Oscar Health, Inc 10-Q for FY2024 Q2
Oscar Health, Inc. (OSCR)
10-Q
2024-08-07
For: 2024-06-30
View Original
Added on
April 07, 2026
About this 10-Q
Oscar Health, Inc filed this 10-Q on August 7, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.22B
- up 45.9% from $1.52B a year earlier
- Net income
- $56.21M
- compared with a net loss of $15.53M a year earlier
- Diluted EPS
- $0.20
- compared with -$0.07 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2024
or
For the transition period from __________to__________
Commission File Number: 001-40154
____________________________________________________________
(Exact name of registrant as specified in its charter)
____________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
Registrant’s telephone number, including area code: (646) 403-3677
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
| Class of Stock | Shares Outstanding as of July 31, 2024 | |||||||
| Class A Common Stock, par value $0.00001 per share | ||||||||
| Class B Common Stock, par value $0.00001 per share | ||||||||
Oscar Health, Inc.
TABLE OF CONTENTS
| Page | ||||||||
PART I - FINANCIAL INFORMATION | ||||||||
| Item 1. | Financial Statements (unaudited) | |||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
PART II - OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our future results of operations and financial position, risk adjustment transfer payments, industry, regulatory and business trends, our commercial arrangements, business strategy, plans and plan mix, membership and market growth, and our objectives for future operations.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following:
•Our ability to execute our strategy and manage our growth effectively;
•Our ability to retain and expand our member base;
•Heightened competition in the markets in which we participate;
•Our ability to accurately estimate our incurred medical expenses or effectively manage our medical costs or related administrative costs;
•Our ability to achieve or maintain profitability in the future;
•Changes in federal or state laws or regulations, including changes with respect to the Patient Protection and Affordable Care Act (“ACA”) and any regulations enacted thereunder;
•Our ability to comply with ongoing regulatory requirements, including capital reserve and surplus requirements and applicable performance standards;
•Changes or developments in the health insurance markets in the United States, including passage and implementation of a law to create a single-payer or government-run health insurance program;
•Our, or any of our vendors', ability to comply with laws, regulations, and standards related to the handling of information about individuals or applicable consumer protection laws;
•Our ability to arrange for the delivery of quality care and maintain good relations with the physicians, hospitals, and other providers within and outside our provider networks;
•Unanticipated results of or changes to risk adjustment programs;
•Our ability to utilize quota share reinsurance to meet our capital and surplus requirements and protect against downside risk on medical claims;
•Unfavorable or otherwise costly outcomes of lawsuits, audits, investigations, and claims that arise from the extensive laws and regulations to which we are subject;
•Incurrence of data security breaches of our and our partners’ information and technology systems;
•Our ability to attract and retain qualified personnel;
•Our ability to detect and prevent material weaknesses or significant control deficiencies in our internal controls over financial reporting or other failure to maintain an effective system of internal controls;
•Adverse publicity or other adverse consequences related to our dual class structure or “controlled company” status; and
•The other risks and uncertainties described under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on February 15, 2024.
3
The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
This Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q should be read with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Oscar Health, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Revenue | |||||||||||||||||||||||
| Premium | $ | $ | |||||||||||||||||||||
| Investment income | |||||||||||||||||||||||
| Services and other | |||||||||||||||||||||||
Total revenue | |||||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Medical | |||||||||||||||||||||||
| Selling, general, and administrative | |||||||||||||||||||||||
Depreciation and amortization | |||||||||||||||||||||||
Total operating expenses | |||||||||||||||||||||||
Earnings (loss) from operations | ( | ( | |||||||||||||||||||||
Interest expense | |||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||
Earnings (loss) before income taxes | ( | ( | |||||||||||||||||||||
Income tax expense | |||||||||||||||||||||||
Net income (loss) | ( | ( | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net income (loss) attributable to Oscar Health, Inc. | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Earnings (Loss) per Share | |||||||||||||||||||||||
Basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Weighted Average Common Shares Outstanding | |||||||||||||||||||||||
Basic | |||||||||||||||||||||||
Diluted | |||||||||||||||||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements
5
Oscar Health, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Net unrealized gains (losses) on securities available for sale | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| Comprehensive income (loss) attributable to Oscar Health, Inc. | $ | $ | ( | $ | $ | ( | |||||||||||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements
6
Oscar Health, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share amounts) | June 30, 2024 | December 31, 2023 | |||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Short-term investments | |||||||||||
Premiums and accounts receivable (net of allowance for credit losses of $ | |||||||||||
Risk adjustment transfer receivable | |||||||||||
Reinsurance recoverable | |||||||||||
| Other current assets | |||||||||||
Total current assets | |||||||||||
Property, equipment, and capitalized software, net | |||||||||||
Long-term investments | |||||||||||
Restricted deposits | |||||||||||
Other assets | |||||||||||
Total assets | $ | $ | |||||||||
Liabilities and Stockholders' Equity | |||||||||||
Current Liabilities: | |||||||||||
Benefits payable | $ | $ | |||||||||
Risk adjustment transfer payable | |||||||||||
Premium deficiency reserve | |||||||||||
Unearned premiums | |||||||||||
Accounts payable and other liabilities | |||||||||||
Reinsurance payable | |||||||||||
Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 12) | |||||||||||
Stockholders' Equity | |||||||||||
Class A common stock ($ | |||||||||||
Class B common stock ($ | |||||||||||
Treasury stock ( | ( | ( | |||||||||
Additional paid-in capital | |||||||||||
Accumulated deficit | ( | ( | |||||||||
Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total Oscar Health, Inc. stockholders' equity | |||||||||||
| Noncontrolling interests | |||||||||||
Total stockholders' equity | |||||||||||
Total liabilities and stockholders' equity | $ | $ | |||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements
7
Oscar Health, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(unaudited)
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from equity incentive plans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on investments, net | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from equity incentive plans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on investments, net | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements
8
Oscar Health, Inc.
Condensed Consolidated Statements of Stockholders' Equity Cont.
(unaudited)
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from equity incentive plans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Joint venture contributions | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains on investments, net | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from equity incentive plans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on investments, net | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements
9
Oscar Health, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Six Months Ended June 30, | |||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
Cash Flows from Operating Activities: | |||||||||||
Net income (loss) | $ | $ | ( | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
Deferred taxes | |||||||||||
Net realized loss on sale of financial instruments | |||||||||||
Depreciation and amortization expense | |||||||||||
| Amortization of debt issuance costs | |||||||||||
Stock-based compensation expense | |||||||||||
Net accretion of investments | ( | ( | |||||||||
| Change in provision for credit losses | ( | ||||||||||
Changes in assets and liabilities: | |||||||||||
(Increase) / decrease in: | |||||||||||
Premiums and accounts receivable | ( | ||||||||||
Risk adjustment transfer receivable | ( | ( | |||||||||
Reinsurance recoverable | ( | ||||||||||
Other assets | ( | ||||||||||
Increase / (decrease) in: | |||||||||||
Benefits payable | ( | ||||||||||
Unearned premiums | ( | ( | |||||||||
Premium deficiency reserve | ( | ( | |||||||||
Accounts payable and other liabilities | ( | ||||||||||
Reinsurance payable | ( | ( | |||||||||
Risk adjustment transfer payable | |||||||||||
Net cash provided by operating activities | |||||||||||
Cash Flows from Investing Activities: | |||||||||||
Purchase of investments | ( | ( | |||||||||
Sale of investments | |||||||||||
Maturity of investments | |||||||||||
Purchase of property, equipment and capitalized software | ( | ( | |||||||||
Change in restricted deposits | ( | ||||||||||
Net cash (used in) provided by investing activities | ( | ||||||||||
Cash Flows from Financing Activities: | |||||||||||
| Proceeds from joint venture contribution | |||||||||||
Proceeds from exercise of stock options | |||||||||||
Net cash provided by financing activities | |||||||||||
Increase in cash, cash equivalents and restricted cash equivalents | |||||||||||
Cash, cash equivalents, restricted cash and cash equivalents—beginning of period | |||||||||||
Cash, cash equivalents, restricted cash and cash equivalents—end of period | |||||||||||
Cash and cash equivalents | |||||||||||
Restricted cash and cash equivalents included in restricted deposits | |||||||||||
Total cash, cash equivalents and restricted cash and cash equivalents | $ | $ | |||||||||
| Supplemental Disclosures: | |||||||||||
| Interest payments | $ | $ | |||||||||
| Income tax payments | $ | $ | |||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements
10
Oscar Health, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except per share amounts, or as otherwise stated herein)
1. ORGANIZATION
Oscar Health, Inc., together with its subsidiaries (either individually or collectively referred to as "Oscar" or the "Company"), is a leading healthcare technology company, whose mission is to make a healthier life accessible and affordable for all. The Company’s Class A common stock is traded on the New York Stock Exchange under the symbol “OSCR”.
Oscar operates as one segment to sell insurance to its members through the federal and state-run healthcare exchanges formed in conjunction with the Patient Protection and Affordable Care Act and leverages its technology platform to provide services via its +Oscar offering. Individual plans are offered to individuals and families through Health Insurance Marketplaces. Small Group plans are offered to employees of companies with 50 - 100 full-time workers. The Company also partners with Cigna through the Cigna+Oscar partnership to serve the small group employer market. Oscar previously offered Medicare Advantage insurance coverage, but exited the Medicare Advantage market for plan year 2024.
The Company’s member-first philosophy and innovative approach to care has earned the trust of approximately 1.6 million members, as of June 30, 2024.
Non-Renewal of Cigna+Oscar Partnership and Exit from the Small Group Market
On March 26, 2024, the Company notified Cigna Health and Life Insurance Company that it is not renewing the Cigna+Oscar Small Group arrangement after the expiration of the initial term on December 31, 2024. The parties will continue to offer their Cigna+Oscar Small Group product through December 15, 2024. Following termination of the arrangement on December 31, 2024, the Company will continue to provide transition and run-off services through December 31, 2026 and share proportionally in all premiums and claims for any Cigna+Oscar Small Group plan sold or issued on or before December 15, 2024, in accordance with the terms of the arrangement. Additionally, effective December 15, 2024, Oscar will no longer be offering small group products in any market.
Basis of Presentation
The accompanying interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and the applicable rules and regulations of the Securities and Exchange Commission for interim financial information. As such, these financial statements do not include all information and footnotes required by U.S. GAAP for complete financial statements.
These Condensed Consolidated Financial Statements are unaudited; however, in the opinion of management, they reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the information presented in conformity with U.S. GAAP applicable for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2023.
Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in the Company's Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding.
11
Reclassification
With the commencement of the current fiscal year, the Company has made certain reclassifications to the income statement to provide more transparency into the Company’s streams of revenue and to increase comparability with peers. This reclassification has been applied retrospectively, and comparative figures for prior periods have been adjusted accordingly within the accompanying Condensed Consolidated Financial Statements and notes to the Condensed Consolidated Financial Statements. The reclassification does not affect the Company’s net income.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying interim Condensed Consolidated Financial Statements include healthcare costs incurred but not yet reported (“IBNR”) and risk adjustment transfers. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ materially from these estimates.
Accounting Pronouncements - Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires, for each reportable segment, disclosure of significant segment expenses categories, other segment items, enhanced interim disclosures of certain segment-related disclosures that previously were only required annually, and other disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to improve the transparency of income tax disclosures by requiring greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid and other amendments to improve the effectiveness of income tax disclosures. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements and related disclosures.
2. REVENUE RECOGNITION
Premium
Premium revenue includes direct policy premiums collected from members and from the federal government, assumed policy premiums received as part of the reinsurance arrangement under the Cigna+Oscar Small Group plan offering, and risk adjustment transfers, and is net of ceded premium from run-off quota share reinsurance contracts accounted for under reinsurance accounting (See Note 9 - Reinsurance for additional information on the Company’s reinsurance contracts).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||
| Direct policy premiums | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Assumed premiums | |||||||||||||||||||||||||||||||||||
| Risk adjustment transfers | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Reinsurance premiums ceded | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Premium | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
The direct policy premiums received from Centers for Medicare & Medicaid Services ("CMS") for the three and six months ended June 30, 2024 were $2.3 billion and $4.5 billion, respectively. For the three and six months ended June 30, 2023, direct policy premiums received from CMS were $1.4 billion and $2.8 billion respectively.
12
Services and Other
The Company earns revenue as part of services performed via the +Oscar platform. Services revenue is recognized in the period the contractual performance obligations are satisfied and measured in an amount that reflects the consideration the Company expects to be entitled to in exchange for performing the services. The timing of the Company's revenue recognition may differ from the timing of payment by customers. A receivable is recorded to Premiums and accounts receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, deferred revenue is recorded to Accounts payable and other liabilities when payment is received before the performance obligations are satisfied. Other revenue includes primarily sublease income.
3. INVESTMENTS
Net investment income was attributable to the following:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Fixed maturity securities | $ | $ | $ | $ | |||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
Other (1) | ( | ||||||||||||||||||||||
| Investment income | |||||||||||||||||||||||
Investment expense | ( | ( | ( | ( | |||||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||||||
As of June 30, 2024 and December 31, 2023, the Company recorded accrued investment income of $15.5 million and $6.6 million, respectively.
The following tables provide summaries of the Company's investments by major security type as of June 30, 2024 and December 31, 2023:
| June 30, 2024 | |||||||||||||||||||||||
| (in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||||||||
U.S. treasury and agency securities | $ | $ | $ | ( | $ | ||||||||||||||||||
Corporate notes | ( | ||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||
Total | $ | $ | $ | ( | $ | ||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||
| (in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||||||||||||||
U.S. treasury and agency securities | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
Corporate notes | ( | ||||||||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||||||||
Total | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
13
The following tables present the estimated fair value and gross unrealized losses of fixed maturity securities in a gross unrealized loss position, by the length of time in which the securities have continuously been in that position, as of June 30, 2024 and December 31, 2023:
| June 30, 2024 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | ||||||||||||||||||||||||||||||||||
| (in thousands, except no. of securities) | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| U.S. treasury and agency securities | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
| Corporate notes | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | ||||||||||||||||||||||||||||||||||
| (in thousands, except no. of securities) | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| U.S. treasury and agency securities | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
| Corporate notes | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
The Company monitors available-for-sale debt securities for credit losses and recognizes an allowance for credit losses when factors indicate a decline in the fair value of a security is credit-related. Certain investments may experience a decline in fair value due to changes in market interest rates, changes in general economic conditions, or a deterioration in the credit worthiness of a security's issuer. For securities in an unrealized loss position that the Company does not intend to sell, the Company has assessed the gross unrealized losses during the period and determined an allowance for credit losses is not necessary because the declines in fair value are believed to be due to market fluctuations and not due to credit-related events.
The amortized cost and fair value of the Company's fixed maturity securities as of June 30, 2024 and December 31, 2023 by contractual maturity are shown below. Actual maturities of these securities could differ from their contractual maturities because issuers may have the right to call or prepay obligations, with or without penalties.
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| (in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Due in one year or less | $ | $ | $ | $ | |||||||||||||||||||
| Due after one year through five years | |||||||||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||||||
14
4. FAIR VALUE MEASUREMENTS
Fair value represents the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. The Company's financial assets and liabilities measured at fair value on a recurring basis are categorized into a three-level fair value hierarchy based on the priority of the inputs used in the fair value valuation technique.
The levels of the fair value hierarchy are as follows:
•Level 1: Inputs utilize quoted (unadjusted) prices in active markets for identical assets or liabilities.
•Level 2: Inputs utilize quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations in which all significant inputs are observable in active markets.
•Level 3: Inputs utilized are unobservable but significant to the fair value measurement for the asset or liability. The unobservable inputs are used to measure fair value to the extent relevant observable inputs are not available. The unobservable inputs typically reflect management’s own estimates about the assumptions a market participant would use in pricing the asset or liability.
The following tables summarize fair value measurements by level for assets and liabilities measured at fair value on a recurring basis:
| June 30, 2024 | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
Cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
Investments | |||||||||||||||||||||||
U.S. treasury and agency securities | $ | $ | $ | $ | |||||||||||||||||||
Corporate notes | |||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||
| Restricted investments | |||||||||||||||||||||||
U.S. treasury securities | |||||||||||||||||||||||
| Certificates of deposit | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | |||||||||||||||||||||||||
Investments | |||||||||||||||||||||||||||||
U.S. treasury and agency securities | $ | $ | $ | $ | |||||||||||||||||||||||||
Corporate notes | |||||||||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||||||||
| Restricted investments | |||||||||||||||||||||||||||||
| U.S. treasury securities | |||||||||||||||||||||||||||||
| Certificates of deposit | $ | $ | $ | $ | |||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
15
5. RESTRICTED CASH AND RESTRICTED DEPOSITS
The Company maintains cash, cash equivalents and investments on deposit or pledged primarily to various state agencies in connection with its insurance licensure. The restricted cash and cash equivalents and restricted investments presented below are included in Restricted deposits in the accompanying Condensed Consolidated Balance Sheets.
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Restricted cash and cash equivalents | $ | $ | |||||||||
| Restricted investments | |||||||||||
| Restricted deposits | $ | $ | |||||||||
6. BENEFITS PAYABLE
Reserves for medical claims expenses are estimated using actuarial assumptions and recorded as Benefits payable liabilities on the Condensed Consolidated Balance Sheets. The assumptions for the estimates and for establishing the resulting liability are reviewed and any adjustments to reserves are reflected in the Condensed Consolidated Statements of Operations in the period in which the estimates are updated.
The following table provides a rollforward of the Company’s beginning and ending benefits payable and claims adjustment expenses ("CAE") payable balances for the six months ended June 30, 2024 and 2023:
As of June 30, 2024 | As of June 30, 2023 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Benefits Payable | Unallocated Claims Adjustment Expense | Total | Benefits Payable | Unallocated Claims Adjustment Expense | Total | |||||||||||||||||||||||||||||
| Benefits payable, beginning of the period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Less: Reinsurance recoverable | — | — | |||||||||||||||||||||||||||||||||
| Benefits payable, beginning of the period, net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Claims incurred and CAE | |||||||||||||||||||||||||||||||||||
| Current year | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Prior years | ( | ( | |||||||||||||||||||||||||||||||||
| Total claims incurred and CAE, net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Claims paid and CAE | |||||||||||||||||||||||||||||||||||
| Current year | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Prior years | |||||||||||||||||||||||||||||||||||
| Total claims and CAE paid, net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Benefits and CAE payable, end of period, net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Add: Reinsurance recoverable | — | — | |||||||||||||||||||||||||||||||||
| Benefits and CAE payable, end of period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Amounts incurred related to prior periods vary from previously estimated liabilities as more claim information becomes available and claims are ultimately settled. The favorable development recognized in the six months ended June 30, 2024 resulted primarily from medical claims experience developing more favorably than originally expected.
16
7. DEBT
Convertible Senior Notes
As previously disclosed in Note 15 - Long-Term Debt, in our Annual Report on Form 10-K for the year ended December 31, 2023, in February 2022, the Company issued $305.0 million in aggregate principal amount of convertible senior notes due 2031 (the “2031 Notes”) in a private placement to funds affiliated with or advised by Dragoneer Investment Group, LLC, Thrive Capital, LionTree Investment Management, LLC and Tenere Capital LLC. The 2031 Notes are the Company's senior, unsecured obligations which bear interest at a rate of 7.25 % per annum, payable in cash, semi-annually in arrears on June 30 and December 31 of each year, commencing on June 30, 2022. The 2031 Notes will mature on December 31, 2031, subject to earlier repurchase, redemption, or conversion.
The 2031 Notes are convertible into the Company's Class A common stock at an initial conversion rate of 120.1721 per $1,000 principal amount (equivalent to an initial conversion price of approximately $8.32 per share of Class A common stock), subject to customary adjustments upon the occurrence of certain events. During the quarterly period ended June 30, 2024, a conditional conversion feature of the 2031 Notes was satisfied when the last reported sales price per share of the Company’s common stock was greater than 130 % of the conversion price of $8.32 per share for each of at least twenty (20 ) trading days during the period of thirty (30 ) consecutive trading days ending on, and including, the last trading day of the quarter. As a result, the 2031 Notes are convertible during the third quarter of 2024 at the option of the holder. As of the date of this Quarterly Report on Form 10-Q, the 2031 Notes have not been converted. Upon conversion, the 2031 Notes will be settled, at the Company's election, in shares of Class A common stock, cash, or a combination of cash and shares of Class A common stock, subject to certain exceptions.
As of June 30, 2024, the net carrying amount of the 2031 Notes was $299.2 million, with unamortized debt discount and issuance costs of $5.8 million. The estimated fair value of the 2031 Notes as of June 30, 2024 was $612.5 million. The Company classified the fair value of the 2031 Notes as a level 3 measurement due to the lack of observable market data over fair value inputs such as stock price volatility over the term of the 2031 Notes and the Company's cost of debt.
The following table presents the interest expense indicating an effective interest rate of 7.61 % over the term of the 2031 Notes:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||
| Coupon interest expense | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Amortization of debt discount and issuance costs | |||||||||||||||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
Revolving Credit Facility
As previously disclosed in Note 15 - Long-Term Debt, in our Annual Report on Form 10-K for the year ended December 31, 2023, on December 28, 2023, the Company entered into a third amendment to its senior secured credit agreement (the “Third Amendment”), with certain lenders (the “Lenders”) and Wells Fargo Bank, National Association, as administrative agent, which amended the senior secured credit agreement, dated as of February 21, 2021 (as amended by the Third Amendment, the “Amended Credit Agreement”). The Amended Credit Agreement provides for a revolving loan credit facility (the “Revolving Credit Facility”) in the aggregate principal amount of $115.0 million. The Revolving Credit Facility is guaranteed by Oscar Management Corporation, each wholly owned subsidiary of the Company, and all of the Company's future direct and indirect subsidiaries (in each case subject to certain permitted exceptions, including exceptions for certain guarantees (i) that would require material governmental consents or (ii) in respect of joint ventures). The Revolving Credit Facility is secured by substantially all of the Company’s and the guarantors’ assets (subject to certain exceptions). Proceeds are to be used solely for general corporate purposes of the Company.
17
The Company is permitted to increase commitments under the Revolving Credit Facility by an aggregate amount not to exceed $50.0 million, subject to certain conditions.
The Revolving Credit Facility is available until December 2025, provided the Company is in compliance with all covenants, including financial covenants to maintain minimum thresholds related to direct policy premiums, consolidated Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”), and liquidity, and a maximum medical loss ratio.
As of June 30, 2024, there were no outstanding borrowings under the Revolving Credit Facility.
8. EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing net income (loss) for the period by the weighted-average shares of common stock outstanding during the period. In periods when the Company is in a net loss position, potentially dilutive securities are excluded from the computation of diluted earnings per share because their inclusion would have an anti-dilutive effect. Thus, basic earnings per share is the same as diluted earnings per share.
During periods of net income, diluted earnings per share is calculated by adjusting net income for any interest charges and changes in the fair value of the bifurcated conversion option applicable to the convertible senior notes. This adjusted net income is then divided by the sum of the basic weighted-average shares of common stock and any dilutive potential common stock outstanding during the period, using the treasury stock method. Potential common stock includes the effect of outstanding dilutive stock options, restricted stock units, performance-based restricted stock units, as well as shares the Company could be obligated to issue from its convertible senior notes, as described in Note 7 - Debt, using the if-converted method. The calculation for basic and diluted earnings per share is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Numerator: | |||||||||||||||||||||||
| Net income (loss) attributable to Oscar Health, Inc. | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Effect of convertible senior notes | |||||||||||||||||||||||
| Net income (loss) available to Oscar Health, Inc. common shareholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Denominator: | |||||||||||||||||||||||
| Weighted average shares of common stock outstanding | |||||||||||||||||||||||
| Common stock equivalents | |||||||||||||||||||||||
| Effect of convertible senior notes | |||||||||||||||||||||||
| Weighted average shares of common stock outstanding and potential dilutive common shares outstanding | |||||||||||||||||||||||
| Net Earnings (Loss) per Share | |||||||||||||||||||||||
Basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||
18
The following potential common shares were excluded from the computation of diluted net income (loss) per share attributable to Oscar Health, Inc. because including them would have had an anti-dilutive effect:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Stock options to purchase common stock | |||||||||||||||||||||||
Restricted stock units | |||||||||||||||||||||||
| Performance-based restricted stock units | |||||||||||||||||||||||
| Shares underlying convertible notes (Note 7) | |||||||||||||||||||||||
Total | |||||||||||||||||||||||
9. REINSURANCE
The Company participates in quota share reinsurance to limit risk and capital requirements and excess of loss ("XOL") reinsurance to mitigate the exposure of high cost or catastrophic member risk. The quota share reinsurance arrangements are with more than one counterparty with multiple state-level treaties. The XOL reinsurance arrangements are with a private counterparty and federal and state-run programs. A summary of the Company's reinsurance agreements and related accounting treatment is included in Note 4 - Reinsurance, in our Annual Report on Form 10-K for the year ended December 31, 2023.
The Company also operates under an assumed reinsurance contract, under which the Company shares proportionally in all premiums and claims underwritten for the Cigna+Oscar Small Group offering.
Reinsurance Contracts Accounted for under Deposit Accounting
As of June 30, 2024 and December 31, 2023, a deposit liability balance of $12.9 million and $7.0 million, respectively, was recorded for the Company's quota share arrangements accounted for under deposit accounting and represents fees due to the reinsurer, which are recognized within Selling, general, and administrative expenses on the Consolidated Statements of Operations.
For the three and six months ended June 30, 2024, the Company ceded 55 45 % and 46 % respectively, of its premium under reinsurance contracts accounted for under deposit accounting.
Reinsurance Contracts Accounted for under Reinsurance Accounting
Reinsurance accounting applies to quota share reinsurance contracts that are in runoff as well as the XOL treaties. Under reinsurance accounting, the Company records premium paid to the reinsurer as a reduction to premium revenue with a corresponding reinsurance payable. In the case of federal and state-run reinsurance programs, no reinsurance premiums are paid. Expected reimbursement from the reinsurer for claims incurred are recorded as a reduction to claims incurred with a corresponding reinsurance recoverable asset. The tables below present information for the Company's reinsurance arrangements accounted for under reinsurance accounting. Please see Note 2 - Revenue Recognition for total reinsurance premiums ceded and reinsurance premiums assumed, which are included as components of total Premium revenue in the Condensed Consolidated Statements of Operations.
The following table reconciles total Medical expenses to the amount presented in the Condensed Consolidated Statements of Operations:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Direct claims incurred | $ | $ | $ | $ | |||||||||||||||||||
Ceded reinsurance claims | ( | ( | ( | ( | |||||||||||||||||||
Assumed reinsurance claims | |||||||||||||||||||||||
Medical expenses | $ | $ | $ | $ | |||||||||||||||||||
19
The Company records Selling, general and administrative ("SG&A") expenses net of reinsurance ceding commissions and assumed SG&A expenses. The following table reconciles total Selling, general and administrative expenses to the amount presented in the Condensed Consolidated Statements of Operations:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Selling, general and administrative expenses, gross | $ | $ | $ | $ | |||||||||||||||||||
Reinsurance ceding commissions | ( | ( | |||||||||||||||||||||
Selling, general and administrative expenses | $ | $ | $ | $ | |||||||||||||||||||
The Company classifies Reinsurance recoverable within current assets on its Condensed Consolidated Balance Sheets. The composition of the Reinsurance recoverable balance is as follows:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Reinsurance premium and claim recoverables | $ | $ | |||||||||
| Reinsurance ceding commissions | |||||||||||
| Experience refunds on reinsurance agreements | ( | ||||||||||
| Reinsurance recoverable | $ | $ | |||||||||
Credit Ratings
The financial condition of the Company's reinsurers is regularly evaluated to minimize exposure to significant losses. A key credit quality indicator for reinsurance is the financial strength ratings issued by the credit rating agencies, which provide an independent opinion of a reinsurer’s ability to meet ongoing obligations to policyholders. The Company’s reinsurers have most recently been issued financial strength ratings of A+ or higher.
The creditworthiness of each reinsurer is evaluated in order to assess counterparty credit risk and estimate an allowance for expected credit losses on the Company's reinsurance recoverable balances.
10. BUSINESS ARRANGEMENTS
Variable Interest Entities
In the normal course of business, the Company entered into business arrangements with integrated health systems, as well as medical professional corporations that employ health care providers to deliver telemedical healthcare services to its covered member population in various states. The financial results of these entities are consolidated into the Company's financial statements.
The following table presents the collective assets and liabilities of the Company's variable interest entities:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Assets | $ | $ | |||||||||
| Liabilities | $ | $ | |||||||||
11. RELATED PARTY TRANSACTIONS
In February 2022, the Company issued the 2031 Notes to funds affiliated with or advised by Dragoneer Investment Group, LLC, Thrive Capital Management, LLC, LionTree Investment Management, LLC and Tenere Capital LLC (collectively, the “Purchasers”). See Note 7 - Debt for additional information.
20
12. COMMITMENTS AND CONTINGENCIES
The Company’s current and past business practices are subject to review or other investigations by various state insurance and healthcare regulatory authorities and other state and federal regulatory authorities. These reviews focus on numerous facets of the Company’s business, including claims payment practices, statutory capital requirements, provider contracting, risk adjustment, competitive practices, commission payments, privacy issues, network adequacy, utilization management practices, pharmacy benefits, access to care, and sales practices, among others. Some of these reviews have historically resulted in fines imposed on the Company and some have required changes to certain of the Company’s practices. The Company continues to be subject to these reviews, which could result in additional fines or other sanctions being imposed on the Company or additional changes to certain of its practices.
The Company is also currently involved in, and may in the future from time to time become involved in, legal proceedings and other claims in the ordinary course of its business, including class actions and suits brought by the Company’s members, providers, commercial counterparties, employees, and other parties relating to the Company’s business, including management and administration of health benefit plans and other services. Such matters can include various employment claims, disputes regarding reinsurance arrangements, disputes relating to intellectual property and the Telephone Consumer Protection Act and class action lawsuits, or other claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups, and others, including, but not limited to, the alleged failure to properly pay in-network and out-of-network claims and challenges to the manner in which the Company processes claims, and claims alleging that the Company has engaged in unfair business practices.
In addition, on May 12, 2022, a securities class action lawsuit against the Company, certain of its directors and officers, and the underwriters that participated in the Company’s initial public offering ("IPO") was commenced in the United States District Court for the Southern District of New York, captioned Carpenter v. Oscar Health, Inc., et al., Case No. 1:22-CV-03885 (S.D.N.Y.) (the “Securities Action”). The initial complaint in the Securities Action asserted violations of Sections 11 and 15 of the Securities Act based on the Company’s purported failure to disclose in its IPO registration statement growing COVID-19 testing and treatment costs, the impact of significant Special Enrollment Period membership, and risk adjustment data validation results for 2019 and 2020. By Court orders dated September 27, 2022 and December 13, 2022, the Court appointed a lead plaintiff and lead counsel on behalf of the putative class. An amended complaint filed on December 6, 2022 asserts the same violations of Sections 11 and 15 of the Securities Act, but this time based on the Company’s alleged failure to disclose in its IPO registration statement purportedly inadequate controls and systems in connection with the risk adjustment data validation audit for 2019, alleging that this purported omission caused losses and damages for members of the putative class. The amended complaint seeks unspecified compensatory damages as well as interest, fees, and costs. On April 4, 2023, the Company moved to dismiss the amended complaint. Briefing on the motion was completed on July 7, 2023. The Company believes it has meritorious defenses to these claims. At this time, the Company cannot predict the outcome, or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.
The Company records liabilities for its reasonable estimates of probable losses resulting from these matters where appropriate. Estimates of losses resulting from legal and regulatory matters involving the Company are inherently difficult to predict, particularly where the matters: involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or represent a shift in regulatory policy; involve a large number of claimants or regulatory bodies; are in the early stages of the proceedings; or could result in a change in business practices. Accordingly, the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable that a loss may be incurred, the ultimate settlement of which could be material.
Given that such proceedings are subject to uncertainty, there can be no assurance that such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on Oscar's business, results of operations, financial condition or cash flows.
21
13. CANCELLATION OF FOUNDERS AWARDS
On March 28, 2023, the Company’s Co-Founders, Mario Schlosser (the Company’s President of Technology and Chief Technology Officer and former Chief Executive Officer) and Joshua Kushner (the Company’s Vice Chairman), recommended to the Company’s Board of Directors that they should cancel and terminate the applicable awards that were granted to them in connection with the Company’s Initial Public Offering (the “Founders Awards”). This recommendation was made in support of reducing the dilutive effects of equity awards granted on April 3, 2023, to Mark T. Bertolini in connection with his appointment as the Company’s Chief Executive Officer, effective April 3, 2023, and the Company’s annual employee equity awards granted in 2023. On March 28, 2023, Mr. Schlosser and Mr. Kushner each entered into an agreement to cancel and terminate his Founders Award, which consisted of performance-based restricted stock units covering 4,229,853 shares (for Mr. Schlosser) and 2,114,926 shares (for Mr. Kushner) of the Company’s Class A common stock. As a result of this cancellation, in March 2023 the Company recognized approximately $46.3 million of accelerated stock-based compensation expense that would have otherwise been recognized over the remaining vesting period of the awards. Stock-based compensation expense is included in the Selling, general and administrative line item on the Condensed Consolidated Statements of Operations.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included the Company's Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on February 15, 2024. Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "we," "us," "our," "Oscar," "Oscar Health, Inc," and the "Company" mean the business and operations of Oscar Health, Inc. and its consolidated subsidiaries.
Index to this MD&A
Management's Discussion and Analysis of Financial Condition and Results of Operations is comprised of the following sections:
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Overview
Oscar Health, Inc. is a leading healthcare technology company, whose mission is to make a healthier life accessible and affordable for all. Our full stack technology platform refers to our differentiated cloud-native end-to-end technology solution, which connects our member-facing features, including our mobile application, website, and virtual care solutions with our back-office tools that span all critical healthcare insurance and technology domains, including member and provider data, utilization management, claims management, billing, and benefits. Our member-first philosophy and innovative approach to care has earned the trust of approximately 1.6 million members, as of June 30, 2024. We currently offer individual and family as well as small group plans and we offer services through +Oscar that utilize our full stack technology platform to power others within the healthcare space.
We regularly review our Total Revenue, Medical Loss Ratio (“MLR”), Selling, General and Administrative Expense Ratio (“SG&A Expense Ratio”), and Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”, a non-GAAP financial metric) to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, and make strategic decisions. We believe these operational and financial measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP.
Total Revenue
Total revenue includes Premium revenue, Investment income, and Services and other revenue. We believe Total revenue is an important metric to assess the growth of our business, as well as the earnings potential of our investment portfolio.
Premium revenue includes direct policy premiums collected from our members and from the federal government, risk adjustment transfers, and assumed policy premiums we receive as part of our reinsurance arrangement under our Cigna+Oscar Small Group plan offering, and is net of ceded premium from run-off quota share reinsurance contracts accounted for under reinsurance accounting. Investment income primarily includes investment income, interest earned, and gains (losses) on our investment portfolio. Services and other revenue includes primarily revenue earned from administrative services performed as part of the +Oscar platform, as well as sublease income.
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MLR
MLR is a metric used to calculate medical expenses as a percentage of net premiums before ceded quota share reinsurance. Medical expenses are the total expenses incurred by members in order to utilize health care services less any member cost sharing. These services include inpatient, outpatient, pharmacy, and physician costs. Medical claims also include fee-for-service claims, pharmacy benefits, capitation payments to providers, provider disputed claims, risk sharing arrangements with certain of our providers, and various other medical-related costs. The impact of the federal risk adjustment program is included in the denominator of our MLR. We believe MLR is an important metric to demonstrate the ratio of our costs to pay for healthcare of our members to the net premium before ceded reinsurance. MLR in our existing products are subject to various federal and state minimum requirements.
SG&A Expense Ratio
The SG&A Expense Ratio reflects the Company’s Selling, general and administrative expenses, as a percentage of Total revenue. Selling, general and administrative expenses primarily include wages, benefits, costs of software and hardware, and administrative costs for our corporate and technology functions, the impact of quota share reinsurance, and stock-based compensation. We believe the SG&A Expense Ratio is useful to evaluate our ability to manage our overall selling, general, and administrative cost base.
Adjusted EBITDA
Adjusted EBITDA is defined as Net income (loss) for the Company and its consolidated subsidiaries before interest expense, income tax expense (benefit), and depreciation and amortization, as further adjusted for stock-based compensation and other items that are considered unusual or not representative of underlying trends of our business, where applicable for the period presented. We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Adjusted EBITDA is a non-GAAP measure. Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations.
We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate Adjusted EBITDA in the same manner.
By providing this non-GAAP financial measure, together with a reconciliation to the most comparable U.S. GAAP measure, Net income (loss), we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for Net income (loss) or other financial statement data presented in our Condensed Consolidated Financial Statements as indicators of financial performance. A reconciliation of Adjusted EBITDA from Net income (loss) is provided under “Results of Operations-Adjusted EBITDA”.
Recent Developments, Trends and Other Factors Impacting Performance
Non-Renewal of Cigna+Oscar Partnership and Exit from Small Group Market
On March 26, 2024, the Company notified Cigna Health and Life Insurance Company that it is not renewing the Cigna+Oscar Small Group arrangement after the expiration of the initial term on December 31, 2024. The parties will continue to offer their Cigna+Oscar Small Group product through December 15, 2024. Additionally, effective December 15, 2024, Oscar will no longer be offering small group products in any market. Refer to Note 1 - Organization - Non-Renewal of Cigna+Oscar Partnership and Exit from the Small Group Market included elsewhere in this Quarterly Report on Form 10-Q for additional information.
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Change Healthcare Incident
Change Healthcare (“CHC”), which provided claims clearinghouse and other services to the Company, experienced a cybersecurity incident on February 21, 2024. At this time, CHC has not notified the Company of any breach of our members’ data.
Members
Our membership is measured as of a particular point in time and is concentrated in the individual market. Membership may vary throughout the year due to disenrollments, the Special Enrollment Period (“SEP”), and other market dynamics that are in effect such as Medicaid redeterminations, other legislative or regulatory actions, or other factors that enable the overall market to grow or decline throughout the year.
Risk Adjustment
The risk adjustment programs in the markets we serve are administered federally by Centers for Medicare & Medicaid Services (“CMS”) and are designed to mitigate the potential impact of adverse selection and provide stability for health insurers. Under this program, each plan is assigned a risk score based upon demographic information and current year claims information related to its members. The risk score is used to adjust plan revenue to reflect the relative risk of the plan's enrolled population. We reevaluate our risk adjustment transfer estimates as new information and market data becomes available until we receive the final reporting from CMS in later periods, up to twelve months in arrears.
Our risk adjustment transfer estimates are subject to a high degree of estimation and variability and are affected by the relative risk of our members, and in the case of ACA, relative to that of other insurers. There is a higher degree of uncertainty associated with estimates of risk adjustment transfers at the beginning of the policy year resulting from composition of the risk score being based on concurrent claim data. There is additional uncertainty for both markets and blocks of business that experience outsized growth, compounded by the lack of credible experience data on the newly enrolling population. Furthermore, there is also uncertainty associated with changes in other carriers operations, which may impact the ultimate degree of market level risk. Actual risk adjustment calculations and transfers could materially differ from our assumptions.
Claims Incurred
Our medical expenses are impacted by seasonal effects of medical costs such as the utilization of deductibles and out-of-pocket maximums over the course of the policy year, which shifts more costs to us in the second half of the year as we pay a higher proportion of covered claims costs, and the number of days and holidays in a given period. Our medical and pharmacy costs can also exhibit seasonality depending on selection effects or changes in the risk profile of our membership and the proportion of our membership that is new in the calendar year. The emergence of medical and pharmacy claims is influenced by the aforementioned drivers, and further mix shifts may continue to alter claims incurred patterns in future periods.
Seasonality
Our business is generally affected by the seasonal patterns of our member enrollment, medical expenses, and health plan mix shift. SEP or other market dynamics that drive enrollment and/or mix changes throughout the year may impact the per member levels of premiums, claims, and/or risk adjustment transfers. Additionally, medical expenses have historically been highest towards the second half of the year due to a number of factors discussed above.
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Reinsurance
We believe our reinsurance agreements help us achieve important goals for our business, including risk management, capital efficiency, and greater predictability in our earnings in the event of unexpected significant fluctuations in our MLR. Specifically, reinsurance is a financial arrangement under which the reinsurer agrees to cover a portion of our medical claims in return for a portion of the premium. Our reinsurance agreements are contracted under two different types of arrangements: quota share reinsurance contracts and excess of loss ("XOL") reinsurance contracts. Reinsurance agreements do not relieve us of our primary medical claims incurred obligations. Refer to Note 9 - Reinsurance included elsewhere in this Quarterly Report on Form 10-Q for a description of the accounting methods used to record our quota share reinsurance arrangements.
Regulatory Update
In December 2022, Congress passed the omnibus spending bill which delinked the Medicaid continuous coverage from the end of the public health emergency (“PHE”) for COVID-19. Medicaid redeterminations were required to begin by April 1, 2023, and while most states initially anticipated completing unwinding-related renewals by mid-2024, many states have extended their unwinding timelines for several additional months, due to adoption of strategies to promote continuity of coverage for eligible individuals, pauses in procedural disenrollments, or other state-specific situations. The redeterminations are ongoing, and consumers’ transitions from Medicaid or Children’s Health Insurance Program (CHIP) coverage to ACA marketplace plans may contribute to additional growth in the ACA marketplace. CMS also previously announced a SEP that began March 31, 2023 and was expected to end July 31, 2024, but has been extended to November 30, 2024. The latest estimates from CMS indicate that Medicaid redeterminations will be complete in almost all states in which Oscar offers plans by July 2024, however, given uncertainties in CMS’s estimates and the extended SEP, we expect to continue to see consumers enrolling in ACA marketplace plans past this date.
On July 19, 2024, in response to increases in unauthorized changes in consumers’ enrollments by agents and brokers, CMS announced they will now block an agent or broker from making changes to a consumer’s federally facilitated marketplace enrollment unless the agent is already associated with the consumer’s enrollment. We continue to monitor regulatory developments to address bad actors, including possible changes to eligibility or income verification requirements or increased enforcement of existing requirements by CMS.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of the Company's significant accounting policies is included in Note 2 - Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2023. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. As of June 30, 2024, there were no significant changes to the critical accounting estimates from what was reported in our Annual Report on Form 10-K for the year ended December 31, 2023.
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Results of Operations
The following table sets forth our results of operations for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||||||||
| Premium | $ | 2,164,116 | $ | 1,474,966 | $ | 4,257,798 | $ | 2,903,592 | ||||||||||||||||||||||||||||||||||||
| Investment income | 49,994 | 41,484 | 92,983 | 77,540 | ||||||||||||||||||||||||||||||||||||||||
| Services and other | 5,231 | 5,085 | 10,865 | 10,088 | ||||||||||||||||||||||||||||||||||||||||
| Total revenue | 2,219,341 | 1,521,535 | 4,361,646 | 2,991,220 | ||||||||||||||||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||||||||||||||
| Medical | 1,708,722 | 1,181,999 | 3,263,496 | 2,273,591 | ||||||||||||||||||||||||||||||||||||||||
| Selling, general, and administrative | 435,206 | 337,244 | 829,368 | 735,763 | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 7,601 | 8,821 | 15,412 | 13,760 | ||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 2,151,529 | 1,528,064 | 4,108,276 | 3,023,114 | ||||||||||||||||||||||||||||||||||||||||
| Earnings (loss) from operations | 67,812 | (6,529) | 253,370 | (31,894) | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | 5,991 | 6,120 | 11,893 | 12,256 | ||||||||||||||||||||||||||||||||||||||||
| Other expenses | 872 | 1,612 | 2,050 | 7,718 | ||||||||||||||||||||||||||||||||||||||||
| Earnings (loss) before income taxes | 60,949 | (14,261) | 239,427 | (51,868) | ||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 4,637 | 1,164 | 5,633 | 3,185 | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 56,312 | $ | (15,425) | $ | 233,794 | $ | (55,053) | ||||||||||||||||||||||||||||||||||||
| Medical Loss Ratio (MLR) | 79.0 | % | 79.9 | % | 76.7 | % | 78.2 | % | ||||||||||||||||||||||||||||||||||||
| SG&A Expense Ratio | 19.6 | % | 22.2 | % | 19.0 | % | 24.6 | % | ||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 104,126 | $ | 35,572 | $ | 323,440 | $ | 86,640 | ||||||||||||||||||||||||||||||||||||
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Membership
We view the number of members enrolled in our health plans as an important metric to help evaluate and estimate revenue and market share. Additionally, the more members we enroll, the more data we have, which allows us to improve the functionality of our platform. The following table summarizes the Company’s membership by offering:
| As of June 30, | |||||||||||
| Membership by Offering | 2024 | 2023 | |||||||||
| Individual and Small Group | 1,522,432 | 900,228 | |||||||||
| Medicare Advantage | — | 1,843 | |||||||||
Cigna+Oscar (1) | 58,293 | 68,472 | |||||||||
Total Members (2) | 1,580,725 | 970,543 | |||||||||
(2) A member covered under more than one of our health plans counts as a single member for the purposes of this metric.
Membership increased by 610,182, or 63%, as of June 30, 2024, compared to June 30, 2023. The increase in membership is a result of strong retention and new enrollments in existing and expansion markets further supported by ACA market growth in 2024. The increase was partially offset by a decrease in Cigna+Oscar members served and our exit from the Medicare Advantage market.
Premium
Premium revenue increased $689.2 million, or 47%, for the three months ended June 30, 2024, compared to the same period in 2023, and increased $1.4 billion, or 47%, for the six months ended June 30, 2024, compared to the same period in 2023. These increases were primarily driven by higher membership and rate increases, partially offset by higher risk adjustment transfers as a percentage of premiums.
Investment Income
Investment income increased $8.5 million, or 21%, for the three months ended June 30, 2024, compared to the same period in 2023, and increased $15.4 million, or 20%, for the six months ended June 30, 2024, compared to the same period in 2023. These increases were due to a larger asset base, higher investment yields, and higher interest rates.
Services and Other
Services and other revenue increased $0.1 million, or 3%, for the three months ended June 30, 2024, compared to the same period in 2023, and increased $0.8 million, or 8%, for the six months ended June 30, 2024, compared to the same period in 2023. These increases were primarily driven by more customer arrangements in 2024 as compared to the same period in 2023.
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Medical Expenses and MLR
Medical expenses increased $526.7 million, or 45%, for the three months ended June 30, 2024, compared to the same period in 2023, and increased $989.9 million, or 44%, for the six months ended June 30, 2024, compared to the same period in 2023. These increases were primarily due to increased membership. MLR improved for the three months ended June 30, 2024, compared to the same period in 2023, primarily due to favorable prior period development. MLR improved for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to favorable prior period development, as well as targeted rate actions, a disciplined pricing strategy to increase margins, and strong execution on initiatives to manage medical costs.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except percentages) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Medical | $ | 1,708,722 | $ | 1,181,999 | $ | 3,263,496 | $ | 2,273,591 | |||||||||||||||
Less: Ceded quota share reinsurance claims(1) | (3,860) | (2,786) | (4,915) | 3,649 | |||||||||||||||||||
Net claims before ceded quota share reinsurance (A) | $ | 1,712,582 | $ | 1,184,785 | $ | 3,268,411 | $ | 2,269,942 | |||||||||||||||
| Premium | $ | 2,164,116 | $ | 1,474,966 | $ | 4,257,798 | $ | 2,903,592 | |||||||||||||||
Less: Ceded quota share reinsurance premiums (2) | (2,820) | (7,338) | (4,836) | (683) | |||||||||||||||||||
Net premiums before ceded quota share reinsurance (B) | $ | 2,166,936 | $ | 1,482,304 | $ | 4,262,634 | $ | 2,904,275 | |||||||||||||||
Medical Loss Ratio (A divided by B) | 79.0 | % | 79.9 | % | 76.7 | % | 78.2 | % | |||||||||||||||
(1)Represents prior period development for claims ceded to reinsurers pursuant to quota share treaties accounted for under reinsurance accounting, which are in runoff.
(2)Represents prior period development for premiums ceded to reinsurers pursuant to quota share treaties accounted for under reinsurance accounting, which are in runoff.
Selling, General and Administrative Expenses and SG&A Expense Ratio
Selling, general and administrative expenses increased $98.0 million, or 29%, for the three months ended June 30, 2024, compared to the same period in 2023, and increased $93.6 million, or 13%, for the six months ended June 30, 2024, compared to the same period in 2023. These increases were driven by higher distribution and selling expenses associated with higher membership year over year, partially offset by the impact of the acceleration of stock compensation expense associated with the cancellation of the Founders Awards in the first quarter of 2023. The SG&A Expense Ratio improved 2.6 points quarter over quarter, and 5.6 points year over year primarily due to improved fixed cost leverage and variable cost efficiencies, partially offset by higher risk adjustment transfers as a percentage of premiums.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $1.7 million, or 12%, for the six months ended June 30, 2024, compared to the same period in 2023. The increase was due to an increase in internally developed software placed into service.
Income Tax Expense (Benefit)
Our effective tax rate for the three months ended June 30, 2024 and 2023 was approximately 7.6% and (8.2)%, respectively, and 2.4% and (6.1)% for the six months ended June 30, 2024 and 2023, respectively.
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Adjusted EBITDA
The table below sets forth the reconciliation of Net income (loss) to Adjusted EBITDA:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income (loss) | $ | 56,312 | $ | (15,425) | $ | 233,794 | $ | (55,053) | |||||||||||||||
| Interest expense | 5,991 | 6,120 | 11,893 | 12,256 | |||||||||||||||||||
| Other expenses | 872 | 1,612 | 2,050 | 7,718 | |||||||||||||||||||
| Income tax expense | 4,637 | 1,164 | 5,633 | 3,185 | |||||||||||||||||||
| Depreciation and amortization | 7,601 | 8,822 | 15,412 | 13,761 | |||||||||||||||||||
Stock-based compensation(1) | 28,713 | 33,279 | 54,658 | 104,773 | |||||||||||||||||||
| Adjusted EBITDA | $ | 104,126 | $ | 35,572 | $ | 323,440 | $ | 86,640 | |||||||||||||||
(1)Represents non-cash expenses related to equity-based compensation programs, which vary from period to period depending on various factors including the timing, number, and the valuation of awards. The six months ended June 30, 2023 includes a non-recurring charge of $46.3 million related to accelerated stock-based compensation expense recognized as a result of the cancellation of the Founders Awards. Refer to Note 13 - Cancellation of Founders Awards included elsewhere in this Quarterly Report on Form 10-Q for additional information.
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Liquidity and Capital Resources
Overview
We maintain liquidity at two levels of our corporate structure, through our health insurance subsidiaries (any subsidiary of Oscar Health, Inc. that has applied for or received a license, certification or authorization to sell health plans by any state Department of Insurance, Department of Financial Services, Department of Health, or comparable regulatory authority) and through our holding company (our parent company, Oscar Health, Inc., on a standalone basis (“Parent”) and subsidiaries excluding our health insurance subsidiaries).
The majority of the assets held by the holding company are in the form of cash and cash equivalents and investments. As of June 30, 2024 and December 31, 2023, total cash and cash equivalents and investments held by the holding company was $204.4 million and $234.1 million, respectively, of which $12.6 million was restricted for both June 30, 2024 and December 31, 2023.
The majority of the assets held by our health insurance subsidiaries are in the form of cash and cash equivalents and investments. As of June 30, 2024 and December 31, 2023, total cash and cash equivalents and investments held by our health insurance subsidiaries was $3.9 billion and $2.7 billion, respectively, of which $17.3 million for both 2024 and 2023 was on deposit with regulators as required for statutory licensing purposes. These amounts are classified as restricted deposits on the balance sheet.
Our health insurance subsidiaries’ states of domicile have statutory minimum capital requirements that are intended to measure capital adequacy, taking into account the risk characteristics of an insurer’s investments and products. The combined statutory capital and surplus of our health insurance subsidiaries was $1,108.3 million and $800.6 million as of June 30, 2024 and December 31, 2023, respectively, which was in compliance with and in excess of the minimum capital requirements for each period. The health insurance subsidiaries historically have required capital contributions from Parent to maintain minimum levels. The health insurance subsidiaries may be subject to additional capital and surplus requirements in the future, as a result of factors such as increasing membership and medical costs, which may require us to incur additional indebtedness, sell capital stock, or access other sources of funding in order to fund such requirements. During periods of increased volatility, adverse securities and credit markets, including those due to rising interest rates, may exert downward pressure on the availability of liquidity and credit capacity for certain issuers, and any such funding may not be available on favorable terms, or at all.
As our health insurance subsidiaries have collectively become profitable and to the extent their levels of statutory capital and surplus continue to exceed minimum regulatory requirements, we may make periodic requests for dividends and distributions from our subsidiaries to fund our operations or seek to enter into transactions or structures that enable us to efficiently deploy this excess capital, which may or may not require approval by our regulators. The health insurance subsidiaries paid dividends, distributions, and loan repayments of $52.0 million to Parent in 2023. During the six months ended June 30, 2024, our health insurance subsidiaries have made loan repayments of $18.0 million to Parent.
Our health insurance subsidiaries also utilize quota share reinsurance arrangements to reduce our minimum capital and surplus requirements, which are designed to enable us to efficiently deploy capital to fund our growth. During the six months ended June 30, 2024 and June 30, 2023, Parent made $28.0 million and $12.5 million of capital contributions, respectively, to the health insurance subsidiaries. We estimate that had we not had any quota share reinsurance arrangements in place, the health insurance subsidiaries would have been required to hold approximately $485.7 million and $447.1 million of additional capital as of June 30, 2024 and December 31, 2023, respectively, which Parent would have been required to fund. The actual amount of any required capital contributions to our insurance subsidiaries may differ at any given time depending on each health insurance subsidiary’s capital adequacy.
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Short-Term Cash Requirements
The Company’s cash requirements within the next twelve months include benefits payable, risk adjustment transfer payable, current lease liabilities, interest payable on debt, other current liabilities and purchase commitments and other obligations. We expect the cash required to meet these obligations to be primarily funded by cash available for general corporate use, cash flows from current operations, and/or the realization of current assets, such as accounts receivable. Based on our current forecast, we believe the Company's cash, and cash equivalents and investments, not including restricted cash, will be sufficient to fund our operating requirements for at least the next twelve months.
Our cash flows used in operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts. The timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received. Some of our payments and receipts, including risk adjustment transfers and reinsurance receipts, can be significant. As such, timing of payments and receipts can influence cash flows from operating activities in any given period which would have a negative impact on our operating cash flows.
Long-Term Cash Requirements
Our long-term cash requirements under our various contractual obligations and commitments include operating leases. We expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations.
Convertible Senior Notes
During the quarterly period ended June 30, 2024, the conditional conversion feature of the 2031 Notes, which permits conversion upon satisfaction of the common stock sale price condition, was satisfied. As a result, the 2031 Notes are convertible during the third quarter of 2024 at the option of the holder. As of the date of this Quarterly Report on Form 10-Q, the 2031 Notes have not been converted. Upon conversion, the 2031 Notes will be settled, at the Company’s election, in shares of Class A common stock, cash, or a combination of cash and shares of Class A common stock, subject to certain exceptions.
Oscar may not redeem the 2031 Notes at the Company’s option prior to December 31, 2026.
For more information on our 2031 Notes, including the requirements for redemption, see in Note 15 - Long-Term Debt, in our Annual Report on Form 10-K for the year ended December 31, 2023, and, Note 7 – Debt to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Revolving Credit Facility
We have $115.0 million available to draw under our Revolving Credit Facility until December 2025, provided we are in compliance with all covenants. As of June 30, 2024, there were no outstanding borrowings under the Revolving Credit Facility. For more information on our Revolving Credit Facility, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility in our Annual Report on Form 10-K for the year ended December 31, 2023, and Note 7 – Debt to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Investments
We generally invest the cash of our health insurance subsidiaries in U.S. treasury and agency securities. We primarily invest the cash of the Company in investment-grade, marketable debt securities to improve our overall investment return. These investments are purchased pursuant to board-approved investment policies that reflect our obligations under our credit agreement and conform to applicable state laws and regulations.
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Our investment policies are designed to provide liquidity, preserve capital, and maximize total return on invested assets, all in a manner consistent with state requirements that prescribe the types of instruments in which our health insurance subsidiaries may invest. These investment policies require that our investments of U.S. corporate bonds have final maturities of a maximum of two years from the settlement date and a maximum of five years from the settlement date for U.S. Government obligations. Professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents. Our portfolio managers must obtain our prior approval before selling investments in a loss position. Net investment income for our health insurance subsidiaries was $47.2 million and $39.3 million for the three months ended June 30, 2024 and June 30, 2023, respectively, and $87.5 million and $74.2 million for the six months ended June 30, 2024, and June 30, 2023, respectively.
Our restricted investments are invested principally in cash and cash equivalents and U.S. treasury securities; we have the ability to hold such restricted investments until maturity. The Company maintains cash and cash equivalents and investments on deposit or pledged to various state agencies as a condition for licensure. We classify our restricted deposits as long-term given the requirement to maintain such assets on deposit with regulators.
Summary of Cash Flows
Our primary operating cash flow sources are premiums and investment income. Our primary operating cash flow uses are payments for claims, risk adjustment transfers, and operating expenses, including interest expense. For the six months ended June 30, 2024, net cash provided by operating activities was $1,131.5 million as compared with $580.2 million for the same period in 2023. The increase was primarily due to higher premiums received, which were partially offset by higher claim disbursements.
Cash flows from investing activities primarily include the purchase and disposition of financial instruments. For the six months ended June 30, 2024, net cash used in investing activities was $778.2 million as compared to net cash provided by investing activities of $179.4 million for the same period in 2023. The change was primarily due to an increase in purchases of securities and a lower level of maturing investment.
Cash flows from financing activities may include proceeds from the issuance of debt securities and proceeds from stock option exercises. For the six months ended June 30, 2024, net cash provided by financing activities was $46.0 million as compared to $3.1 million for the same period in 2023. The increase was primarily due to proceeds received from the exercise of stock options.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily attributable to potential changes in interest rates and/or inflation and the resulting impact on investment income and interest expense. We do not hold financial instruments for trading purposes.
Interest Rate Risk
We are subject to interest rate risk in connection with the fair value of our investment portfolio, which consists of U.S. treasury and agency securities, corporate notes, and certificates of deposit. Our primary market risk exposure is driven by changes to prime rate-based interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors, and other factors beyond our control. Assuming a hypothetical and immediate 1% increase in interest rates at June 30, 2024, the fair value of our investments would decrease by approximately $32.9 million. Any declines in interest rates over time would reduce our investment income.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The information required under this Part II, Item 1 is set forth in Note 12 - Commitments and Contingencies to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Given that such proceedings are subject to uncertainty, there can be no assurance that such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our business, results of operations, financial condition or cash flows.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
34
Item 5. Other Information
(a) None.
(b) None.
(c) As previously disclosed, on April 2, 2024, Mark T. Bertolini, the Company’s Chief Executive Officer, terminated his sell-to-cover instruction providing for sales of Class A common stock as necessary to cover tax withholding obligations incurred in connection with the vesting or settlement of restricted stock units, as Mr. Bertolini has elected to pay such amounts in cash. The instruction was originally adopted on August 13, 2023 and was intended to satisfy the affirmative defense of Rule 10b5-1(c).
On May 15, 2024 , R. Scott Blackley , the Company’s Chief Financial Officer , terminated trading arrangement 250,000 shares of the Company’s Class A common stock by February 27, 2025. The arrangement was originally adopted on February 28, 2024 and was intended to satisfy the affirmative defense of Rule 10b5-1(c).
Item 6. Exhibits
| Incorporated by Reference | Filed/ Furnished Herewith | ||||||||||||||||||||||||||||||||||
| Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | ||||||||||||||||||||||||||||||
| 3.1 | 8-K | 001-40154 | 3.1 | 3/8/2021 | |||||||||||||||||||||||||||||||
| 3.2 | 8-K | 001-40154 | 3.2 | 3/8/2021 | |||||||||||||||||||||||||||||||
| 4.1 | S-1/A | 333-252809 | 4.1 | 2/22/2021 | |||||||||||||||||||||||||||||||
| 31.1 | * | ||||||||||||||||||||||||||||||||||
| 31.2 | * | ||||||||||||||||||||||||||||||||||
| 32.1 | ** | ||||||||||||||||||||||||||||||||||
| 32.2 | ** | ||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document | * | |||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | |||||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | |||||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | |||||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | |||||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | |||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and embedded within Exhibit 101) | * | |||||||||||||||||||||||||||||||||
* Filed herewith.
** Furnished herewith.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OSCAR HEALTH, INC. | ||||||||
Date: August 7, 2024 | By: | /s/ Mark T. Bertolini | ||||||
| Mark T. Bertolini | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Date: August 7, 2024 | By: | /s/ R. Scott Blackley | ||||||
| R. Scott Blackley | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
Date: August 7, 2024 | By: | /s/ Victoria Baltrus | ||||||
| Victoria Baltrus | ||||||||
| Chief Accounting Officer | ||||||||
| (Principal Accounting Officer) | ||||||||
36
Exhibit 31.1
CERTIFICATION
I, Mark T. Bertolini, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Oscar Health, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2024 | By: | /s/ Mark T. Bertolini | ||||||
| Mark T. Bertolini | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION
I, R. Scott Blackley, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Oscar Health, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2024 | By: | /s/ R. Scott Blackley | ||||||
| R. Scott Blackley | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Oscar Health, Inc. (the “Company”) for the period ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 7, 2024 | By: | /s/ Mark T. Bertolini | ||||||
| Mark T. Bertolini | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Oscar Health, Inc. (the “Company”) for the period ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 7, 2024 | By: | /s/ R. Scott Blackley | ||||||
| R. Scott Blackley | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||