), and 'member' (individual covered by health plans)[14] - Financial metrics like 'InsuranceCo Administrative Expense Ratio,' 'InsuranceCo Combined Ratio,' and 'Medical Loss Ratio' (MLR) are defined, along with various enrollment periods ('Annual Election Period,' 'Open Enrollment Period,' 'Special Enrollment Period')[14][18] Reclassification and Reverse Stock Split In connection with its IPO on March 3, 2021, the Company effected a reclassification of share capital and a one-for-three reverse stock split, retroactively adjusting all per-share data - On March 3, 2021, the Company filed an amended certificate of incorporation, effecting a reclassification of share capital and a one-for-three reverse stock split[17] - All outstanding convertible preferred stock and common stock prior to the IPO were converted/reclassified into 132,760,639 shares of Class A common stock and 35,335,579 shares of Class B common stock[17] - All shares of common stock and per share data in the report have been retroactively adjusted to reflect the reclassification and reverse stock split[17] Summary Risk Factors This section provides a concise overview of the principal risks and uncertainties facing the company, including operational, regulatory, and legal challenges Principal Risks and Uncertainties The company's business faces numerous risks, including challenges in member retention and expansion, achieving profitability, regulatory changes (especially ACA), managing medical and administrative costs, and complying with privacy and data laws - Key risks include the ability to retain and expand the member base, execute growth strategy, and achieve or maintain future profitability[21] - Regulatory risks involve changes in federal/state laws (ACA), compliance with ongoing requirements, and developments in health insurance markets (e.g., single-payer programs)[21] - Operational and legal risks include accurately estimating medical expenses, complying with privacy/security laws, cybersecurity breaches, maintaining provider relations, and unfavorable lawsuit outcomes[21] PART I - FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis of Oscar Health, Inc.'s financial condition and results of operations Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Oscar Health, Inc., including the balance sheets, statements of operations, comprehensive income, convertible preferred stock and stockholders' equity (deficit), and cash flows, along with detailed notes explaining the organization, significant accounting policies, and specific financial line items Consolidated Balance Sheets This section presents the unaudited consolidated balance sheets, detailing the company's assets, liabilities, and equity as of March 31, 2021, and December 31, 2020 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :----------------------------------- | :------------- | :---------------- | | Assets: | | | | Cash and cash equivalents | $2,321,287 | $826,326 | | Total current assets | $3,179,360 | $1,870,447 | | Total Assets | $3,594,356 | $2,272,106 | | Liabilities & Equity: | | | | Benefits payable | $358,066 | $311,914 | | Risk adjustment transfer payable | $922,069 | $716,370 | | Total current liabilities | $1,808,119 | $1,665,596 | | Total liabilities | $1,808,119 | $1,823,088 | | Total Stockholders' Equity (Deficit) | $1,786,237 | $(1,295,893) | - Total assets increased significantly from $2.27 billion at December 31, 2020, to $3.59 billion at March 31, 2021, primarily driven by a substantial increase in cash and cash equivalents[23] - Stockholders' Equity (Deficit) shifted from a deficit of $(1.29) billion to a positive equity of $1.79 billion, reflecting the impact of the IPO[23] Consolidated Statements of Operations This section presents the unaudited consolidated statements of operations, outlining the company's revenues, expenses, and net loss for the three months ended March 31, 2021, and 2020 Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Premiums earned | $368,537 | $85,219 | | Total revenue | $369,388 | $88,103 | | Claims incurred, net | $268,048 | $84,216 | | Total operating expenses | $431,919 | $184,051 | | Loss from operations | $(62,531) | $(95,948) | | Net loss | $(87,371) | $(96,879) | | Net loss per share, basic and diluted | $(0.98) | $(3.36) | - Total revenue increased significantly by 319% from $88.1 million in Q1 2020 to $369.4 million in Q1 2021, primarily driven by a 332% increase in premiums earned[25] - Net loss improved by 10% from $(96.9) million in Q1 2020 to $(87.4) million in Q1 2021, and net loss per share decreased from $(3.36) to $(0.98)[25] Consolidated Statements of Comprehensive Income This section presents the unaudited consolidated statements of comprehensive income, detailing the net loss and other comprehensive income items for the three months ended March 31, 2021, and 2020 Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------- | :-------------------------------- | :-------------------------------- | | Net loss | $(87,371) | $(96,879) | | Net unrealized gains (losses) on securities available for sale | $(275) | $1,529 | | Comprehensive loss | $(87,646) | $(95,350) | - Comprehensive loss for the three months ended March 31, 2021, was $(87.6) million, a slight improvement from $(95.4) million in the prior year, despite a shift from unrealized gains to losses on available-for-sale securities[27] Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) This section details changes in convertible preferred stock and stockholders' equity (deficit), reflecting the impact of the IPO and stock conversions for the periods presented - As of December 31, 2020, the company had $1.74 billion in Convertible Preferred Stock and a total stockholders' deficit of $(1.30) billion[30] - By March 31, 2021, all Convertible Preferred Stock was converted, and the company issued Class A Common Stock from its IPO, resulting in a total stockholders' equity of $1.79 billion[30] - Additional paid-in capital increased significantly from $133.3 million to $3.30 billion, reflecting the proceeds from the IPO and other equity transactions[30] Consolidated Statements of Cash Flows This section presents the unaudited consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities for the three months ended March 31, 2021, and 2020 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $317,691 | $106,350 | | Net cash (used in) provided by investing activities | $(34,280) | $48,012 | | Net cash provided by financing activities | $1,211,550 | $442 | | Increase in cash, cash equivalents and restricted cash equivalents | $1,494,961 | $154,804 | | Cash, cash equivalents, restricted cash and cash equivalents—end of period | $2,338,066 | $508,184 | - Net cash provided by operating activities increased by $211.3 million (198.7%) to $317.7 million in Q1 2021, driven by membership growth and changes in receivables and payables[32][224] - Net cash provided by financing activities surged to $1.21 billion in Q1 2021, primarily due to $1.35 billion in net proceeds from the IPO, partially offset by debt prepayment[32][226] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering organization, accounting policies, and specific financial line items Note 1 - Organization This note describes Oscar Health, Inc.'s business as a health insurance company, its full-stack technology platform, and the impact of its March 2021 IPO, including the reclassification and reverse stock split - Oscar Health, Inc. is a health insurance company built on a full-stack technology platform, offering Individual & Family, Small Group, and Medicare Advantage plans[36] - The Company completed its IPO on March 5, 2021, selling 36,391,946 shares of Class A Common Stock at $39.00 per share, generating $1.3 billion in net proceeds, used partly to repay a Term Loan Facility[37] - In connection with the IPO, a reclassification and one-for-three reverse stock split occurred, converting all preferred and common stock into Class A and Class B common stock, with all per-share data retroactively adjusted[38] Note 2 - Recent Accounting Pronouncements and Use of Estimates This note discusses the unaudited nature of interim financial statements, reliance on management estimates, recent accounting standard adoptions, and the election to use the extended transition period for new standards as an emerging growth company - The interim financial statements are unaudited and prepared in accordance with U.S. GAAP and SEC rules for interim information, relying on management estimates for items like IBNR, reinsurance, PDR, risk adjustment, stock-based compensation, and income taxes[39][42] - The Company adopted ASU 2018-13 (Fair Value Measurement) and ASU 2018-18 (Collaborative Arrangements) effective January 1, 2020, with no material impact on financial statements[44][45] - As an emerging growth company, Oscar has elected to use the extended transition period for complying with new accounting standards, delaying adoption of ASU 2016-02 (Leases) until after December 15, 2021, and ASU 2016-13 (Credit Losses) until after December 15, 2022[46][47][48] Note 3 - Premiums Earned This note details the components of premiums earned, including direct policy premiums, assumed premiums, and adjustments for the risk adjustment program, and presents a summary table of premiums earned - Premium revenue includes direct policy premiums from members and CMS (APTC, Medicare Advantage), assumed premiums from reinsurance, and is adjusted for the risk adjustment program[50] Premiums Earned (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Direct policy premiums | $820,814 | $572,011 | | Risk adjustment | $(213,126) | $(147,563) | | Premiums before ceded reinsurance | $610,099 | $424,448 | | Reinsurance premiums ceded | $(241,562) | $(339,229) | | Total premiums earned | $368,537 | $85,219 | - Total premiums earned increased significantly from $85.2 million in Q1 2020 to $368.5 million in Q1 2021, largely due to higher direct policy premiums and a decrease in reinsurance premiums ceded[51] Note 4 - Reinsurance This note explains the Company's use of quota share reinsurance agreements for risk management, detailing ceded and assumed premiums and claims incurred, net - The Company uses quota share reinsurance agreements to share premiums and incurred claims proportionally with reinsurers, receiving ceding commissions and experience refunds[52][53] Reinsurance Premiums Ceded and Assumed (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Reinsurance premiums ceded, gross | $(264,787) | $(357,710) | | Experience refunds | $23,225 | $18,481 | | Reinsurance premiums ceded | $(241,562) | $(339,229) | | Reinsurance premiums assumed | $2,411 | $0 | | Total reinsurance premiums ceded and assumed | $(239,151) | $(339,229) | Claims Incurred, Net (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Direct claims incurred | $457,219 | $345,508 | | Ceded reinsurance claims | $(190,948) | $(261,290) | | Assumed reinsurance claims | $1,777 | $(2) | | Total claims incurred, net | $268,048 | $84,216 | Note 5 - Restricted Cash and Restricted Deposits This note outlines the Company's requirement to maintain restricted funds on deposit with state agencies as a condition for licensure, detailing the amounts held as restricted cash and investments - The Company is required to maintain funds on deposit or pledged to state agencies as a condition for licensure, classified as long-term restricted deposits[56] Restricted Deposits (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :----------------------------------- | :------------- | :---------------- | | Restricted cash and cash equivalents | $16,779 | $16,779 | | Restricted investments | $9,670 | $9,699 | | Restricted Deposits, as reported on the balance sheet | $26,449 | $26,478 | Note 6 - Investments This note describes the Company's investment portfolio, primarily consisting of U.S. treasury and agency securities, and presents a summary of investments by security type and net investment income - The Company's investment portfolio primarily consists of U.S. treasury and agency securities, corporate notes, certificates of deposit, commercial paper, and municipalities[59] Investments by Security Type (Fair Value in thousands) | Security Type | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | U.S. treasury and agency securities | $529,779 | $524,369 | | Corporate notes | $177,260 | $159,665 | | Certificate of deposit | $2,370 | $7,043 | | Commercial paper | $6,044 | $1,050 | | Municipalities | $3,160 | — | | Total | $718,613 | $692,127 | Net Investment Income (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Interest income | $1,345 | $2,385 | | Investment discount amortization net of premium accretion | $(1,074) | $(155) | | Net realized gain | $113 | $654 | | Total | $384 | $2,884 | Note 7 - Fair Value This note explains the Company's fair value measurements, categorizing investments and warrant liabilities into a three-tier hierarchy based on input observability, with most investments classified as Level 2 - Fair value measurements are categorized into a three-tier hierarchy (Level 1, 2, 3) based on the observability of inputs, with most investments classified as Level 2 due to observable market data[63][64][65] Fair Value Measurement of Investments (in thousands) | Security Type | March 31, 2021 (Level 2) | December 31, 2020 (Level 2) | | :-------------------------- | :----------------------- | :------------------------ | | U.S. treasury and agency securities | $529,779 | $524,369 | | Corporate notes | $177,259 | $159,665 | | Commercial paper | $6,044 | $7,043 | | Certificate of deposit | $2,370 | $1,050 | | Municipalities | $3,160 | — | | Total | $718,613 | $692,127 | - Warrant liabilities were classified as Level 3, valued using an option pricing model with unobservable inputs, and were reduced to zero by March 31, 2021, due to exercise[66][68] Note 8 - Benefits Payable This note details the estimation and recording of reserves for medical claims expenses as benefits payable, including a rollforward of benefits and claims adjustment expenses (CAE) payable - Reserves for medical claims expenses are estimated using actuarial assumptions and recorded as benefits payable, with continuous review and adjustments reflected in the period estimates are updated[69] Benefits and CAE Payable Rollforward (in thousands) | Metric | March 31, 2021 | March 31, 2020 | | :----------------------------------- | :------------- | :------------- | | Benefits payable, beginning of the period, net | $184,766 | $83,383 | | Total claims incurred and CAE, net | $284,310 | $92,437 | | Total claims and CAE paid, net | $184,783 | $95,804 | | Benefits and CAE payable, end of period, net | $284,293 | $80,016 | | Add: Reinsurance recoverable | $80,092 | $177,293 | | Benefits and CAE payable, end of period | $364,385 | $257,309 | - Benefits and CAE payable (net) increased from $80.0 million at March 31, 2020, to $284.3 million at March 31, 2021, reflecting higher claims incurred and lower reinsurance recoverables[71] Note 9 - Debt and Warrants This note describes the repayment of the Term Loan Facility using IPO proceeds, the establishment of a new Revolving Credit Facility, and the exercise of all outstanding warrants and call options - The Company repaid its $150.0 million Term Loan in full on March 5, 2021, using IPO proceeds, recognizing a $20.2 million loss on debt extinguishment[73][74] - A new $200.0 million senior secured Revolving Credit Facility was entered into on February 21, 2021, with no outstanding amounts as of March 31, 2021, maturing in February 2024[75][76][78] - All outstanding warrants and call options were exercised in full in connection with the IPO, resulting in the issuance of 1,115,973 shares of Class A common stock[79][81] Note 10 - Convertible Preferred Stock This note explains the classification of convertible preferred stock outside of stockholders' equity and its conversion into common stock in connection with the IPO - Convertible preferred stock was classified outside of stockholders' equity due to liquidation rights not solely within the Company's control[82] - In connection with the IPO, all outstanding convertible preferred stock as of December 31, 2020, was converted into shares of Series A and Series B common stock[83] Convertible Preferred Stock Status (pre-split shares) | Preferred Stock Series | December 31, 2020 Outstanding | Converted to Common Stock (Series A/B) | March 31, 2021 Outstanding | | :--------------------- | :---------------------------- | :------------------------------------- | :------------------------- | | Total | 400,904,302 | (400,904,302) | — | Note 11 - Stockholders' Equity This note details the impact of the March 2021 IPO on stockholders' equity, including the sale of Class A Common Stock, conversion of preferred shares, and the dual-class stock structure - The IPO in March 2021 involved the sale of 36,391,946 Class A Common Stock shares at $39.00, yielding $1.3 billion net proceeds, partially used for Term Loan repayment[86] - The IPO triggered the conversion of 402.2 million preferred shares and 9.4 million Series B common shares into Series A common stock, followed by a reclassification into Class A and Class B common stock and a one-for-three reverse stock split[87][91] - Class A common stock holders have one vote per share, while Class B common stock holders have 20 votes per share, with Class B shares convertible to Class A under certain conditions[92][93][94] Note 12 - Stock-Based Compensation This note outlines the stock-based compensation expense recognized, details stock option activity, and describes the grant of performance-based Restricted Stock Units (PSUs) to co-founders - The Company recognized $19.1 million in stock-based compensation expense for Q1 2021, up from $8.1 million in Q1 2020, allocated to general and administrative expenses and other insurance costs[98] Stock Option Activity (Three Months Ended March 31, 2021) | Metric | Number of Options | Weighted Average Exercise Price | | :-------------------------- | :---------------- | :------------------------------ | | Balance - December 31, 2020 | 41,115,486 | $9.19 | | Options granted | 1,245,593 | $27.03 | | Options exercised | (4,306,297) | $6.92 | | Options canceled | (400,101) | $15.86 | | Balance - March 31, 2021 | 37,654,681 | $9.95 | - Performance-based Restricted Stock Units (PSUs), or 'Founders Awards,' covering 6,344,779 Class A Common Stock shares were granted to co-founders in February 2021, eligible to vest based on stock price goals over seven years[108][109] Note 13 - Earnings (Loss) per Share This note explains the calculation of earnings (loss) per share using the two-class method, treating Class A and Class B common stock as a single class due to identical dividend and liquidation rights - EPS is calculated using the two-class method, treating Class A and Class B common stock as a single class due to identical dividend and liquidation rights[112] Earnings (Loss) per Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stockholders | $(87,371) | $(96,879) | | Weighted average common shares outstanding, basic and diluted | 88,865,726 | 28,874,520 | | Net loss per share, basic and diluted | $(0.98) | $(3.36) | - Dilutive securities are excluded from diluted EPS computation in net loss periods, making basic and diluted net loss per share identical[114] Note 14 - Variable Interest Entities This note describes the Company's consolidation of integrated health systems and professional corporations as Variable Interest Entities (VIEs) due to controlling financial interests, including shared underwriting risks and debt guarantees - The Company consolidates integrated health systems and professional corporations as Variable Interest Entities (VIEs) due to controlling financial interests, including shared underwriting risks and debt guarantees[115][116][118] - For Q1 2021, the Company incurred $0.9 million in shared savings expenses with integrated health systems[117] - Professional corporations had collective assets of $1.9 million and liabilities of $9.8 million as of March 31, 2021, with Q1 2021 revenues of $2.0 million and operating expenses of $4.2 million[119][120] Note 15 - Commitments and Contingencies This note discloses the Company's involvement in legal actions and regulatory inquiries, emphasizing the difficulty in predicting outcomes for matters with indeterminate damages or novel legal theories - The Company is frequently involved in legal actions and regulatory inquiries, including class actions and suits by members, providers, customers, and regulators, relating to its health benefit plan management and other services[122] - Liabilities are recorded for probable costs, but estimates are difficult to predict for matters involving indeterminate damages, novel legal theories, or early-stage proceedings, where ultimate settlements could be material[123] Note 16 - Subsequent Event This note reports the termination of the Company's 2021 quota share arrangements with Canada Life Assurance Company, effective April 1, 2021 - On May 12, 2021, the Company terminated its 2021 quota share arrangements with Canada Life Assurance Company, effective April 1, 2021[124] - For Q1 2021, approximately 10% of premiums before ceded reinsurance were ceded to Canada Life under the terminated agreement[124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion of Oscar Health, Inc.'s financial condition and results of operations, highlighting its business model, market segments, partnerships, and key financial metrics Overview This overview describes Oscar Health as a technology-driven health insurance company offering various plans and leveraging its platform for member engagement, data integration, and virtual care solutions - Oscar Health is a health insurance company built on a full-stack technology platform, offering Individual & Family, Small Group, and Medicare Advantage plans[127] - The business model leverages a member engagement engine and technology platform to drive engagement, integrate data for insights, and provide virtual care solutions[128] - In April 2021, Oscar launched '+Oscar,' a tech-driven platform business to help provider and payor clients with efficiency, growth, and member engagement, often monetized through risk-sharing or fee-based compensation[129] Individual and Small Group This section details Oscar's offerings in the Individual and Small Group markets, including policy types, ACA metal categories, and regulatory aspects of premium rates and risk adjustment - The Individual market primarily involves policies purchased through Health Insurance Marketplaces, while the Small Group market serves employees of companies with up to 50-100 full-time workers[130] - Oscar offers health plans in the Individual market across five ACA 'metal' categories (Catastrophic, Bronze, Silver, Gold, Platinum), differing in premiums and cost-sharing[131] - Premium rates and changes require approval from state and federal regulatory agencies, and base premiums are subject to risk adjustment based on member health status[132] Medicare Advantage This section describes Oscar's Medicare Advantage plans for adults aged 65 and older, detailing the fixed per member per month (PMPM) premiums received from CMS and the factors influencing these payments - Oscar began offering Medicare Advantage plans in 2020 to adults aged 65 and older, contracting with CMS to provide healthcare benefits[134] - The Company receives a fixed per member per month (PMPM) premium from CMS, which varies based on factors like CMS Star ratings, geographic location, demographics, and member health status (risk adjustment)[134] - Medicare Advantage premiums are subject to annual review, federal government reviews, and audits by CMS[134] Partnerships This section highlights Oscar's co-branded partnerships with providers and payers, such as Cleveland Clinic, Montefiore, Cigna, and Health First, for expanding its technology platform and administrative services - Oscar monetizes its technology platform through co-branded partnerships with providers and payers, including Cleveland Clinic (Individual, 2018), Montefiore (Medicare Advantage, 2020), and Cigna (Small Group, 2020)[135] - A new co-branded plan with Holy Cross and Memorial in the Medicare Advantage market began selling in 2020 for 2021 enrollment[135] - In January 2021, Oscar partnered with Health First to provide administrative services and platform access to their individual commercial and Medicare Advantage members, largely starting January 1, 2022[135] Reinsurance This section discusses the Company's use of reinsurance agreements for risk management and capital efficiency, including amendments to existing agreements and the termination of arrangements with Canada Life - Reinsurance agreements are used for risk management, capital efficiency, and earnings predictability, covering a portion of medical claims in return for a portion of premiums[136] - For 2021, Oscar amended its quota share reinsurance agreements with Axa France Vie to remove MLR-based limitations on ceded claims, and terminated arrangements with Canada Life effective April 1, 2021[136][140] Percentage of Premiums before Reinsurance Ceded | Reinsurer | March 31, 2021 | March 31, 2020 | | :-------------------------------- | :------------- | :------------- | | Axa France Vie | 35 % | 31 % | | Berkshire Hathaway Specialty Insurance Company | *NM | 52 % | | Canada Life Assurance Company | 10 % | — % | | Total Premiums Ceded | 43 % | 83 % | Seasonality This section explains how seasonal patterns affect the business, with medical expenses typically highest in the fourth quarter due to deductible utilization and direct policy premiums highest in the first quarter - The business is affected by seasonal patterns in member enrollment and medical expenses, with medical expenses typically highest in the fourth quarter due to deductible and out-of-pocket maximum utilization[141][145] - Direct policy premiums earned are historically highest in the first quarter, driven by annual enrollment cycles[141] Members This section highlights membership as a key metric, detailing growth drivers such as market expansion, new plan offerings, and the impact of the American Rescue Plan's extended special enrollment period - Membership is a key metric for evaluating revenue and market share, with growth primarily occurring during annual Open Enrollment and Annual Election Periods for Individual and Medicare Advantage products[142] Membership by Offering | Offering | As of March 31, 2021 | As of March 31, 2020 | | :-------------------------- | :------------------- | :------------------- | | Individual and Small Group | 535,001 | 418,924 | | Medicare Advantage | 3,628 | 1,628 | | Cigna + Oscar | 3,591 | — | | Total | 542,220 | 420,552 | - Total membership increased by 29% to 542,220 as of March 31, 2021, driven by growth in existing markets (Florida, Arizona, California), new market expansion, new plan offerings, and the Cigna+Oscar plan, further boosted by the American Rescue Plan's extended special enrollment period and subsidies[144][182] Claims Incurred This section discusses the variability of medical expenses, noting they are generally lowest in Q1 and highest in Q4 due to seasonal effects like deductible utilization and out-of-pocket maximums - Medical expenses are generally lowest in Q1 and highest in Q4, influenced by seasonal effects like deductible utilization and out-of-pocket maximums, which shift more costs to the company later in the year[145] - Medical costs can also vary based on the number of days and holidays in a given period[145] Risk Adjustment This section explains risk adjustment programs in various markets, which aim to mitigate adverse selection and stabilize health insurers, while acknowledging the high uncertainty in estimating risk transfers - Risk adjustment programs in Individual, Small Group, and Medicare Advantage markets aim to mitigate adverse selection and stabilize health insurers, with payments adjusted based on member health status and demographics[147] - Estimates of risk transfers are highly uncertain, especially at the beginning of the policy year and for high-growth business blocks, and actual calculations can materially differ from assumptions[147] Impact of COVID-19 This section details the ongoing impact of the COVID-19 pandemic on the business, including depressed non-COVID-19 medical costs, expanded benefit coverage, and increased utilization of virtual care - The COVID-19 pandemic continues to impact the business, leading to depressed non-COVID-19 related medical costs, with some costs likely deferred to the future, creating uncertainty in MLR estimates[148][149] - Oscar expanded benefit coverage (COVID-19 care, telemedicine), offered additional enrollment opportunities, extended premium payment terms, and accelerated provider payments to assist members and providers[149] - The Company transitioned most employees to remote work, leading to incremental costs but maintaining operations, and saw increased utilization of virtual care, launching innovative virtual primary care plans in Q1 2021[149] Regulatory Update This section provides an update on regulatory changes, specifically the American Rescue Plan Act of 2021, which expanded APTC subsidies and extended the Special Enrollment Period for federal and state-based marketplaces - The American Rescue Plan Act of 2021, signed March 11, 2021, expanded APTC subsidies for 2021 and 2022, making them available to more individuals and increasing existing subsidies[151] - The American Rescue Plan also provides $350 billion in state/local funding, additional Medicaid/CHIP funding, and incentives for states to expand Medicaid[151] - CMS extended the Special Enrollment Period (SEP) until August 15, 2021, for federal and state-based marketplaces, allowing consumers to utilize new American Rescue Plan subsidies[152] Key Factors Affecting Performance This section identifies member acquisition and retention, growth strategy execution, and market trends as the primary factors influencing the company's financial condition and results, presenting both opportunities and risks - The company's financial condition and results are affected by factors such as member acquisition and retention, growth strategy execution, and market trends[153] - These factors present both significant opportunities and pose risks and challenges, as detailed in the 'Risk Factors' section[153] Components of our Results of Operations This section breaks down the key components of the company's results of operations, including premiums before ceded reinsurance, claims incurred net, and various operating expenses - Premiums before ceded reinsurance are driven by member acquisition/retention, policy size, and premium rates, adjusted for risk sharing[154] - Claims incurred, net, include paid and unpaid medical expenses (fee-for-service, pharmacy, capitation) and are net of ceded reinsurance claims, with estimates based on actuarial methodologies[157][158] - Operating expenses include other insurance costs (wages, marketing, administrative, net of ceding commissions), general and administrative expenses (corporate, technology, R&D), federal and state assessments, and premium deficiency reserve changes[159][160][161][163] Results of Operations (Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020) This section provides a comparative analysis of the company's financial performance for the three months ended March 31, 2021, versus 2020, highlighting significant changes in revenues, expenses, and net loss Results of Operations Summary (in thousands) | Metric | 2021 (3 months) | 2020 (3 months) | $ Change | % Change | | :----------------------------------- | :-------------- | :-------------- | :------- | :------- | | Premiums before ceded reinsurance | $610,099 | $424,448 | $185,651 | 44 % | | Reinsurance premiums ceded | $(241,562) | $(339,229) | $97,667 | (29) % | | Premiums earned | $368,537 | $85,219 | $283,318 | 332 % | | Total revenue | $369,388 | $88,103 | $281,285 | 319 % | | Claims incurred, net | $268,048 | $84,216 | $183,832 | 218 % | | Other insurance costs | $79,837 | $40,904 | $38,933 | 95 % | | General and administrative expenses | $63,062 | $31,839 | $31,223 | 98 % | | Federal and state assessments | $30,515 | $22,297 | $8,218 | 37 % | | Health insurance industry fee | — | $4,813 | $(4,813) | (100) % | | Premium deficiency reserve release | $(9,543) | $(18) | $(9,525) | *NM | | Total operating expenses | $431,919 | $184,051 | $247,868 | 135 % | | Loss from operations | $(62,531) | $(95,948) | $33,417 | (35) % | | Net loss | $(87,371) | $(96,879) | $9,508 | (10) % | - Premiums before ceded reinsurance increased by 44% to $610.1 million, driven by higher membership and a shift to higher premium plans, partially offset by increased risk adjustment payable[167] - Net loss improved by 10% to $(87.4) million, primarily due to a significant increase in premiums earned (332%) and a decrease in reinsurance premiums ceded (29%), despite higher operating expenses[166][168] Key Operating and Non-GAAP Financial Metrics This section presents key operating and non-GAAP financial metrics, including membership, direct policy premiums, Medical Loss Ratio, Administrative Expense Ratio, Combined Ratio, and Adjusted EBITDA, for comparative analysis Key Operating and Non-GAAP Financial Metrics | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Members | 542,220 | 420,552 | | Direct Policy Premiums (in thousands) | $820,814 | $572,011 | | Medical Loss Ratio | 74.4 % | 81.1 % | | InsuranceCo Administrative Expense Ratio | 19.8 % | 23.6 % | | InsuranceCo Combined Ratio | 94.2 % | 104.6 % | | Adjusted EBITDA (in thousands) | $(26,258) | $(86,168) | - Membership increased by 29% to 542,220, and Direct Policy Premiums grew by 44% to $820.8 million, driven by growth in existing/new states and a shift to higher premium plans[182][184] - Medical Loss Ratio (MLR) decreased to 74.4% (from 81.1%), and InsuranceCo Administrative Expense Ratio decreased to 19.8% (from 23.6%), leading to an improved InsuranceCo Combined Ratio of 94.2% (from 104.6%)[191][194][196] - Adjusted EBITDA losses decreased significantly to $(26.3) million (from $(86.2) million), benefiting from improved underwriting margin, elimination of the health insurance industry fee, and lower quota share[203] Liquidity and Capital Resources This section discusses the company's liquidity at both the health insurance subsidiary and Holdco levels, detailing cash and investment balances, compliance with capital requirements, and the impact of IPO proceeds on cash flows - The Company maintains liquidity at two levels: health insurance subsidiaries and Holdco. Health insurance subsidiaries held $1.7 billion in cash/investments (March 31, 2021) and complied with statutory minimum capital requirements[205][206][207] - Holdco's cash and investments increased to $1.3 billion (March 31, 2021) from $264.4 million (December 31, 2020), expected to fund operating requirements for at least the next twelve months[207] - Net cash provided by operating activities increased to $317.7 million, while net cash provided by financing activities surged to $1.2 billion, primarily due to IPO proceeds[223][224][226] Off-Balance Sheet Arrangements This section confirms that the Company has no off-balance sheet arrangements likely to have a material effect on its financial condition, results of operations, liquidity, or capital resources - The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on its financial condition, results of operations, liquidity, capital expenditures, or capital resources[228] Critical Accounting Policies and Estimates This section highlights the significant management estimates and assumptions required for financial statement preparation, including those for benefits payable, reinsurance, and risk adjustment, noting no material changes from prior disclosures - Preparation of financial statements requires management to make significant estimates and assumptions, including for benefits payable, reinsurance, premium deficiency reserve, risk adjustment, stock-based compensation, and income taxes[229][230] - These estimates are continuously reviewed, and actual results may differ materially, with changes recorded in the period they become known[229] - There have been no material changes to the critical accounting policies and estimates compared to those disclosed in the Prospectus[232] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily from potential changes in interest rates and inflation, and their impact on investment income and interest expense Interest rate risk This section addresses the Company's exposure to interest rate risk through its investment portfolio and variable interest rate borrowings, quantifying the potential impact of a hypothetical interest rate increase - The Company is exposed to interest rate risk through its investment portfolio (U.S. Treasury, corporate notes, etc.) and variable interest rate borrowings[235] - A hypothetical 1% immediate increase in interest rates at March 31, 2021, would decrease the fair value of investments by approximately $6.3 million[235] Impact of inflation This section discusses the potential adverse effects of inflationary factors, particularly increases in health care costs, on operating results, noting that historical impacts have been immaterial - Inflationary factors, such as increases in health care costs, could adversely affect operating results[236] - The effects of inflation on historical results have been immaterial, but future material impacts are not assured[236] Item 4. Controls and Procedures This section addresses the effectiveness of the Company's disclosure controls and procedures, noting that management, with CEO and CFO participation, concluded they were effective as of March 31, 2021 Limitations on effectiveness of controls and procedures This section acknowledges that controls and procedures provide only reasonable assurance due to inherent limitations, resource constraints, and the necessity of judgment in evaluating benefits versus costs - Management acknowledges that controls and procedures provide only reasonable assurance due to inherent limitations, resource constraints, and the need for judgment in evaluating benefits versus costs[237] Evaluation of disclosure controls and procedures This section states that as of March 31, 2021, management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level - As of March 31, 2021, management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level[238] Changes in Internal Control over Financial Reporting This section confirms that no material changes in internal control over financial reporting occurred during the quarter ended March 31, 2021 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2021[239] PART II - OTHER INFORMATION This part contains additional information not included in the financial statements, covering legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings The Company is subject to ongoing legal actions and regulatory inquiries from state and federal authorities concerning business practices, claims payment, and statutory capital - The Company is subject to various legal actions and regulatory inquiries from state insurance and healthcare authorities, focusing on claims payment, capital requirements, provider contracting, and sales practices[241] - Past reviews have led to fines and required practice changes, and the Company remains subject to such scrutiny[241] - The Company believes no pending lawsuits or claims, individually or in aggregate, will have a material effect on its business, financial condition, or operating results[243] Item 1A. Risk Factors This section details the significant risks and uncertainties that could adversely affect Oscar Health, Inc.'s business, operating results, financial condition, liquidity, or prospects Most Material Risks to Us This section outlines the most critical risks, including challenges in member retention, growth strategy execution, achieving profitability, the impact of ACA changes, and managing medical and administrative costs - Success depends on retaining and expanding the member base; failure to do so due to competition, technical issues, or reputational harm could significantly impact revenue and operations[246][247][249] - Failure to execute the growth strategy, including expansion into new markets, new products, or monetizing technology, could harm future growth and profitability, especially given significant upfront expenses and capital requirements[251][253][258] - The Company has a history of losses and may not achieve or maintain profitability due to significant investments in growth, technology, and public company expenses, coupled with potential revenue declines or inability to reduce fixed costs[259] - Any repeal, changes, or judicial challenges to the ACA could materially and adversely affect the business, as approximately 95-97% of revenue is derived from ACA-regulated health plans, and subsidies are critical for member enrollment[260][261] - Inaccurate estimation or ineffective management of medical and administrative costs could negatively impact financial position, as premiums are set in advance based on future expense projections[267] Risks Related to the Regulatory Framework that Governs Us This section details risks arising from the highly regulated healthcare industry, including compliance with complex state/federal laws, data privacy regulations, potential changes in health insurance markets, and fraud, waste, and abuse laws - The Company operates in a highly regulated industry, subject to complex and evolving state/federal laws, requiring significant expense and management effort for compliance; failure to comply could lead to disruptions or penalties[273][277][282] - Non-compliance with privacy, security, and data laws (HIPAA, HITECH, CCPA, CPRA) or consumer protection laws could result in increased costs, significant liability, adverse regulatory consequences, and reputational harm[284][285][286][291] - Changes in the U.S. health insurance markets, including proposals for single-payer or government-run programs, could reduce demand for services and materially harm the business[298] - The Company is subject to extensive fraud, waste, and abuse laws (Anti-Kickback Statute, Stark Law, FCA), which can lead to lawsuits, investigations, and significant penalties, including treble damages and exclusion from government programs[302] Risks Related to our Business This section covers business-specific risks, including provider contracting, risk adjustment uncertainties, premium collection delays, COVID-19 impacts, reliance on reinsurance, third-party outsourcing, market conditions, NOL utilization, and intellectual property protection - Profitability depends on contracting with providers at competitive prices and maintaining good relations; inability to do so or provider consolidation could lead to higher medical costs or network inadequacy[310][311][312] - Risk adjustment programs introduce uncertainties that can materially impact revenue, and audits by CMS could lead to repayment obligations or penalties if data is found to be inaccurate[316] - Significant delays in receiving direct policy premiums, potentially due to regulatory restrictions on cancellations (e.g., during COVID-19), could materially affect business operations, cash flows, or earnings[318] - The ongoing COVID-19 pandemic could significantly increase operational costs due to changes in law, population morbidity, or utilization behaviors, and adversely impact operational effectiveness[324][328][329] - Reliance on quota share reinsurance to reduce capital requirements means that non-approval of agreements, inability to renew, or reinsurer defaults could negatively impact capital position and regulatory compliance[333][335][338] - Outsourcing services to third parties (e.g., AWS, GCP, CaremarkPCS) exposes the Company to risks of service disruption, data security incidents, and non-compliance, which could harm business and reputation[343][344][346][347] - Adverse market conditions could lead to investment portfolio losses or reduce access to financing, impacting liquidity and results of operations[348][349] - Inability to utilize net operating loss carryforwards (NOLs) due to ownership changes or future regulatory changes could adversely affect cash flows[365][367] - Failure to secure, protect, or enforce intellectual property rights (e.g., copyrights, trademarks, trade secrets, lack of patents) could harm the business, competitive position, and financial condition[368][370][371] Risks Related to our Indebtedness This section addresses risks associated with the company's debt, including restrictions imposed by the Revolving Credit Facility, potential impacts of LIBOR transition, and the implications of future debt obligations on financial flexibility - Restrictions imposed by the Revolving Credit Facility (e.g., limitations on indebtedness, investments, dividends) may limit business operations and financing, with breaches potentially leading to default and accelerated repayment[375][376] - Changes in LIBOR determination and transition to other benchmarks (like SOFR) may adversely affect borrowing costs and financial results due to potential differences in calculation and increased interest expense[380][381] - Future debt obligations could limit additional borrowing capacity, require substantial cash flow for debt service, increase vulnerability to adverse conditions, and expose the Company to interest rate fluctuations[383][384] Risks Related to Ownership of Our Class A Common Stock This section outlines risks for Class A common stock owners, including concentrated voting control from the dual-class structure, potential stock price volatility, significant stock-based compensation dilution, and anti-takeover provisions - The dual-class stock structure concentrates voting control with Thrive Capital and Co-Founders (82.2% of voting power as of March 31, 2021), limiting other investors' influence on corporate matters[387] - The dual-class structure may result in a lower or more volatile market price for Class A common stock, as it makes the Company ineligible for inclusion in certain stock indices (e.g., S&P 500)[391][392] - Substantial stock-based compensation expense related to Founders Awards (6.3 million PSUs) is anticipated, which may adversely affect financial condition and result in significant dilution upon vesting[393][394][395] - As a 'controlled company' under NYSE rules, Oscar may rely on exemptions from certain corporate governance requirements, potentially reducing protections for stockholders[396][398] - The Company does not intend to pay dividends on Class A common stock for the foreseeable future, retaining earnings for business development and growth, which may limit cash flow generation for investors[399] - Future sales and issuances of Class A common stock or other equity securities, including from equity incentive plans and after lock-up expirations, could dilute ownership and cause the stock price to decline[401][403][407] - Anti-takeover provisions in governing documents and Delaware law could make acquisitions more difficult, limit stockholder influence, and depress the market price of Class A common stock[411][417] [General Risk Fac