Oscar Health, Inc. (OSCR) is the first health insurance company built around a full stack technology platform and a relentless focus on member experience. The company's Class A common stock trades on the New York Stock Exchange under the symbol "OSCR".

Oscar operates as one segment to sell insurance directly to its members through the federal and state-run healthcare exchanges formed in conjunction with the Patient Protection and Affordable Care Act. The company also partners with Cigna through the Cigna +Oscar partnership to exclusively serve the small group employer market. However, Oscar recently announced that it will not be renewing the Cigna+Oscar Small Group arrangement after the expiration of the initial term on December 31, 2024.

Business Overview

Powered by Oscar's differentiated cloud-native technology platform, the company has built a scaled insurance business that enables it to earn its members' trust, leverage the power of personalized data, and help its members find quality care they can afford. In addition to supporting its insurance business, Oscar's technology platform also powers both providers and payors through +Oscar.

Oscar offers individual plans to individuals and families through Health Insurance Marketplaces. The company previously offered Medicare Advantage insurance coverage, but exited the Medicare Advantage market for plan year 2024.

Financials

For the full year 2023, Oscar reported annual revenue of $5.86 billion, annual net loss of $270.7 million, annual operating cash flow of -$272.2 million, and annual free cash flow of -$297.7 million.

In the first quarter of 2024, Oscar reported total revenue of $2.14 billion, a 46% increase compared to the same period in 2023. This increase was driven by higher membership, rate increases, and lower risk adjustment as a percentage of premiums.

Oscar achieved an important milestone in the first quarter, reporting positive net income of $177.5 million, a significant $217.1 million improvement year-over-year. The company's medical loss ratio (MLR) improved by 210 basis points year-over-year to 74.2%, driven by disciplined pricing and total cost of care initiatives. Oscar's selling, general and administrative (SG&A) expense ratio also improved significantly by 870 basis points year-over-year to 18.4%.

Total company adjusted EBITDA for the first quarter was $219.3 million, a $168.2 million improvement compared to the prior year period. Oscar's strong momentum positions the company to deliver on its total company adjusted EBITDA profitability target for the full year 2024.

Membership Growth

Oscar ended the first quarter of 2024 with over 1.4 million members, an increase of 42% year-over-year. This membership growth was driven by strong retention, growth in existing markets and new service areas, as well as robust special enrollment period (SEP) member additions.

The company noted that it saw stronger SEP growth than expected in the first quarter, though it is uncertain whether this is a pull forward of membership or a trend that will persist throughout the year. Oscar's management stated that Medicaid redeterminations, which are expected to continue through November 2024, could impact the company's risk adjustment dynamics in the later part of the year, but they expect to recover in the first quarter of 2025 when the data is fully submitted to CMS.

Guidance and Outlook

For the full year 2024, Oscar is reaffirming its guidance for total revenue in the range of $8.3 billion to $8.4 billion, medical loss ratio between 80.2% and 81.2%, and SG&A expense ratio between 20.5% and 21%. The company continues to expect to achieve total company adjusted EBITDA profitability in the range of $125 million to $175 million.

Management noted that as the new policy year matures, overall per member claims levels may change, which could impact the numerator and denominator of the MLR, but they do not expect it to have a significant impact on the company's per member underwriting economics. Oscar also anticipates a steeper MLR seasonality curve in 2024 compared to 2023.

Risks and Challenges

Oscar faces several risks and challenges, including heightened competition in the markets it serves, its ability to accurately estimate incurred medical expenses and effectively manage medical costs, compliance with evolving regulations, and the potential for unfavorable or costly outcomes from lawsuits, audits, and investigations.

The company also faces risks related to data security breaches, its ability to attract and retain qualified personnel, and potential issues with its internal controls over financial reporting. Additionally, Oscar's dual class structure and "controlled company" status could result in adverse publicity or other consequences.

Liquidity

As of March 31, 2024, Oscar had approximately $3.7 billion in cash and investments, including $159 million at the parent company level. The company's insurance subsidiaries had approximately $990 million in capital and surplus, including $540 million in excess capital, driven by the strong operating performance.

Oscar utilizes quota share reinsurance arrangements to reduce its minimum capital and surplus requirements, which enables the company to efficiently deploy capital to fund its growth. The company estimates that without these reinsurance arrangements, the insurance subsidiaries would have been required to hold an additional $462 million in capital as of March 31, 2024.

Conclusion

Oscar Health, Inc. is making significant progress in scaling its insurance business and driving profitability. The company's strong first quarter results, including positive net income and improved medical loss ratio and SG&A expense ratio, demonstrate the earnings power of its model. With a focus on technology-driven member engagement, disciplined pricing, and total cost of care initiatives, Oscar is well-positioned to continue growing its individual market presence and achieve its goal of total company adjusted EBITDA profitability in 2024. While the company faces various risks and challenges, its robust liquidity and capital position provide a solid foundation for long-term sustainable growth.