Oscar Health, Inc. (OSCR)

Item 7. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations as of December 31, 2024 and 2023 should be read in conjunction with our audited Consolidated Financial Statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A.”Risk Factors” of this Annual Report on Form 10-K. The following discussion and analysis does not include certain items related to the year ended December 31, 2023, including year-to-year comparisons between the year ended December 31, 2023 and the year ended December 31, 2022. For a comparison of our results of operations for the fiscal years ended December 31, 2023 and December 31, 2022, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 15, 2024.

INDEX TO MD&A

Management's discussion and analysis of financial condition and results of operations is comprised of the following sections:

Overview

Oscar is a leading healthcare technology company built around a full stack technology platform and a relentless focus on member experience. We have been challenging the status quo in the healthcare system since our founding in 2012, and are dedicated to making a healthier life accessible and affordable for all. Oscar serves individuals, families, and employees through the ACA and offers health technology solutions that power the healthcare industry through +Oscar. Our technology drives superior experiences, deep engagement, and high-value clinical care, earning us the trust of approximately 1.68 million effectuated members, as of December 31, 2024.

We regularly review our Total Revenue, MLR, Selling, General and Administrative Expense Ratio (“SG&A Expense Ratio”), Net Income (loss) attributable to Oscar Health Inc., and 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.

MLR

MLR is a metric used to calculate medical expenses as a percentage of net premiums before ceded quota share reinsurance. 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 quota share reinsurance. MLR in our existing products are subject to various federal and state minimum requirements.

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SG&A Expense Ratio

The SG&A Expense Ratio reflects the Company’s Selling, general and administrative expenses, as a percentage of Total revenue. We believe the SG&A Expense Ratio is useful to evaluate our ability to manage our overall selling, general, and administrative cost base.

Net Income (loss) attributable to Oscar Health, Inc.

Net earnings (loss) allocated to the Company after income (loss) attributable to noncontrolling interests. It is a key indicator of the Company’s profitability and operational efficiency, allowing management to evaluate performance and make informed decisions on strategic planning, cost management, and resource allocation.

Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“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.

Management uses Adjusted EBITDA:

•as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;

•for planning purposes, including the preparation of our internal annual operating budget and financial projections;

•to evaluate the performance and effectiveness of our operational strategies; and

•to evaluate our capacity to expand our business.

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 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 Key Factors Impacting Performance

Regulatory Update

Our operations are subject to comprehensive and detailed federal, state, and local laws and regulations throughout the jurisdictions in which we do business. Developments related to the regulatory regimes in which we operate have in the past impacted, and are expected to continue to impact, our results of operations. During the periods presented in the financial statements contained elsewhere in this Annual Report on Form 10-K, certain regulatory developments have impacted, and may continue to impact, our results of operations.

•Enhanced APTC’s that have been in place since 2021 have contributed to increases in our membership. These enhanced APTCs are set to expire at the end of 2025 and if they are not renewed it could make coverage unaffordable to some individuals and thereby reduce overall participation in the Health Insurance Marketplaces and our membership. Such market dynamics may also impact market morbidity and our MLR. For additional details, see “Business–Government Regulation–Ongoing Requirements and Changes to the ACA” and “Risk Factors–Most

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Material Risks to Us–Any changes to the ACA and its regulations could materially and adversely affect our business, results of operations, and financial condition.”

•The Consolidated Appropriations Act of 2023 delinked the Medicaid continuous coverage from the end of the PHE for COVID-19, and Medicaid redeterminations began on April 1, 2023 and CMS announced an SEP that began March 31, 2023 and ended November 30, 2024. The Medicaid redeterminations have contributed to increases in our membership. While CMS announced in 2024 that all unwinding-related renewals for beneficiaries enrolled in CHIP must be completed no later than December 31, 2025, our understanding is that the majority of states have now substantially completed their unwinding processes. We anticipate that any future impact on our membership in connection with ACA enrollments due to the unwinding of the Medicaid continuous enrollment condition will not be as significant as the membership growth we experienced in plan year 2024. For additional details, see “Business–Government Regulation–Ongoing Requirements and Changes to the ACA” and “Risk Factors–Most Material Risks to Us–Failure to accurately estimate our incurred medical expenses or effectively manage our medical costs or related administrative costs could negatively affect our financial position, results of operations, and cash flows.”

•The CMS has recently been increasingly focused on improving integrity in the eligibility and enrollment process, and we expect this focus to continue. During the second half of 2024 CMS enacted new measures to respond to increases in unauthorized changes in consumer enrollments by agents and brokers and to reduce consumer burdens related to unauthorized enrollments, and these measures may make it more difficult for members to enroll in new plans or switch from one plan to another or otherwise retroactively remove members from ACA plans. For example, the CMS measures may have impacted the pace of our enrollments during open enrollment for plan year 2025 and may continue to do so in future plan years. For additional details, see “Business–Government Regulation–Ongoing Requirements and Changes to the ACA” and “Risk Factors-Most Material Risks to Us-Our success and ability to grow our business depend in part on retaining and expanding our member base. If we fail to add new members or retain current members, or manage our membership growth appropriately to meet our business objectives, our business, revenue, operating results, and financial condition could be harmed.

Members

Our membership is measured as of a particular point in time. Membership may change due to our expansion into or exiting of certain markets, and further vary throughout the year due to disenrollments, any SEP, and other market dynamics that are in effect such as Medicaid redeterminations, enhancements, reductions or eliminations of APTCs, other legislative or regulatory actions, or other factors that enable the overall market to grow or decline throughout the year.

SEP Market Dynamics

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. During the year ended December 31, 2024, the increase in membership was due in part to an increase in member enrollments through SEP which impacted our MLR. Higher SEP growth in certain markets throughout 2024 may have contributed to the increase in our risk transfer payable for the year ended December 31, 2024. We currently anticipate lower SEP membership growth during 2025.

Risk Adjustment

The risk adjustment programs in the markets we serve are administered federally by 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 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

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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

Medical expense primarily consists of both paid and unpaid medical expenses incurred to provide medical services and products to our members. Medical claims include fee-for-service claims, pharmacy benefits, capitation payments to providers, provider disputed claims and various other medical-related costs. Our development of the benefits payable estimate is a continuous process we monitor and refine on a monthly basis as additional claims receipts and payment information becomes available. 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 shift 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 and product design. 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.

Reinsurance

We believe our reinsurance agreements help us achieve important goals for our business, including risk management and capital efficiency. Our reinsurance agreements are contracted under two different types of arrangements: quota share reinsurance contracts and XOL reinsurance contracts. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses in exchange for a corresponding percentage of premiums. In XOL reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses in excess of a specified amount. Under XOL reinsurance, the premium payable to the reinsurer is negotiated by the parties based on losses on an individual member in a given calendar year and their assessment of the amount of risk being ceded to the reinsurer. In the case of federal and state-run reinsurance programs, no reinsurance premiums are paid. The reinsurance agreements do not relieve us of our primary medical claims incurred obligations. Refer to Note 11 - Reinsurance to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a description of the accounting methods used to record our quota share reinsurance arrangements.

Critical Accounting Policies and Estimates

The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities in our financial statements. We regularly assess these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of benefits payable and risk adjustment. The impact of changes in estimates is recorded in the period in which they become known.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition, or operating performance. The accounting policies that reflect a significant level of estimation and that are most likely to have a material impact on our reported financial results are described below. Other accounting policies are disclosed in Item 8, Financial Statements and Supplementary Data in this Annual Report on Form 10-K.

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Benefits Payable

Benefits payable includes estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process) and other medical care expenses and services payable.

Our development of the benefits payable estimate is a continuous process which we monitor and refine on a monthly basis as additional claims receipts and payment information becomes available. As more complete claims information becomes available, we adjust the amount of the estimates and include the changes in estimates in medical costs in the period in which the changes are identified. In each reporting period, our operating results include the effects of more completely developed benefits payable estimates associated with previously reported periods. If the revised estimate of prior period healthcare claims is less than the previous estimate, we will decrease reported healthcare claims in the current period (favorable development). If the revised estimate of prior period healthcare claims is more than the previous estimate, we will increase reported healthcare costs in the current period (unfavorable development). Healthcare costs in the years ended December 31, 2024 included a favorable healthcare claim development related to prior years of $164.7 million (net of reinsurance) and an unfavorable health claim development of $19.8 million (net of reinsurance) for the year ended December 31, 2023.

In developing our benefits payable estimates, we apply different estimation methods depending on the month for which incurred claims are being estimated. For example, in recent months, we estimate claim costs incurred by applying assumed medical cost trends to the per member per month (“PMPM”) medical costs incurred in prior months for which more complete claim data is available, supplemented by a review of near-term completion factors. Additional consideration is also given to adjudicated claims that may reopen as a result of provider disputes.

Completion Factors

A completion factor is an actuarial estimate, based upon historical experience and analysis of current trends, of the percentage of incurred claims during a given period that have been adjudicated by us at the date of estimation. Completion factors are the most significant factors we use in developing our benefits payable estimates. For periods prior to the two most recent months, completion factors include judgments related to claim submissions such as the time from date of service to claim receipt, claim levels, and processing cycles, as well as other factors. If actual claims submission rates from providers (which can be influenced by a number of factors, including provider mix and electronic versus manual submissions) or our claim processing patterns are different than estimated, our reserve estimates may be significantly impacted. For the most recent two months, the completion factors are informed primarily from forecasted per member per month claims projections developed from our historical experience and adjusted by emerging experience data in the preceding months which may include adjustments for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and workday seasonality.

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The following table illustrates the sensitivity of the estimated potential impact on our benefits payable estimates gross of reinsurance, for those periods as of December 31, 2024 to an increase (decrease) in the underlying completion factors:

Management believes the amount of benefits payable is reasonable and adequate to cover our liability for unpaid claims as of December 31, 2024; however, actual claim payments may differ from established estimates as discussed above. Assuming a hypothetical 1% difference between our December 31, 2024 estimates of benefits payable and actual benefits payable, excluding any potential offsetting impact from premium rebates, net earnings for the year ended December 31, 2024 would have increased by approximately $172.7 million or decreased by approximately $165.6 million.

For more detail related to our medical claims expenses, see Note 2 - Summary of Significant Accounting Policies to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Risk Adjustment

The risk adjustment programs in the individual and small group markets we serve are designed to mitigate the potential impact of adverse selection and provide stability for health insurers. Plans with lower than average risk scores will generally pay into the pool, while plans with higher than average risk scores will generally receive distributions. Plans receive higher payments for members with higher risk scores than members with lower risk scores.

The Company estimates the receivable or payable under the risk adjustment programs based on its estimated risk score compared to the state average risk score. The Company may record a receivable or payable as an adjustment to premium revenues to reflect the year-to-date impact of the risk adjustment based on its best estimate. The Company refines its estimate as new information becomes available.

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Components of our Results of Operations

Premium

Premium revenue includes direct policy premiums collected from our members and subsidies received from the federal government, risk adjustment transfers, and assumed policy premiums we earned as part of our reinsurance arrangement under our Cigna+Oscar Small Group plan offering, and is net of ceded premium from XOL and run-off quota share reinsurance contracts accounted for under reinsurance accounting. The Company did not renew the Cigna+Oscar Small Group arrangement after the expiration of the initial term on December 31, 2024.

Investment Income

Investment income primarily includes investment income, interest earned, and gains (losses) on our investment portfolio.

Services and Other

Services and other revenue includes primarily revenue earned from administrative services performed as part of the +Oscar platform, as well as sublease income.

Medical

Medical expense primarily consists of both paid and unpaid medical expenses incurred to provide medical services and products to our members. Medical claims include fee-for-service claims, pharmacy benefits, capitation payments to providers, provider disputed claims and various other medical-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Medical claims are recognized in the period healthcare services are provided. Unpaid medical expenses include claims reported and in the process of being settled, but that have not yet been paid, as well as healthcare costs incurred but not yet reported to us, which are collectively referred to as benefits payable or claim reserves. The development of the claim reserve estimate is based on actuarial methodologies that consider underlying claim payment patterns, medical cost inflation, historical developments, such as claim inventory levels and claim receipt patterns, and other relevant factors. The methods for making such estimates and for establishing the resulting liability are continuously reviewed and any adjustments are reflected in the period determined. Medical expense also reflects the net impact of our ceded reinsurance claims from XOL and run-off quota share reinsurance contracts accounted for under reinsurance accounting.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily include distribution expenses, wages, benefits, costs of software and hardware, the impact of quota share reinsurance, stock-based compensation, and other administrative costs.

Other Expenses (Income)

Other expenses (income) consists primarily of miscellaneous expenses or income that are not core to our operations, including profit sharing arrangements with our co-branded health plans and changes in the fair value of financial instruments.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists primarily of changes to our current and deferred federal and state tax assets and liabilities. Income taxes are recorded as deferred tax assets and deferred tax liabilities based on differences between the book and tax bases of assets and liabilities. Our deferred tax assets and liabilities are calculated by applying the current tax rates and laws to taxable years in which such differences are expected to reverse.

Net income (loss) attributable to noncontrolling interests

Net income (loss) attributable to noncontrolling interests represents the share of the Company’s earnings allocated to the Company’s joint venture partner.

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Results of Operations

Year Ended December 31, 2024 compared to Year Ended December 31, 2023

The following table sets forth our results of operations for the periods indicated:

(1) Adjusted EBITDA is a non-GAAP measure. See “-Adjusted EBITDA” below for a reconciliation to net income (loss), the most directly comparable GAAP measure, and "-Overview-Adjusted EBITDA" for information regarding our use of Adjusted EBITDA.

Premium

Premium revenue increased by $3,285.2 million, or 58%, for the year ended December 31, 2024, compared to the same period in 2023. The increase was primarily driven by higher membership during 2024 Open Enrollment, strong retention, and SEP member additions.

The following table summarizes the Company’s membership by offering:

(1) Represents total membership for our co-branded partnership with Cigna.

(2) A member covered under more than one of our health plans counts as a single member for the purposes of this metric.

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Investment Income

Investment income increased by $30.3 million, or 19% , for the year ended December 31, 2024, compared to the same period in 2023, primarily due to a larger asset base.

Medical Expenses and MLR

Medical expenses increased by $2,690.6 million, or 58%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to increased membership. MLR slightly increased for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily driven by SEP membership growth and an increase in our risk adjustment transfer, partially offset by favorable prior period development. Membership growth during the special enrollment period resulted in upward pressure in our MLR. Further, while overall member utilization increased consistent with our pricing expectations, overall market morbidity dynamics drove an increased risk transfer payable. These factors were partially offset by favorable prior period development and affordability initiatives.

Selling, General and Administrative Expenses and SG&A Expense Ratio

Selling, general and administrative expenses increased by $329.8 million, or 23%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This increase was driven by higher distribution, taxes and fees 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 520 basis points year over year for the year ended December 31, 2024, primarily due to improved fixed cost leverage and variable cost efficiencies.

Income Tax Expense (Benefit)

Our effective tax rate for the year ended December 31, 2024 and December 31, 2023 was approximately 21.86% and (1.23)% respectively.

Net Income (loss) attributable to Oscar Health, Inc.

Net income (loss) attributable to Oscar Health, Inc. increased by $296.2 million, or 109% , for the year ended December 31, 2024, compared to the same period in 2023.

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Adjusted EBITDA

The table below sets forth the reconciliation of Net income (loss) to Adjusted EBITDA (a non-GAAP measure). See “-Overview–Adjusted EBITDA" for information regarding our use of Adjusted EBITDA.

(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. Additionally, these expenses are reported net of any stock-based compensation that has been capitalized for software development costs. Year ended December 31, 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 10 - Stock Based Compensation 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 December 31, 2024 and December 31, 2023, total cash and cash equivalents and investments held by the holding company was $189.8 million and $234.1 million, respectively, of which $12.8 million and $12.6 million was restricted for 2024 and 2023, respectively.

The majority of the assets held by our health insurance subsidiaries are in the form of cash and cash equivalents and investments. As of December 31, 2024 and December 31, 2023, total cash and cash equivalents and investments held by our health insurance subsidiaries was $3,808.0 million and $2,721.2 million, respectively, of which $18.0 million and $17.3 million, respectively, was on deposit with regulators as required for statutory licensing purposes. These amounts are classified as restricted deposits on the Consolidated Balance Sheets.

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 estimated to be approximately $1,242.7 million as of December 31, 2024, and it was $800.6 million as of December 31, 2023, 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 in aggregate exceeded the minimum statutory RBC requirement by $301 million as of December 31, 2023 and are projected to have approximately $774 million of excess capital as of December 31, 2024. 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. During the year ended December 31, 2024 and 2023, the Parent received approximately $133 million and $52 million capital distribution, respectively, from the insurance subsidiaries. For additional information see Part I, Item 1A “Risk Factors—Risks Related to our Business—If state regulators do not approve payments of dividends and distributions by our health insurance subsidiaries to us, or do not approve other capital efficiency structures we may pursue, we may not have sufficient funds to implement our business strategy.”

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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 years ended December 31, 2024 and 2023, the Parent made $146.6 million and $19.5 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 $553.8 million and $447.1 million of additional capital as of December 31, 2024 and 2023, respectively, which the Parent would have been required to fund to the extent the applicable insurance subsidiary did not have excess capital to cover the requirement. For additional information on our capital contributions and reinsurance arrangements, see “Risk Factors—Risks Related to our Business—We utilize quota share reinsurance to reduce our capital and surplus requirements and protect against downside risk on medical claims. If regulators do not approve our reinsurance agreements for this purpose, or if we cannot negotiate renewals of our quota share arrangements on acceptable terms, or at all, enter into new agreements with reinsurers, or otherwise obtain capital through debt or equity financings, our capital position would be negatively impacted, and we could fall out of compliance with applicable regulatory requirements” and “Risk Factors—Risks Most Material to Us—Our business, financial condition, and results of operations may be harmed if we fail to execute our strategy and manage our growth effectively.”

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.

Some of our payments and receipts, including risk adjustment transfers and reinsurance receipts, can be significant. For example, during the third quarter of 2024, we made a payment through our health insurance subsidiaries of approximately $1,056.8 million into the risk adjustment program, for the 2023 policy year. 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. See Note 13 – Leases to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

Convertible Senior Notes

On February 3, 2022, we 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 “Initial Purchasers”). In connection with the sale and issuance of the 2031 Notes, on January 27, 2022, we entered into an investment agreement with the Initial Purchasers (the “Investment Agreement”) and on February 3, 2022, we entered into an indenture with U.S. Bank, as Trustee (the “Indenture”). The 2031 Notes 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.

Upon the occurrence of a fundamental change (as defined in the Indenture), holders of the 2031 Notes have the right to require us to repurchase all or some of their 2031 Notes for cash, subject to certain conditions. Additionally, the Initial Purchasers have the right to require us to repurchase all of their Notes for cash, on each of June 30, 2027, June 30, 2028, June 30, 2029 and June 30, 2030, subject to certain notice requirements. On or after December 31, 2026, if a Class A common stock sale price condition is satisfied, we are able to redeem all (but not less than all) of the 2031 Notes for cash. If we call any of the 2031 Notes for redemption, holders of the 2031 Notes shall have the right to convert any such 2031 Note any time before the close of business on the second business day immediately before the related redemption date.

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The 2031 Notes may be converted at the option of the holders, on or after August 31, 2031, if we call the 2031 Notes for redemption, upon the satisfaction of a Class A common stock sale price or 2031 Note trading price condition, or upon certain corporate events. 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, unless an Initial Purchaser elects to receive the consideration due upon conversion solely in shares of Class A common stock pursuant to the terms of the Investment Agreement. During the quarterly period ended December 31, 2024, the Class A common stock sale price conversion condition was satisfied. As a result, the 2031 Notes are convertible during the first quarter of 2025 at the option of the holders. As of the date of this Annual Report on Form 10-K, the 2031 Notes have not been converted.

For additional details relating to the 2031 Notes, see Note 9 - Debt to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, and, “Risk Factors–Risks Related to Indebtedness–Our debt obligations contain restrictions that impact our business and expose us to risks that could materially adversely affect our liquidity and financial condition” and “Risk Factors–Risks Related to Indebtedness–We may be unable to raise the funds necessary to repurchase our outstanding 2031 Notes for cash following a fundamental change or on the optional repurchase dates, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the 2031 Notes or pay cash upon their conversion.”

Revolving Credit Facility

On December 28, 2023, we entered into a third amendment to our senior secured credit agreement (the “Third Amendment”), with Wells Fargo Bank, National Association, as lender and the administrative agent, and certain other lenders party thereto from time to time (collectively the “Lenders”), and Oscar Management Corporation, as a subsidiary guarantor, which amended the senior secured credit agreement, dated as of February 21, 2021 (as amended by the First Amendment to Credit Agreement, dated as of January 27, 2022, and as further amended by the Second Amendment to Credit Agreement, dated as of July 21, 2023, the “Credit Agreement” and 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 million, with proceeds to be used for general corporate purposes. Borrowings under the Revolving Credit Facility bear interest equal to, at our option, one of two variable rates plus an applicable margin.

The Revolving Credit Facility is currently guaranteed by Oscar Management Corporation, a wholly owned subsidiary of Oscar, and all of our future direct and indirect subsidiaries (subject to certain permitted exceptions) (the “Guarantors”), and is secured by a lien on substantially all of our and the Guarantors’ assets (subject to certain exceptions). The Revolving Credit Facility is available for us to borrow under until December 28, 2025, provided we are in compliance with the covenants contained therein, including financial covenants to maintain minimum thresholds related to direct policy premiums, consolidated Adjusted EBITDA (as defined in the Revolving Credit Facility), and liquidity, as well as a maximum medical loss ratio.

The Revolving Credit Facility permits us to increase commitments under the Revolving Credit Facility by an aggregate amount not to exceed $50 million, subject to certain conditions.

As of December 31, 2024, there were no outstanding borrowings under the Revolving Credit Facility.

For additional details relating to the Revolving Credit Agreement, see Note 9 - Debt to our Consolidated Financial Statements and “Risk Factors–Risks Related to our Indebtedness–Restrictions imposed by our Revolving Credit Facility may materially limit our ability to operate our business and finance our future operations or capital needs.”

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Investments

We generally invest our cash in U.S. Treasury instruments, federal and state agency securities, investment grade corporate bonds and asset backed securities to improve our overall investment return. These investments are made in accordance with board-approved investment policies that adhere to the requirements of our credit agreement and comply with relevant state laws and regulations.

Our investment policies are designed to provide liquidity, preserve capital, and optimize the total return on invested assets. These policies also align with the constraints of our credit agreement and state regulations governing the types of investments our health insurance subsidiaries can hold. These investment policies require that our investments in U.S. corporate bonds and asset backed securities have final maturities of no more than five years from the date of issuance and U.S. federal and state government obligations have final maturities of no more than seven years from the settlement date. Professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents. Our portfolio managers are directed to obtain our prior approval before selling investments in a loss position.

Net investment income on a consolidated basis was $185.7 million and $155.4 million for the year ended December 31, 2024 and 2023, respectively. Net investment income for our health insurance subsidiaries was $174.9 million and $146.7 million for the year ended December 31, 2024 and 2023, respectively.

Our restricted investments consist primarily of 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 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 loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period. The potential for a large claim under an insurance or reinsurance contract means that our health insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating 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 year ended December 31, 2024, net cash provided by operating activities was $978.2 million as compared with $272.2 million used in operating activities for the same period in 2023. The change 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 year ended December 31, 2024, net cash used in investing activities was $1,387.4 million as compared to $577.2 million net cash provided by investing activities for the same period in 2023. The change was primarily due to an increase in purchases of securities and a lower level of maturing investments.

Cash flows from financing activities include proceeds from the issuance of debt securities and proceeds from stock option exercises. For the year ended December 31, 2024, net cash provided by financing activities was $68.4 million compared to $6.4 million for the same period in 2023. The increase was primarily due to proceeds received from the exercise of stock options.

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Item 7. Management’s Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A."Risk Factors" of this Annual Report on Form 10-K. The following discussion and analysis does not include certain items related to the year ended December 31, 2021, including year-to-year comparisons between the year ended December 31, 2022 and the year ended December 31, 2021. For a comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023.

INDEX TO MD&A

Management's discussion and analysis of financial condition and results of operations is comprised of the following sections:

Overview

Oscar is the first health insurance company built around a full stack technology platform and a relentless focus on serving our members. Powered by our own differentiated cloud-native full stack technology platform, we have built a scaled insurance business that enables us to earn our members’ trust, leverage the power of personalized data, and help our members find quality care they can afford. In addition to supporting our insurance business, externalizing our technology under +Oscar technology platform enables us to power both providers and payors.

Recent Developments, Trends and Other Factors Impacting Performance

Change in Leadership

On March 28, 2023, the Company announced that, effective April 3, 2023, Mark T. Bertolini would join the Company as Chief Executive Officer and a member of the Company’s Board of Directors. Mario Schlosser, the Company’s co-founder and former Chief Executive Officer, moved into the role of President of Technology, in which he focuses on continued innovation and expansion of the Company’s technology platform and developing related offerings for the healthcare ecosystem. Mr. Schlosser continues to serve as a member of the Company’s Board.

Risk Adjustment

The risk adjustment programs in the individual, small group, and Medicare Advantage 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 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.

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Our risk 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. In the individual and small group lines, there is a higher degree of uncertainty associated with estimates of risk transfers at the beginning of the policy year resulting from composition of the risk score being based on concurrent claim data. Furthermore, 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. Actual risk adjustment calculations and transfers could materially differ from our assumptions.

Ceded 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 Medical Loss Ratio ("MLR"). Specifically, reinsurance is a financial arrangement under which the reinsurer agrees to cover a portion of our medical claims (ceded claims) in return for a portion of the premium (premiums ceded). 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.

Quota Share Reinsurance

We currently use quota share agreements to limit our risk and capital requirements, which has enabled us to grow while optimizing our use of capital. Reductions in the amount of premiums ceded under quota share reinsurance arrangements may result in an increase to our minimum capital and surplus requirements, and an increase in corresponding capital contributions by Holdco to our health insurance subsidiaries.

In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums. Premiums for quota share reinsurance are based on a percentage of premiums earned before ceded reinsurance. Each quota share reinsurance agreement includes a ceding commission payment from the reinsurer to Oscar to cover administrative costs. To the extent ceded premiums exceed ceded claims and commissions, we typically receive an experience refund.

We currently have quota share reinsurance arrangements with more than one counterparty with multiple state-level treaties. During the year ended December 31, 2023 and December 31, 2022 approximately 46% and 47%, respectively, of our premiums were covered by quota share reinsurance. Refer to Note 4 - Reinsurance for a description of the accounting methods used to record our quota share reinsurance arrangements.

XOL Reinsurance

We use XOL reinsurance to limit our exposure to large catastrophic risk from individual claims. Under XOL reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses in excess of a specified amount. The premium payable to the reinsurer is negotiated by the parties based on losses on an individual member in a given calendar year and their assessment of the amount of risk being ceded to the reinsurer. Under our XOL reinsurance contracts in 2023 and 2022, the reinsurer is paid to cover claims related losses over an attachment point of $1.5 million and $0.75 million, respectively, but the amount of the attachment point may change year over year based on a variety of factors.

Regulatory Update

As a result of the changing market dynamics following market exits by certain carriers in 2022, the Company proactively engaged its regulators regarding options to manage its membership growth. Prior to Open Enrollment for 2023, the Company requested that regulators limit its membership growth in Florida above a certain threshold so that total membership across all markets would be within its previously announced target range of 900,000 to 1,100,000 members at the close of Open Enrollment, which the Company believed would enable it to prudently manage its capital position. Due to strong Open Enrollment performance, the threshold was met and the Company temporarily stopped accepting new members in Florida from December 13, 2022 through August 5, 2023. After the enrollment restriction was removed, the Company was able to accept new SEP members through December 31, 2023. The Company accepted new members in Florida during the Open Enrollment Period for 2024.

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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 are expected to conclude by June 2024. 2023 data from CMS on Medicaid redeterminations has shown marginal but consistent increases in ACA plan enrollments among consumers who lost Medicaid or Children's Health Insurance Program (CHIP) coverage. However, the redeterminations are ongoing, and consumers’ transitions to ACA marketplace plans may contribute to more substantial growth in the ACA marketplace in the future. For instance, data from CMS indicates that the ACA marketplace grew 30% during open enrollment for plan year 2024.

For further information, see “Risk Factors — Risks Most Material to Us – Our business, financial condition, and results of operations may be harmed if we fail to execute our strategy and manage our growth effectively.”

+Oscar Arrangements

In 2023, we launched +Oscar’s first modularized solution, Campaign Builder, an engagement and automation platform that serves both payor and provider clients. We have added three new clients in our launch year.

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Financial Results Summary and Key Operating and Non-GAAP Financial Metrics

We regularly review a number of metrics, including the following key operating and non-GAAP financial metrics, 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.

Key Operating and Non-GAAP Financial Metrics

(1)Adjusted EBITDA is a non-GAAP measure. See “Adjusted EBITDA” below for a reconciliation to net loss, the most directly comparable U.S. GAAP measure, and for information regarding our use of Adjusted EBITDA.

Members

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.

Membership decreased 10% to 1.0 million as of December 31, 2023, from 1.2 million as of December 31, 2022. The decrease was driven by the steps we took to proactively manage our membership levels during the 2023 Open Enrollment Period to a level that enabled us to prudently manage our capital, partially offset by an increase in new Cigna+Oscar members served.

Direct and Assumed Policy Premiums

Direct policy premiums are defined as the premiums collected from our members or from the federal government during the period indicated, before risk adjustment and reinsurance. These premiums include APTC, or premium subsidies, which are available to individuals and families with certain annual incomes. Assumed policy premiums are premiums we receive primarily as part of our reinsurance arrangement under our Cigna+Oscar Small Group plan offering, and are presented here net of risk adjustment. We believe Direct and Assumed Policy Premiums is an important metric to assess the growth of our individual and small group plan offerings going forward. Management also views Direct and Assumed Policy Premiums as a key operating metric because Direct and Assumed Policy Premiums are a key input in the calculation of our MLR, InsuranceCo Administrative Expense Ratio, InsuranceCo Combined Ratio and Adjusted Administrative Expense Ratio. Direct and Assumed Policy Premiums decreased 2.8% to $6.6 billion as of December 31, 2023 from $6.8 billion as of December 31, 2022, driven by the steps we took to proactively manage our membership levels prior to Open Enrollment for 2023. The decrease was partially offset by rate increases and an increase in new Cigna+Oscar members served.

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Medical Loss Ratio

Medical Loss Ratio is calculated as set forth in the table below. Direct claims incurred before ceded reinsurance are medical claims, the total medical expenses incurred in order for members to utilize healthcare services, less any member cost sharing. These services include inpatient, outpatient, pharmacy, and physician costs. Direct claims incurred before ceded reinsurance also include risk sharing arrangements with certain of our providers. 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 net premiums before ceded quota share reinsurance. MLRs in our existing products are subject to various federal and state minimum requirements.

(1)See Note 4 - Reinsurance to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a reconciliation of direct claims incurred to claims incurred, net appearing on the face of our statement of operations.

(2)Represents claims ceded to reinsurers pursuant to an excess of loss treaty, for which such reinsurers are financially liable. We use excess of loss reinsurance to limit the losses on individual claims of our members.

(3)Represents payments made by certain state-run reinsurance programs established subject to CMS approval under Section 1332 of the ACA.

(4)See Note 3 - Revenue Recognition to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for an explanation of premiums before ceded reinsurance.

(5)Represents excess of loss reinsurance premiums paid.

MLR improved for the year ended December 31, 2023 as compared to the year ended December 31, 2022. The improvement was primarily as a result of targeted rate actions and a disciplined pricing strategy to increase margins as well as strong execution on initiatives to manage medical costs.

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InsuranceCo Administrative Expense Ratio

InsuranceCo Administrative Expense Ratio is calculated as set forth in the table below. The ratio reflects the costs associated with running our insurance companies. We believe InsuranceCo Administrative Expense Ratio is useful to evaluate our ability to manage our expenses as a percentage of net premiums before quota share reinsurance. Expenses necessary to run the insurance companies are included in Other insurance costs and Federal and state assessments. These expenses include variable expenses paid to distribution partners and vendors, premium taxes and healthcare exchange fees, employee-related compensation, benefits, marketing costs, and other administrative expenses.

(1)Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(29,451) and $(7,205) for the year ended December 31, 2023 and 2022, respectively.

(2)See Note 3 - Revenue Recognition to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for an explanation of Premiums before ceded reinsurance.

The InsuranceCo Administrative Expense Ratio improved for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to lower distribution expenses, and lower risk adjustment payable transfer in net premiums, partially offset by a provision for credit losses on risk sharing receivables.

InsuranceCo Combined Ratio

InsuranceCo Combined Ratio is defined as the sum of MLR and InsuranceCo Administrative Expense Ratio. We believe this ratio best represents the core performance of the insurance business, prior to the impact of quota share and net investment income.

The InsuranceCo Combined Ratio improved for the year ended December 31, 2023 as compared to the year ended December 31, 2022, consistent with the improvement in the MLR and InsuranceCo Administrative Expense Ratio.

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Adjusted Administrative Expense Ratio

The Adjusted Administrative Expense Ratio is an operating ratio that reflects the Company’s total administrative expenses (“Total Administrative Expenses”), net of non-cash and non-recurring items (as adjusted, “Adjusted Administrative Expenses”), as a percentage of total revenue, excluding the impact of quota share reinsurance premiums less excess of loss reinsurance premiums ceded (“Adjusted Total Revenue”). Total Administrative Expenses are calculated as Total operating expenses, excluding non-administrative insurance-based expenses and the impact of quota share reinsurance. Adjusted Administrative Expenses are Total Administrative Expenses, net of non-cash and non-recurring expense items. We believe Adjusted Administrative Expense Ratio is useful to evaluate our ability to manage our overall administrative expense base. This ratio also provides further clarity into our overall path to profitability.

(1)Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(29,451) and $(7,205) for the year ended December 31, 2023 and 2022, respectively.

The Adjusted Administrative Expense Ratio improved for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Adjusted Administrative Expenses were lower in 2023 compared to 2022 primarily due to lower distribution expenses, lower risk adjustment payable transfer in net premiums, and from higher net investment income.

Adjusted EBITDA

Adjusted EBITDA is defined as Net 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.

Management uses Adjusted EBITDA:

•as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;

•for planning purposes, including the preparation of our internal annual operating budget and financial projections;

•to evaluate the performance and effectiveness of our operational strategies; and

•to evaluate our capacity to expand our business.

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By providing this non-GAAP financial measure, together with a reconciliation to the most comparable U.S. GAAP measure, Net 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 loss or other financial statement data presented in our Consolidated Financial Statements as indicators of financial performance.

(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. Year ended December 31, 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 10 - Stock Based Compensation for additional information.

Components of our Results of Operations

Premiums Before Ceded Reinsurance

Premiums before ceded reinsurance primarily consist of premiums received, or to be received, directly from our members or from CMS as part of the APTC program, net of the impact of our risk adjustment payable. Premiums before ceded reinsurance are generally impacted by the amount of risk sharing adjustments, our ability to acquire new members and retain existing members, and average size and premium rate of policies.

Reinsurance Premiums Ceded

Reinsurance premiums ceded represent the amount of premiums written that are ceded to reinsurers either through quota share agreements accounted for under reinsurance accounting or XOL reinsurance. Reinsurance premiums ceded are recognized over the reinsurance contract period in proportion to the period of risk covered. The volume of our reinsurance premiums ceded is impacted by the level of our premiums earned and any decision we make to increase or decrease limits, retention levels, and co-participations.

Administrative Services Revenue

Administrative services revenue includes revenue earned from services performed as part of the +Oscar platform.

Investment Income and Other Revenue

Investment income and other revenue primarily includes interest earned and gains on our investment portfolio, along with miscellaneous sources of revenue.

Claims Incurred, Net

Claims incurred, net primarily consists of both paid and unpaid medical expenses incurred to provide medical services and products to our members. Medical claims include fee-for-service claims, pharmacy benefits, capitation payments to providers, provider disputed claims and various other medical-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Medical claims are recognized in the period healthcare services are provided. Unpaid medical expenses include claims reported and in the process of being settled, but that have not yet been paid, as well as healthcare costs incurred but not yet reported to us, which are collectively referred to as benefits payable or claim reserves. The development of the claim reserve estimate is based on actuarial methodologies that consider underlying claim payment patterns, medical cost inflation, historical developments, such as claim inventory levels and claim receipt patterns, and other relevant factors. The methods for making such estimates and for establishing the resulting liability are continuously reviewed and any adjustments are reflected in the period determined. Claims incurred, net also reflects the net impact of our ceded reinsurance claims.

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Other Insurance Costs

Other insurance costs primarily include distribution costs, including broker commissions, wages, benefits, marketing, rent, costs of software and hardware, unallocated claims adjustment expenses, and administrative costs associated with functions that are necessary to support our health insurance business. Such functions include, but are not limited to, member concierge services, claims processing, utilization management, and related health plan operations, actuarial, compliance and portions of information systems, legal and finance. This line item also includes the impact of deposit accounting, as well as ceding commissions related to quota share agreements accounted for under reinsurance accounting that are in runoff.

General and Administrative Expenses

General and administrative expenses primarily include wages, benefits, costs of software and hardware, and administrative costs for our corporate and technology functions. Such functions include, but are not limited to executive management, portions of legal, finance, and information systems, including product management and development.

Federal and State Assessments

Federal and state assessments represent non-income tax charges from federal and state governments, including but not limited to healthcare exchange user fees, premium taxes, franchise taxes, and other state and local non-premium related taxes.

Premium Deficiency Reserve (Release)

Premium deficiency reserve (release) is the year over year change in the premium deficiency reserve liability. Premium deficiency reserve liabilities are established when it is probable that expected future claims and maintenance expenses will exceed future premium and reinsurance recoveries on existing medical insurance contracts.

Interest Expense

Interest expense consists primarily of interest expense associated with our debt arrangements, including amortization of debt issuance costs and discounts and revolving credit facility fees.

Other Expenses (Income)

Other expenses (income) consists primarily of miscellaneous expenses or income that are not core to our operations, including profit sharing arrangements with our co-branded health plans and changes in the fair value of financial instruments.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists primarily of changes to our current and deferred federal and state tax assets and liabilities. Income taxes are recorded as deferred tax assets and deferred tax liabilities based on differences between the book and tax bases of assets and liabilities. Our deferred tax assets and liabilities are calculated by applying the current tax rates and laws to taxable years in which such differences are expected to reverse.

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Results of Operations

Year Ended December 31, 2023 compared to Year Ended December 31, 2022

The following table sets forth our results of operations for the periods indicated:

*NM - not meaningful

Premiums Before Ceded Reinsurance

Premiums before ceded reinsurance increased by $0.4 billion, or 7%, to $5.7 billion for the year ended December 31, 2023, from $5.3 billion for the year ended December 31, 2022. The increase was primarily due to lower risk transfer per member as a percent of premium driven by higher acuity in the member population, higher per member premiums from rate actions on the Individual book and new Cigna+Oscar members served at higher rates, modestly offset by lower membership.

Reinsurance Premiums Ceded

Reinsurance premiums ceded decreased to $10.9 million for the year ended December 31, 2023, from $1.5 billion for the year ended December 31, 2022. This change reflects revisions to our 2023 quota share reinsurance program to terminate a contract that had been in place for the 2022 policy year and accounted for under reinsurance accounting, and to enter into a new quota share arrangement for the 2023 policy year that is being accounted for under deposit accounting.

Administrative Services Revenue

Administrative services revenue decreased by $45.6 million, or 75%, to $15.4 million for the year ended December 31, 2023, from $61.0 million for the year ended December 31, 2022. This decrease was driven by the termination of our arrangement with Health First and transition of services from +Oscar to Health First effective December 31, 2022.

Investment Income and Other Revenue

Investment income and other revenue increased by $129.9 million, or 413%, to $161.4 million for the year ended December 31, 2023, from $31.5 million for the year ended December 31, 2022, primarily due to higher investment yields and higher interest rates.

Claims Incurred, Net

Claims incurred, net, increased by $1.4 billion, or 41%, to $4.6 billion for the year ended December 31, 2023, from $3.3 billion for the year ended December 31, 2022, which was primarily due to revisions to our 2023 quota share reinsurance

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program to terminate a contract that had been in place for the 2022 policy year and accounted for under reinsurance accounting, and to enter into a new quota share arrangement for the 2023 policy year that is being accounted for under deposit accounting.

Other Insurance Costs

Other insurance costs increased by $118.0 million, or 17%, to $824.5 million for the year ended December 31, 2023, from $706.4 million for the year ended December 31, 2022. The increase was primarily attributable to revisions to our 2023 quota share reinsurance program to terminate a contract that had been in place for the 2022 policy year and accounted for under reinsurance accounting and to enter into a new quota share arrangement for the 2023 policy year that is being accounted for under deposit accounting. Additional increase was attributable to the acceleration of the non-cash stock compensation expense associated with the cancellation of the Founders Awards. The increase was partially offset by lower distribution expenses.

General and Administrative Expenses

General and administrative expenses increased by $29.9 million, or 10%, to $339.7 million for the year ended December 31, 2023, from $309.8 million for the year ended December 31, 2022. The increase was primarily attributable to the acceleration of the non-cash stock compensation expense associated with the cancellation of the Founders Awards.

Federal and State Assessments

Federal and state assessments increased by $9.2 million, or 3%, to $290.7 million for the year ended December 31, 2023, from $281.5 million for the year ended December 31, 2022, which was primarily due to higher premiums before ceded reinsurance.

Premium Deficiency Reserve (Release)

Premium deficiency reserve was a net expense of $1.6 million for the year ended December 31, 2023, as compared to a $25.0 million net release for the year ended December 31, 2022. The change was due to slightly higher premium deficiency reserves in our assumed business established at the end of 2023 as compared to the reserve established at the end of 2022.

Income Tax Expense (Benefit)

Our effective tax rate for the year ended December 31, 2023 and December 31, 2022 was approximately (1.23%) and 0.09%, respectively.

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Liquidity and Capital Resources

Overview

We maintain liquidity at two levels of our corporate structure, through our health insurance subsidiaries and through Holdco, our consolidated subsidiaries excluding our regulated insurance subsidiaries.

The majority of the assets held by Holdco are in the form of cash and cash equivalents and investments. As of December 31, 2023 and December 31, 2022, total cash and cash equivalents and investments held by Holdco was $233.5 million and $342.0 million, respectively, of which $12.6 million and $9.8 million was restricted 2023 and 2022, respectively.

The majority of the assets held by our health insurance subsidiaries is in the form of cash and cash equivalents and investments. As of December 31, 2023 and December 31, 2022, total cash and cash equivalents and investments held by our health insurance subsidiaries was $2.7 billion and $2.9 billion, respectively, of which $17.3 million and $17.7 million, respectively, was on deposit with regulators as required for statutory licensing purposes and 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 $800.6 million and $701.5 million at December 31, 2023 and December 31, 2022, 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 in aggregate exceeded the minimum statutory RBC requirement by $198 million as of December 31, 2022 and are projected to have approximately $285 million of excess capital as of December 31, 2023. 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 a result of changing market dynamics following market exits by certain carriers in 2022, we proactively engaged regulators regarding options to manage our membership growth to a level at the end of the 2023 Open Enrollment Period that enabled us to prudently manage our capital. The membership enrollment restrictions that were put in place have been removed. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments, Trends and Other Factors Impacting Performance—Regulatory Update.”

As our health insurance subsidiaries have become profitable, or as some become profitable in the future, or if their levels of statutory capital and surplus 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 be approved by our regulators. The insurance companies paid dividends, distributions, and loan repayments of $52 million to the Parent company in 2023. For additional information see Part I, Item 1A “Risk Factors—Risks Related to our Business—If state regulators do not approve payments of dividends and distributions by our health insurance subsidiaries to us, or do not approve other capital efficiency structures we may pursue, we may not have sufficient funds to implement our business strategy.”

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Our health insurance subsidiaries also utilize quota share reinsurance arrangements to meet our minimum capital and surplus requirements, which are designed to enable us to efficiently deploy capital to fund our growth. During the year ended December 31, 2023 and 2022, Parent made $19.5 million and $423.5 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 insurance subsidiaries would have been required to hold approximately $447.1 million and $446.8 million of additional capital as of December 31, 2023 and 2022, 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 insurance subsidiary’s capital adequacy. For additional information on our capital contributions and reinsurance arrangements, see “Risk Factors—Risks Related to our Business—We utilize quota share reinsurance to reduce our capital and surplus requirements and protect against downside risk on medical claims. If regulators do not approve our reinsurance agreements for this purpose, or if we cannot negotiate renewals of our quota share arrangements on acceptable terms, or at all, enter into new agreements with reinsurers, or otherwise obtain capital through debt or equity financings, our capital position would be negatively impacted, and we could fall out of compliance with applicable regulatory requirements” and “Risk Factors—Risks Most Material to Us—Our business, financial condition, and results of operations may be harmed if we fail to execute our strategy and manage our growth effectively.”

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 payment of long-term 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 and reinsurance receipts, can be significant. For example, during the third quarter of 2023, we made a payment through our health insurance subsidiaries of approximately $1.4 billion into the risk adjustment program, primarily for the 2022 policy year. Therefore, 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. See Note 13 – Leases to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

•Interest payable. See Note 15 – Long-Term Debt to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of future payments.

We expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations.

Convertible Senior Notes

On January 27, 2022, we entered into an investment agreement (the “Investment Agreement”) pursuant to which we agreed to issue and sell $305.0 million in aggregate principal amount of 7.25% 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 transaction contemplated by the Investment Agreement closed on February 3, 2022 (the “Closing Date”). In connection with the issuance of the 2031 Notes, on February 3, 2022, we entered into an Indenture between us and U.S. Bank National Association, as trustee. The 2031 Notes 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 Company may determine in the future to repurchase portions of the outstanding 2031 Notes from time to time in accordance with applicable SEC and other legal requirements and in consideration of market and other conditions. See Note 15 - Long-Term Debt to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.

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Revolving Credit Facility

On December 28, 2023, we entered into a third amendment to our senior secured credit agreement (the “Third Amendment”), with Wells Fargo Bank, National Association, as administrative agent, Oscar Management Corporation, as a subsidiary guarantor and certain other lenders which amended the senior secured credit agreement, dated as of February 21, 2021 (as amended by the First Amendment to Credit Agreement, dated as of January 27, 2022, and as further amended by the Second Amendment to Credit Agreement, dated as of July 21, 2023, the “Credit Agreement” and as amended by the Third Amendment, the “Amended Credit Agreement”). The Amended Credit Agreement provides for a revolving loan credit facility in the aggregate principal amount of $115 million. The Revolving Credit Facility is guaranteed by Oscar Management Corporation, a wholly owned subsidiary of Oscar, and all of our future direct and indirect subsidiaries (in each case, subject to certain permitted exceptions, including exceptions for guarantees (i) that would require material governmental consents or (ii) in respect of joint ventures) (the "Guarantors"). Our Revolving Credit Facility is secured by a lien on substantially all of our and the Guarantors’ assets (subject to certain exceptions). Proceeds are to be used solely for general corporate purposes of the Company. The Revolving Credit Facility is available until December 2025, provided we are in compliance with all covenants.

The Revolving Credit Facility permits us to increase commitments under the Revolving Credit Facility by an aggregate amount not to exceed $50 million. The incurrence of any such incremental Revolving Credit Facility will be subject to the following conditions measured at the time of incurrence of such commitments: (i) no default or event of default, (ii) all representations and warranties must be true and correct in all material respects immediately prior to, and after giving effect to, the incurrence of such incremental Revolving Credit Facility, (iii) pro forma liquidity (as defined in the Revolving Credit Facility) of no less than $50 million less than the pro forma aggregate commitments after giving effect to the increase in commitments, and (iv) other conditions as agreed between the Borrower and the lender providing such incremental commitment.

As of December 31, 2023, there were no outstanding borrowings under the Revolving Credit Facility.

Interest Rate, Commitment Fees

The interest rate applicable to borrowings under our Revolving Credit Facility is determined as follows, at our option: (a) a rate per annum equal to an adjusted term secured overnight financing rate (“SOFR”) plus an applicable margin of 4.50% (SOFR is calculated based on one-, three- or six-month SOFR, or such other period as agreed by all relevant Lenders, which is determined by reference to the SOFR administrator’s website, but not less than 1.00%), or (b) a rate per annum equal to the Alternate Base Rate, as defined in the Revolving Credit Facility, plus the applicable margin of 3.50% (the Alternate Base Rate is equal to the highest of (i) the prime rate, (ii) the federal funds effective rate plus 0.50%, and (iii) SOFR based on a one-month interest period, plus 1.00%). A commitment fee of 0.50% per annum is payable under our Revolving Credit Facility on the actual daily unused portions of the Revolving Credit Facility.

The Revolving Credit Facility requires us to comply with certain restrictive covenants, including but not limited to covenants relating to limitations on indebtedness, liens, investments, loans and advances, restricted payments and restrictive agreements, mergers, consolidations, sale of assets and acquisitions, sale and leaseback transactions and affiliate transactions.

In addition, the Revolving Credit Facility contains financial covenants that require us to (i) maintain specified levels of direct policy premiums (as defined in the Revolving Credit Facility) for each fiscal quarter, (ii) maintain a minimum liquidity (as defined in the Revolving Credit Facility) of $50 million less than the aggregate commitments under the Revolving Credit Facility as of the last day of each fiscal quarter or, if the Revolving Credit Facility is drawn by more than 60%, as of the last day of any fiscal month, (iii) not exceed a maximum medical loss ratio (as defined in the Revolving Credit Facility) as of the last day of each quarter, and (iv) maintain minimum consolidated Adjusted EBITDA (as defined in the Revolving Credit Facility) as of the last day of each fiscal quarter. As of December 31, 2023, we were in compliance with all financial covenants under the Revolving Credit Facility.

Investments

We generally invest cash of our health insurance subsidiaries in U.S. treasury and agency securities. We primarily invest 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.

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 subsidiaries may invest.

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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 (loss) for our health insurance subsidiaries was $146.7 million and $25.8 million for the year ended December 31, 2023 and 2022, 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 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 loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period. The potential for a large claim under an insurance or reinsurance contract means that our health insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating cash flows.

The following table shows summary cash flows information for the periods indicated:

Operating Activities

Net cash provided by (used in) operating activities decreased $652.5 million to $272.2 million of cash used in operating activities for the year ended December 31, 2023, compared to $380.3 million provided by operating activities for the year ended December 31, 2022, primarily due to higher claims paid and higher risk adjustment transfer disbursements, offset by reinsurance recoverables.

Investing Activities

Net cash provided by (used in) investing activities increased $803.7 million to $577.2 million of cash provided by investing activities for the year ended December 31, 2023, compared to $226.5 million used for the year ended December 31, 2022. The increase was primarily due to the sale and maturity of securities within our investment portfolio and a decrease in purchases of securities.

Financing Activities

Net cash provided by financing activities decreased $294.7 million to $6.4 million for the year ended December 31, 2023 compared to $301.1 million for the year ended December 31, 2022. The decrease was primarily due to net proceeds received from the issuance of convertible senior notes due 2031 in February 2022.

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Critical Accounting Policies and Estimates

The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities in our financial statements. We regularly assess these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of benefits payable and risk adjustment. The impact of changes in estimates is recorded in the period in which they become known.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition, or operating performance. The accounting policies that reflect a significant level of estimation and that are most likely to have a material impact on our reported financial results are described below. Other accounting policies such as reinsurance, premium deficiency reserve, current expected credit loss allowance (“CECL”), stock-based compensation, and income taxes do not involve significant levels of uncertainty and are disclosed in Item 8, Financial Statements and Supplementary Data in this Annual Report on Form 10-K.

Benefits Payable

Benefits payable includes estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process) and other medical care expenses and services payable.

Our development of the benefits payable estimate is a continuous process which we monitor and refine on a monthly basis as additional claims receipts and payment information becomes available. As more complete claims information becomes available, we adjust the amount of the estimates and include the changes in estimates in medical costs in the period in which the changes are identified. In each reporting period, our operating results include the effects of more completely developed benefits payable estimates associated with previously reported periods. If the revised estimate of prior period healthcare claims is less than the previous estimate, we will decrease reported healthcare claims in the current period (favorable development). If the revised estimate of prior period healthcare claims is more than the previous estimate, we will increase reported healthcare costs in the current period (unfavorable development). Healthcare costs in the years ended December 31, 2023 and December 31, 2022 included unfavorable healthcare claim development related to prior years of $19.8 million (net of reinsurance) and $1.3 million (net of reinsurance), respectively.

In developing our benefits payable estimates, we apply different estimation methods depending on the month for which incurred claims are being estimated. For example, in recent months, we estimate claim costs incurred by applying assumed medical cost trends to the PMPM medical costs incurred in prior months for which more complete claim data is available, supplemented by a review of near-term completion factors. Additional consideration is also given to adjudicate claims that may reopen as a result of provider disputes.

Completion Factors

A completion factor is an actuarial estimate, based upon historical experience and analysis of current trends, of the percentage of incurred claims during a given period that have been adjudicated by us at the date of estimation. Completion factors are the most significant factors we use in developing our benefits payable estimates. For periods prior to the two most recent months, completion factors include judgments related to claim submissions such as the time from date of service to claim receipt, claim levels, and processing cycles, as well as other factors. If actual claims submission rates from providers (which can be influenced by a number of factors, including provider mix and electronic versus manual submissions) or our claim processing patterns are different than estimated, our reserve estimates may be significantly impacted. For the most recent two months, the completion factors are informed primarily from forecasted per member per month claims projections developed from our historical experience and adjusted by emerging experience data in the preceding months which may include adjustments for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and workday seasonality.

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The following table illustrates the sensitivity of the estimated potential impact on our benefits payable estimates gross of reinsurance, for those periods as of December 31, 2023 to an increase (decrease) in the underlying completion factors:

Management believes the amount of benefits payable is reasonable and adequate to cover our liability for unpaid claims as of December 31, 2023; however, actual claim payments may differ from established estimates as discussed above. Assuming a hypothetical 1% difference between our December 31, 2023 estimates of benefits payable and actual benefits payable, excluding any potential offsetting impact from premium rebates, net earnings for the year ended December 31, 2023 would have increased by approximately $116 million or decreased by approximately $109.5 million.

For more detail related to our medical claims expenses, see Note 2 - Summary of Significant Accounting Policies to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Risk Adjustment

The risk adjustment programs in the individual and small group markets we serve are designed to mitigate the potential impact of adverse selection and provide stability for health insurers.

The Company estimates the receivable or payable under the risk adjustment programs based on its estimated risk score compared to the state average risk score. The Company may record a receivable or payable as an adjustment to premium revenues to reflect the year-to-date impact of the risk adjustment based on its best estimate. The Company refines its estimate as new information becomes available.

Under the individual and small group risk adjustment program, each plan is assigned a risk score based upon demographic information and current year claims information related to its members. Plans with lower than average risk scores will generally pay into the pool, while plans with higher than average risk scores will generally receive distributions.

In the Medicare Advantage risk adjustment program, each member is assigned a risk score that reflects the member’s predicted health costs compared to an average member. Plans receive higher payments for members with higher risk scores than members with lower risk scores.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A."Risk Factors" of this Annual Report on Form 10-K. The following discussion and analysis does not include certain items related to the year ended December 31, 2020, including year-to-year comparisons between the year ended December 31, 2021 and the year ended December 31, 2020. For a comparison of our results of operations for the fiscal years ended December 31, 2021 and December 31, 2020, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

Overview

Oscar is the first health insurance company built around a full stack technology platform and a relentless focus on serving our members. We offer innovative and consumer-oriented health plans in the Individual, Small Group and Medicare Advantage markets. Our full stack technology platform has enabled arrangements with other payors and providers in which health plans and products are powered by our platform. As we continue to build and scale our technology, we may seek out additional opportunities to monetize our +Oscar platform.

Recent Developments, Trends and Other Factors Impacting Performance

+Oscar Arrangements

On January 19, 2023, we entered into a termination and settlement agreement with Health First Shared Services, Inc (“Health First”) under which we agreed (i) to terminate the administrative services agreement with Health First (the "HF Agreement") and transition services from +Oscar to Health First effective December 31, 2022, (ii) to provide run-off services through the end of 2023 and (iii) to forgo an immaterial amount of services revenue in exchange for a settlement and release on mutually agreeable terms.

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 MLR. Specifically, reinsurance is a financial arrangement under which the reinsurer agrees to cover a portion of our medical claims (ceded claims) in return for a portion of the premium (premiums ceded). 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.

Quota Share Reinsurance

We currently use quota share agreements to limit our risk and capital requirements, which has enabled us to grow while optimizing our use of capital. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums. Premiums for quota share reinsurance are based on a percentage of premiums earned before ceded reinsurance. Each quota share reinsurance agreement includes a ceding commission payment from the reinsurer to Oscar to cover administrative costs. To the extent ceded premiums exceed ceded claims and commissions, we typically receive an experience refund.

Because reinsurers are entitled to a portion of our premiums under our quota share reinsurance arrangements, changes in the amount of premiums ceded under these arrangements affect our revenue. Furthermore, reductions in the amount of premiums ceded under quota share reinsurance arrangements may result in an increase to our minimum capital and surplus requirements, and an increase in corresponding capital contributions by Holdco to our health insurance subsidiaries.

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The Company currently has quota share reinsurance arrangements with more than one counterparty with multiple state-level treaties. These arrangements are accounted for under both reinsurance accounting and deposit accounting. Our premiums ceded under quota share reinsurance agreements for the year ended December 31, 2022, as compared to the year ended December 31, 2021, are as follows:

XOL Reinsurance

We use XOL reinsurance to limit our exposure to large catastrophic risk from individual claims. Under XOL reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses in excess of a specified amount. The premium payable to the reinsurer is negotiated by the parties based on losses on an individual member in a given calendar year and their assessment of the amount of risk being ceded to the reinsurer. Under our XOL reinsurance contracts in 2022, the reinsurer is paid to cover claims related losses over a $750,000 attachment point, but the amount of the attachment point may change year over year based on a variety of factors.

Risk Adjustment

The risk adjustment programs in the Individual, Small Group, and Medicare Advantage 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 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 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. In the Individual and Small Group lines, there is a higher degree of uncertainty associated with estimates of risk transfers at the beginning of the policy year resulting from composition of the risk score being based on concurrent claim data. Furthermore, there is additional uncertainty for blocks of business that experience high growth compounded by the lack of credible experience data on the newly enrolling population. Actual risk adjustment calculations and transfers could materially differ from our assumptions.

Impact of COVID-19

The COVID-19 pandemic continues to evolve and have an impact on our business.

To date, we have experienced and may continue to experience changes in the utilization patterns of our members, as the pandemic continues to affect the United States, and our members continue to change the way they utilize care. We experienced depressed non-COVID-19 related medical costs as a result of the pandemic and as vaccination rates have increased nationally, members began to resume their utilization of healthcare including care that was deferred, resulting in increased medical claims expenses. However, this trend may reverse if COVID-19 variants continue to proliferate, or COVID-19 vaccines are not effective against new strains or become less effective over time. We also experienced, and may continue to experience, increased COVID-19 testing and treatment costs. We monitor external trends closely as these dynamics result in increased uncertainties around our expectations of both COVID-19 and non-COVID-19 related medical costs. We cannot accurately estimate the future net potential impact, positive or negative, to our medical claims expenses at this time.

Although the Biden Administration announced that the public health emergency (“PHE”) for COVID-19 will end on May 11, 2023, the duration, severity and full extent of the impact of this pandemic is unknown and the extent of the business disruption and financial impact depends on factors beyond our knowledge and control.

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Regulatory Update

In August 2022, Congress enacted the Inflation Reduction Act, which extended the APTCs under the American Rescue Plan Act for a three year period through the end of 2025. Furthermore, in October 2022, the Treasury Department issued a final rule to address the "family glitch" in the ACA, which relates to determining who is eligible for premium subsidies. In December 2022, Congress passed the omnibus spending bill which delinked the Medicaid continuous coverage from the PHE declaration, and imposed a date of April 1, 2023, for states to begin the Medicaid eligibility redetermination process. It is anticipated that the extension of the APTCs, the "family glitch" fix, and Medicaid redeterminations could lead to significant growth in the ACA marketplace.

As a result of the changing market dynamics following IFP market exits by certain carriers, the Company proactively engaged its regulators regarding options to manage its membership growth. Prior to Open Enrollment for 2023, the Company requested that regulators limit its membership growth in Florida above a certain threshold so that total membership across all markets would be within its previously announced target range of 900,000 to 1,100,000 members at the close of Open Enrollment, which the Company believed would enable it to prudently manage its capital position. Due to strong Open Enrollment performance, the threshold was met and the Company temporarily stopped accepting new members in Florida in the fourth quarter of 2022; however, current members were still able to re-enroll. For further information, see “Risk Factors — Risks Most Material to Us – Our business, financial condition, and results of operations may be harmed if we fail to execute our growth strategy and manage our growth effectively.”

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Financial Results Summary and Key Operating and Non-GAAP Financial Metrics

We regularly review a number of metrics, including the following key operating and non-GAAP financial metrics, 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.

Key Operating and Non-GAAP Financial Metrics

(1)Adjusted EBITDA is a non-GAAP measure. See “Adjusted EBITDA” below for a reconciliation to net loss, the most directly comparable U.S. GAAP measure, and for information regarding our use of Adjusted EBITDA.

Members

Members are defined as any individual covered by a health plan that we offer directly or through a co-branded arrangement. 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.

Membership increased 93% to 1,151,483 as of December 31, 2022, from 598,169 as of December 31, 2021. The increase is driven largely by strong retention and growth in core Individual markets during open enrollment, including in Florida, Georgia and Texas as well as growth in C+O products.

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Direct and Assumed Policy Premiums

Direct Policy Premiums are defined as the premiums collected from our members or from the federal government during the period indicated, before risk adjustment and reinsurance. These premiums include APTC, or premium subsidies, which are available to individuals and families with certain annual incomes. Assumed Policy Premiums are premiums we receive primarily as part of our reinsurance arrangement under our C+O small group plan offering. We believe Direct and Assumed Policy Premiums is an important metric to assess the growth of our individual and small group plan offerings going forward. Management also views Direct and Assumed Policy Premiums as a key operating metric because each of our MLR, InsuranceCo Administrative Expense Ratio, InsuranceCo Combined Ratio and Adjusted Administrative Expense Ratio are calculated on the basis of Direct and Assumed Policy Premiums. Direct and Assumed Policy Premiums increased 99.1% to $6.8 billion as of December 31, 2022 from $3.4 billion as of December 31, 2021, driven primarily by higher membership, rate increases, and mix shift to higher premium Silver plans.

Medical Loss Ratio

Medical loss ratio is calculated as set forth in the table below. Medical claims are total medical 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 risk sharing arrangements with certain of our providers. 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 health care of our members to the premiums before ceded reinsurance. MLRs in our existing products are subject to various federal and state minimum requirements. Below is a calculation of our MLR for the periods indicated.

(1)See Note 4 - Reinsurance to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a reconciliation of direct claims incurred to claims incurred, net appearing on the face of our statement of operations.

(2)Represents claims ceded to reinsurers pursuant to an excess of loss treaty, for which such reinsurers are financially liable. We use excess of loss reinsurance to limit the losses on individual claims of our members.

(3)Represents payments made by certain state-run reinsurance programs established subject to CMS approval under Section 1332 of the ACA.

(4)See Note 3 - Revenue Recognition to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of premiums before ceded reinsurance.

(5)Represents excess of loss insurance premiums paid.

MLR improved for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The improvement was primarily due to lower net COVID-19 related costs, pricing actions, and mix shifts in our member population and medical management actions, partially offset by the impact of prior period development.

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InsuranceCo Administrative Expense Ratio

InsuranceCo Administrative Expense Ratio is calculated as set forth in the table below. The ratio reflects the costs associated with running our combined insurance companies. We believe InsuranceCo Administrative Expense Ratio is useful to evaluate our ability to manage our expenses as a percentage of premiums before the impact of quota share reinsurance. Expenses necessary to run the insurance company are included in other insurance costs and federal and state assessments. These expenses include variable expenses paid to vendors and distribution partners, premium taxes and healthcare exchange fees, employee-related compensation, benefits, marketing costs, and other administrative expenses. The numerator and denominator in the calculation below reflect an adjustment to remove the impact of the Company’s quota share arrangements. Below is a calculation of our InsuranceCo Administrative Expense Ratio for the periods indicated.

(1)Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(7,205) for the year ended December 31, 2022.

(2)See Note 3 - Revenue Recognition to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of premiums before ceded reinsurance.

The InsuranceCo Administrative Expense Ratio improved for the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to operating expense leverage and scale efficiencies, partially offset by higher distribution expenses.

InsuranceCo Combined Ratio

InsuranceCo Combined Ratio is defined as the sum of MLR and InsuranceCo Administrative Expense Ratio. We believe this ratio best represents the core performance of the consolidated insurance business, prior to the impact of quota share and net investment income.

The InsuranceCo Combined Ratio improved for the year ended December 31, 2022 as compared to the year ended December 31, 2021, consistent with the improvement in the MLR and InsuranceCo Administrative Expense Ratio.

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Adjusted Administrative Expense Ratio

The Adjusted Administrative Expense Ratio is an operating ratio that reflects the Company’s total administrative expenses (“Total Administrative Expenses”), net of non-cash and non-recurring items (as adjusted, “Adjusted Administrative Expenses”), as a percentage of total revenue, including quota share reinsurance premiums ceded and excluding excess of loss reinsurance premiums ceded and non-recurring items (“Adjusted Total Revenue”). Total Administrative Expenses are calculated as Total Operating Expenses, excluding non-administrative insurance-based expenses and the impact of quota share reinsurance. Adjusted Administrative Expenses are Total Administrative Expenses, net of non-cash and non-recurring expense items. Adjusted Administrative Expenses exclude insurance-based expenses, non-cash expenses and non-recurring expenses. We believe Adjusted Administrative Expense Ratio is useful to evaluate our ability to manage our overall administrative expense base. This ratio also provides further clarity into our overall path to profitability. Below is a calculation of our Adjusted Administrative Expense Ratio for the periods indicated.

(1)Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(7,205) for the year ended December 31, 2022. The Company did not apply deposit accounting to its reinsurance contracts during the year ended December 31, 2021.

(2)Represents approximately $0.9 million of non-recurring expenses incurred in connection with the Company's initial public offering ("IPO") during the year ended December 31, 2021.

The Adjusted Administrative Expense Ratio improved for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The improvement was due to operating expense leverage and scale efficiencies, partially offset by distribution expenses.

Adjusted EBITDA

Adjusted EBITDA is defined as net loss for the Company and its consolidated subsidiaries before interest expense, income tax expense (benefit), depreciation and amortization as further adjusted for stock-based compensation, warrant contract expense, changes in the fair value of warrant liabilities, and other non-recurring items as described below. 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.

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Management uses Adjusted EBITDA:

•as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;

•for planning purposes, including the preparation of our internal annual operating budget and financial projections;

•to evaluate the performance and effectiveness of our operational strategies; and

•to evaluate our capacity to expand our business.

By providing this non-GAAP financial measure, together with a reconciliation to the most comparable U.S. GAAP measure, 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 loss or other financial statement data presented in our consolidated financial statements as indicators of financial performance.

(1)Represents (i) 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, (ii) warrant contract expense, and (iii) changes in the fair value of warrant liabilities.

(2)Represents debt extinguishment costs of $20.2 million incurred on the prepayment of our Term Loan (refer to Note 15 - Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K) and approximately $0.9 million of non-recurring expenses incurred in connection with the IPO during the year ended December 31, 2021.

Components of our Results of Operations

Premiums Before Ceded Reinsurance

Premiums before ceded reinsurance primarily consist of premiums received, or to be received, directly from our members or from CMS as part of the APTC program, net of the impact of our risk adjustment payable. Premiums before ceded reinsurance are generally impacted by the amount of risk sharing adjustments, our ability to acquire new members and retain existing members, and average size and premium rate of policies.

Reinsurance Premiums Ceded

Reinsurance premiums ceded represent the amount of premiums written that are ceded to reinsurers either through quota share agreements that pass risk transfer or XOL reinsurance. We enter into reinsurance agreements, in part, to limit our exposure to potential losses as well as to provide additional capacity for growth. Reinsurance premiums ceded are recognized over the reinsurance contract period in proportion to the period of risk covered. The volume of our reinsurance premiums ceded is impacted by the level of our premiums earned and any decision we make to increase or decrease limits, retention levels, and co-participations.

Administrative Services Revenue

Administrative services revenue includes income earned from administrative services performed as part of the +Oscar platform.

Investment Income and Other Revenue

Investment income (loss) and other revenue primarily includes interest earned and gains on our investment portfolio, along with sublease income.

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Claims Incurred, Net

Claims incurred, net primarily consists of both paid and unpaid medical expenses incurred to provide medical services and products to our members. Medical claims include fee-for-service claims, pharmacy benefits, capitation payments to providers, provider disputed claims and various other medical-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Medical claims are recognized in the period health care services are provided. Unpaid medical expenses include claims reported and in the process of being settled, but that have not yet been paid, as well as health care costs incurred but not yet reported to us, which are collectively referred to as benefits payable or claim reserves. The development of the claim reserve estimate is based on actuarial methodologies that consider underlying claim payment patterns, medical cost inflation, historical developments, such as claim inventory levels and claim receipt patterns, and other relevant factors. The methods for making such estimates and for establishing the resulting liability are continuously reviewed and any adjustments are reflected in the period determined. Claims incurred, net also reflects the net impact of our ceded reinsurance claims.

Other Insurance Costs

Other insurance costs primarily include distribution costs, including broker commissions, wages, benefits, marketing, rent, costs of software and hardware, unallocated claims adjustment expenses, and administrative costs associated with functions that are necessary to support our health insurance business. Such functions include, but are not limited to, member concierge services, claims processing, utilization management, and related health plan operations, actuarial, compliance and portions of information systems, legal and finance. This line item also includes ceding commissions we receive from our reinsurance partners, net of the impact of deposit accounting.

General and Administrative Expenses

General and administrative expenses primarily include wages, benefits, costs of software and hardware, and administrative costs for our corporate and technology functions. Such functions include, but are not limited to executive management, and portions of legal, finance and information systems, including product management and development.

Federal and State Assessments

Federal and state assessments represent non-income tax charges from federal and state governments, including but not limited to healthcare exchange user fees, premium taxes, franchise taxes, and other state and local non-premium related taxes.

Premium Deficiency Reserve Release

Premium deficiency reserve release is the year over year change in the premium deficiency reserve liability. Premium deficiency reserve liabilities are established when it is probable that expected future claims and maintenance expenses will exceed future premium and reinsurance recoveries on existing medical insurance contracts.

Interest Expense

Interest expense consists primarily of interest expense associated with our debt arrangements, including amortization of debt issuance costs and discounts and revolving credit facility fees.

Other Expenses (Income)

Other expenses (income) consists primarily of miscellaneous expenses or income that are not core to our operations, including profit sharing arrangements with our co-branded health plans and changes in the fair value of financial instruments.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists primarily of changes to our current and deferred federal and state tax assets and liabilities. Income taxes are recorded as deferred tax assets and deferred tax liabilities based on differences between the book and tax bases of assets and liabilities. Our deferred tax assets and liabilities are calculated by applying the current tax rates and laws to taxable years in which such differences are expected to reverse.

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Results of Operations

Year Ended December 31, 2022 compared to Year Ended December 31, 2021

The following table sets forth our results of operations for the periods indicated:

*NM - not meaningful

Premiums Before Ceded Reinsurance

Premiums before ceded reinsurance increased by $2.6 billion, or 97%, to $5.3 billion for the year ended December 31, 2022, from $2.7 billion for the year ended December 31, 2021. The increase was primarily due to higher membership driven largely by growth in the Individual line of business, as well as increases due to serving new C+O members and a mix shift towards higher premium plans. Oscar’s growth also reflects strong retention and growth in core markets during open enrollment, including in Florida, Georgia and Texas, despite having the lowest cost plan in only 8% of its markets.

Reinsurance Premiums Ceded

Reinsurance premiums ceded increased $581.4 million, or 66%, to $1.5 billion for the year ended December 31, 2022, from $882.0 million for the year ended December 31, 2021. The increase is driven by growth in premiums before ceded reinsurance discussed above.

Administrative Services Revenue

Administrative services revenue increased $55.7 million, or 1,032%, to $61.0 million for the year ended December 31, 2022, from $5.4 million for the year ended December 31, 2021. This increase was driven by the January 2022 launch of our arrangement with Health First, which has since been terminated.

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Investment Income and Other Revenue

Investment income and other revenue increased to $31.5 million, or 1,268%, for the year ended December 31, 2022, from $2.3 million for the year ended December 31, 2021, primarily due to changes in interest rates.

Claims Incurred, Net

Claims incurred, net, increased $1.7 billion, or 102%, to $3.3 billion for the year ended December 31, 2022, from $1.6 billion for the year ended December 31, 2021, which was primarily volume-driven due to growth in membership.

Other Insurance Costs

Other insurance costs increased $296.1 million, or 72%, to $706.4 million for the year ended December 31, 2022, from $410.4 million for the year ended December 31, 2021. The increase was primarily attributable to higher broker commissions and higher headcount, which were driven by the increase in membership.

General and Administrative Expenses

General and administrative expenses increased $44.7 million, or 17%, to $309.8 million for the year ended December 31, 2022, from $265.1 million for the year ended December 31, 2021. The increase was primarily attributable to higher headcount and other employee-related costs related to servicing the +Oscar business.

Federal and State Assessments

Federal and state assessments increased $142.4 million, or 102%, to $281.5 million for the year ended December 31, 2022, from $139.1 million for the year ended December 31, 2021, which was primarily due to membership growth.

Premium Deficiency Reserve Release

Premium deficiency reserve release decreased $30.3 million, for the year ended December 31, 2022, from $55.3 million for the year ended December 31, 2021. The change was due to the lower premium deficiency reserve established at the end of 2021 as compared to the reserve established at the end of 2020 as well as the lower premium deficiency reserve established at the end of 2022 as compared to the reserve established at the end of 2021.

Income Tax (Benefit) Provision

Our effective tax rate for the year ended December 31, 2022 and December 31, 2021 was approximately 0.09% and (0.15)%, respectively.

Liquidity and Capital Resources

Overview

We maintain liquidity at two levels of our corporate structure, through our health insurance subsidiaries and through Holdco, our consolidated subsidiaries excluding our regulated insurance subsidiaries.

The majority of the assets held by our health insurance subsidiaries is in the form of cash and cash equivalents and investments. As of December 31, 2022 and December 31, 2021, total cash and cash equivalents and investments held by our health insurance subsidiaries was $2.9 billion and $1.8 billion, respectively, of which $17.7 million and $17.0 million, respectively, was on deposit with regulators as required for statutory licensing purposes and are classified as restricted deposits on the balance sheet.

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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 $701.5 million and $474.8 million at December 31, 2022 and December 31, 2021, 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, such as the current macroeconomic environment, adverse securities and credit markets, including 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. For additional information on the steps we’ve taken to balance growth and our capital position, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments, Trends and Other Factors Impacting Performance—Regulatory Update.”

In the future, when our health insurance subsidiaries become profitable or if their levels of reserves and capital become excessive, we may make requests for dividends and distributions from our subsidiaries to fund our operations, which may or may not be approved by our regulators. For additional information see Risk Factors - Risk Related to our Business - If state regulators do not approve payments of dividends and distributions by our health insurance subsidiaries to us, we may not have sufficient funds to implement our business strategy.

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 year ended December 31, 2022 and 2021, Parent made $423.5 million and $540.9 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 insurance subsidiaries would have been required to hold approximately $446.8 million of additional capital as of December 31, 2022, 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 insurance subsidiary’s capital adequacy. For additional information on our capital contributions and reinsurance arrangements, see “Risk Factors – Risks Related to our Business – We utilize quota share reinsurance to reduce our capital and surplus requirements and protect against downside risk on medical claims. If regulators do not approve our reinsurance agreements for this purpose, or if we cannot negotiate renewals of our quota share arrangements on acceptable terms, or at all, enter into new agreements with reinsurers, or otherwise obtain capital through debt or equity financings, our capital position would be negatively impacted, and we could fall out of compliance with applicable regulatory requirements” and “Risk Factors – Risks Most Material to Us – Our business, financial condition, and results of operations may be harmed if we fail to execute our growth strategy and manage our growth effectively.”

Short-Term Cash Requirements

The majority of the assets held by Holdco are in the form of cash and cash equivalents and investments. As of December 31, 2022 and December 31, 2021, total cash and cash equivalents and investments held by Holdco was $342.0 million and $738.6 million, respectively, of which $9.8 million and $11.0 million was restricted for 2022 and 2021, respectively. Based on our current forecast, we believe the cash, and cash equivalents and investments held by Holdco, 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 and subsequent reinsurance receipts, can be significant. For example, during the third quarter of 2022, we made a payment through our health insurance subsidiaries of $783.8 million into the risk adjustment program for the 2021 policy year. Therefore, the timing of these payments can influence cash flows from operating activities in any given period which would have a negative impact on our operating cash flows.

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The Company’s cash requirements within the next twelve months include subsidiary capital infusions, Holdco expenses, and interest expenses. Payments into the risk adjustment program are made annually in the third quarter. We expect the cash required to meet these obligations to be primarily funded by cash available for general corporate use, funds primarily generated through equity or debt financing transactions, cash flows from current operations, and/or the realization of current assets, such as accounts receivable.

Long-Term Cash Requirements

Our long-term cash requirements under our various contractual obligations and commitments include:

•Operating leases. See Note 13 – Leases to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

•Interest payable. See Note 15 – Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of future payments.

•Noncontrolling interests. See Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail. We do not have any material required redemptions in the next twelve months.

We expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations.

Convertible Senior Notes

On January 27, 2022, we entered into an investment agreement (the “Investment Agreement”) pursuant to which we agreed to issue and sell $305.0 million in aggregate principal amount of 7.25% 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 transaction contemplated by the Investment Agreement closed on February 3, 2022 (the “Closing Date”). In connection with the issuance of the 2031 Notes, on February 3, 2022, we entered into an Indenture between us and U.S. Bank National Association, as trustee. The 2031 Notes 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 Company may determine in the future to repurchase portions of the outstanding 2031 Notes from time to time in accordance with applicable SEC and other legal requirements and in consideration of market and other conditions. See Note 15 - Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Revolving Credit Facility

On February 21, 2021, we entered into a senior secured credit agreement with Wells Fargo Bank, National Association as administrative agent, and certain other lenders for a revolving loan credit facility (the “Revolving Credit Facility”), in the aggregate principal amount of $200 million. The Revolving Credit Facility is guaranteed by Oscar Management Corporation (formerly Mulberry Management Corporation) and Oscar Management Corporation of Florida, each wholly owned subsidiaries of Oscar, and all of our future direct and indirect subsidiaries (subject to certain permitted exceptions, including exceptions for guarantees that would require material governmental consents or in respect of joint venture) (the "Guarantors"). Our Revolving Credit Facility is secured by a lien on substantially all of our and the Guarantors’ assets (subject to certain exceptions). Proceeds are to be used solely for general corporate purposes of the Company. The Revolving Credit Facility is available until February 2024, provided we are in compliance with all covenants.

The Revolving Credit Facility permits us to increase commitments under the Revolving Credit Facility by an aggregate amount not to exceed $50 million. The incurrence of any such incremental Revolving Credit Facility will be subject to the following conditions measured at the time of incurrence of such commitments: (i) no default or event of default, (ii) all representations and warranties must be true and correct in all material respects immediately prior to, and after giving effect to, the incurrence of such incremental Revolving Credit Facility and (iii) and any such conditions as agreed between the Borrower and the lender providing such incremental commitment.

As of December 31, 2022, there were no outstanding borrowings under the Revolving Credit Facility.

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Interest Rate, Commitment Fees

The interest rate applicable to borrowings under our Revolving Credit Facility is determined as follows, at our option: (a) a rate per annum equal to an adjusted London Inter-bank Offered Rate (“LIBOR”), plus an applicable margin of 4.50% (LIBOR is calculated based on one-, three- or six-month LIBOR, or such other period as agreed by all relevant Lenders, which is determined by reference to ICE Benchmark Administration Limited, but not less than 1.00%), or (b) a rate per annum equal to the Alternate Base Rate plus the applicable margin of 3.50% (the “Alternate Base Rate” is equal to the highest of (i) the prime rate, (ii) the federal funds effective rate plus 0.50%, and (iii) LIBOR based on a one-month interest period, plus 1.00%). A commitment fee of 0.50% per annum is payable under our Revolving Credit Facility on the actual daily unused portions of the Revolving Credit Facility. The Revolving Credit Facility also contains LIBOR replacement provisions in the event LIBOR becomes unavailable during the term of this facility.

The Revolving Credit Facility requires us to comply with certain restrictive covenants, including but not limited to covenants relating to limitations on indebtedness, liens, investments, loans and advances, restricted payments and restrictive agreements, mergers, consolidations, sale of assets and acquisitions, sale and leaseback transactions and affiliate transactions.

In addition, the Revolving Credit Facility contains financial covenants that require us to (i) maintain specified levels of direct policy premiums (as defined in the Revolving Credit Facility) for each fiscal quarter, (ii) maintain a minimum liquidity (as defined in the Revolving Credit Facility) of $150 million (or $200 million if the liquidity decreased by a specified amount over the prior six month period) as of the last day of each quarter, and (iii) not exceed a maximum combined ratio (as defined in the Revolving Credit Facility) of 108% for fiscal year 2022 and 102% for fiscal year 2023, in each case, as of the last day of each quarter. As of December 31, 2022, we were in compliance with all financial covenants under the Revolving Credit Facility.

Investments

We generally invest cash of our health insurance subsidiaries in U.S. treasury and agency securities. We primarily invest 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.

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 subsidiaries may invest. These investment policies require that our investments have final maturities of a maximum of three years from the settlement date. 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.

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 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 loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period. The potential for a large claim under an insurance or reinsurance contract means that our health insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating cash flows.

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The following table shows summary cash flows information for the periods indicated:

Operating Activities

Net cash provided by (used in) operating activities increased $562.1 million to $380.3 million for the year ended December 31, 2022, compared to $181.7 million used in operating activities for the year ended December 31, 2021, primarily due to membership growth, which resulted in increased premiums and accounts receivable and reinsurance recoverable under our quota share reinsurance program. Our risk adjustment transfer payable also increased as a result of membership growth and the health status of our members, who continue to have lower than average risk scores compared to the health status of other participants in ACA plans.

Investing Activities

Net cash used in investing activities decreased $548.0 million to $226.5 million for the year ended December 31, 2022, compared to $774.5 million for the year ended December 31, 2021. The decrease was primarily due to lower purchases of investments in 2022 compared to 2021.

Financing Activities

Net cash provided by financing activities decreased $937.6 million to $301.1 million for the year ended December 31, 2022, compared to $1.2 billion for the year ended December 31, 2021. The decrease was primarily due to net proceeds received from the sale of common stock during our IPO in March 2021, slightly offset by net proceeds received from the issuance of convertible notes in February 2022.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities in our financial statements. We regularly assess these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of benefits payable, reinsurance, premium deficiency reserve, risk adjustment, stock-based compensation, and income taxes. The impact of changes in estimates is recorded in the period in which they become known.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition, or operating performance. The accounting policies that reflect a significant level of estimation and that are most likely to have a material impact on our reported financial results are described below. Other significant accounting policies such as reinsurance, premium deficiency reserve, risk adjustment, stock-based compensation, and income taxes do not involve significant levels of uncertainty and are disclosed in Item 8, Financial Statements and Supplementary Data in this Annual Report on Form 10-K.

Benefits Payable

Benefits payable includes estimates of our obligations for health care services that have been rendered on behalf of members, but for which claims have either not yet been received or processed. Depending on the health care professional and type of service, the typical billing lag for services can be up to 90 days from the date of service. Approximately 90% of claims related to health care services are known and settled within 90 days from the date of service and substantially all within 12 months from the accepted claims submission.

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In each reporting period, our operating results include the effects of more completely developed benefits payable estimates associated with previously reported periods. If the revised estimate of prior period health care claims is less than the previous estimate, we will decrease reported health care claims in the current period (favorable development). If the revised estimate of prior period health care claims is more than the previous estimate, we will increase reported health care costs in the current period (unfavorable development). Health care costs in the years ended December 31, 2022 and December 31, 2021 included unfavorable health care claim development related to prior years of $1.3 million (net of reinsurance) and favorable development of $16.3 million (net of reinsurance), respectively.

In developing our benefits payable estimates, we apply different estimation methods depending on the month for which incurred claims are being estimated. For example, in recent months, we estimate claim costs incurred by applying assumed medical cost trends to the PMPM medical costs incurred in prior months for which more complete claim data is available, supplemented by a review of near-term completion factors. Additional consideration is also given to settled claims that may reopen as a result of provider disputes.

Completion Factors

A completion factor is an actuarial estimate, based upon historical experience and analysis of current trends, of the percentage of incurred claims during a given period that have been adjudicated by us at the date of estimation. Completion factors are the most significant factors we use in developing our benefits payable estimates. For periods prior to the two most recent months, completion factors include judgments related to claim submissions such as the time from date of service to claim receipt, claim levels, and processing cycles, as well as other factors. If actual claims submission rates from providers (which can be influenced by a number of factors, including provider mix and electronic versus manual submissions) or our claim processing patterns are different than estimated, our reserve estimates may be significantly impacted. For the most recent two months, the completion factors are informed primarily from forecasted per member per month claims projections developed from our historical experience and adjusted by emerging experience data in the preceding months which may include adjustments for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and workday seasonality.

The following table illustrates the sensitivity of the estimated potential impact on our benefits payable estimates gross of reinsurance, for those periods as of December 31, 2022 to an increase (decrease) in the underlying completion factors:

Management believes the amount of benefits payable is reasonable and adequate to cover our liability for unpaid claims as of December 31, 2022; however, actual claim payments may differ from established estimates as discussed above. Assuming a hypothetical 1% difference between our December 31, 2022 estimates of benefits payable and actual benefits payable, excluding any potential offsetting impact from premium rebates, net earnings for the year ended December 31, 2022 would have increased by approximately $83.3 million or decreased by approximately $78.8 million.

For more detail related to our medical claims expenses, see Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Risk Adjustment

The risk adjustment programs in the Individual, Small Group, and Medicare Advantage markets we serve are designed to mitigate the potential impact of adverse selection and provide stability for health insurers.

The Company estimates the receivable or payable under the risk adjustment programs based on its estimated risk score compared to the state average risk score. The Company may record a receivable or payable as an adjustment to premium revenues to reflect the year-to-date impact of the risk adjustment based on its best estimate. The Company refines its estimate as new information becomes available.

Under the Individual and Small Group risk adjustment program, each plan is assigned a risk score based upon demographic information and current year claims information related to its members. Plans with lower than average risk scores will generally pay into the pool, while plans with higher than average risk scores will generally receive distributions.

In the Medicare Advantage risk adjustment program, each member is assigned a risk score that reflects the member’s predicted health costs compared to an average member. Plans receive higher payments for members with higher risk scores than members with lower risk scores.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this Annual Report on Form 10-K. A discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019 has been reported previously in our final prospectus filed pursuant to Rule 424(b)(4) (File No. 333-252809), filed with the SEC on March 4, 2021, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

Oscar is the first health insurance company built around a full stack technology platform and a relentless focus on serving our members. We offer Individual & Family, Small Group and Medicare Advantage plans. We have also partnered with Cigna through the Cigna + Oscar partnership, which unites Oscar’s highly-differentiated member experience with Cigna’s broad provider networks, to exclusively serve the Small Group employer market. In April 2021, we launched +Oscar, our tech-driven platform designed to help provider and payor clients drive improved efficiency, growth and superior engagement with their members and patients. Through +Oscar, we provide services and access to our efficient, full-stack platform and health plan infrastructure to our clients, including our health insurance company subsidiaries, Cigna + Oscar and Health First Health Plans.

Recent Developments, Trends and Other Factors Impacting Performance

Initial Public Offering

On March 5, 2021, we completed our IPO, in which we issued and sold 36,391,946 shares of Class A common stock at the public offering price of $39.00 per share. We received aggregate net proceeds of $1.3 billion, after deducting underwriting discounts and commissions. For additional information, see Note 1 - Organization to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Growth Factors

During the year ended December 31, 2021, we experienced significant membership growth due to expansion in existing and new states and the 2021 Special Enrollment Periods. This increase was most significant in our Individual and Cigna + Oscar small group offerings. This growth has continued into 2022. During the 2022 Open Enrollment period, we entered into three new states and expanded our membership to over one million members as of January 31, 2022, driven largely by strong growth in our Individual plans and Cigna + Oscar small group offering.

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 MLR. Specifically, reinsurance is a financial arrangement under which the reinsurer agrees to cover a portion of our medical claims (ceded claims) in return for a portion of the premium (premiums ceded). Each quota share reinsurance agreement includes a ceding commission payment from the reinsurer to Oscar to cover administrative costs. We currently use quota share agreements to limit our risk and capital requirements, which has enabled us to grow while optimizing our use of capital. Premiums for quota share insurance are based on a percentage of premiums earned before ceded reinsurance. All premiums and claims ceded under the Company's quota share arrangements are shared proportionally with the reinsurers. For the year ended December 31, 2021, the Company was party to quota share reinsurance agreements, primarily with Axa France Vie. In 2022, we continued our reinsurance agreements with Axa France Vie and entered into new reinsurance agreements with Canada Life Assurance Company.

To the extent ceded premiums exceed ceded claims and commissions, we typically receive an experience refund. Reinsurance recoveries are recorded as a reduction to claims incurred, net. We entered into statutory trust agreements with Axa France Vie in compliance with the credit for reinsurance laws and regulations of the state of domicile of each ceding company in connection with reinsurance ceded to an unauthorized reinsurer. Each trust account is funded at 102% of the ceding entity’s health care costs incurred but not yet reported, or IBNR. Acceptable assets deposited into the trust accounts include cash, certificates of deposit, and instruments that are acceptable to the commissioner of the insurance department of the ceding entity’s state of domicile.

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The table below presents a summary of the percentage of premiums ceded under quota share reinsurance agreements:

(1)In May 2021, we terminated our 2021 quota share arrangements with Canada Life Assurance Company effective as of April 1, 2021.

Because reinsurers are entitled to a portion of our premiums under our quota share reinsurance arrangements, changes in the amount of premiums ceded under these arrangements affect our revenue. Furthermore, reductions in the amount of premiums ceded under quota share reinsurance arrangements may result in an increase to our minimum capital and surplus requirements, and an increase in corresponding capital contributions to our health insurance subsidiaries. Refer to “Liquidity and Capital Resources” for more information.

We also use excess of loss ("XOL") reinsurance to limit our exposure to large catastrophic risk from individual claims. Under our 2020 and 2021 XOL reinsurance contracts, the reinsurer is paid to cover claims related losses over a $500,000 and $750,000 attachment point, respectively. Our reinsurance treaties do not relieve us of our primary medical claims incurred obligations.

Risk Adjustment

The risk adjustment programs in the Individual, Small Group, and Medicare Advantage markets we serve are administered federally by 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. Plans with lower than average risk scores relative to the estimated market average risk score, when applied to the statewide average premium, will have a risk adjustment payable into the pool. Inversely, plans with higher than average risk scores relative to the estimated market average risk score, when applied to the statewide average premium, will have a risk adjustment receivable from the pool. We reevaluate our risk transfer estimates as new information and market data becomes available until we receive the final report from CMS in June of the following year.

Our risk transfer estimates are subject to a high degree of estimation and variability, and are affected by the relative risk of our members to that of other insurers. In the Individual and Small Group lines, there is a higher degree of uncertainty associated with estimates of risk transfers at the beginning of the policy year resulting from composition of the risk score being based on concurrent claim data. Furthermore, there is additional uncertainty for blocks of business that experience high growth compounded by the lack of credible experience data on the newly enrolling population. Actual risk adjustment calculations and transfers could materially differ from our assumptions.

Impact of COVID-19

The COVID-19 pandemic, including its effect on the macroeconomic environment, and the response of our local, state, and federal governments to contain and manage the virus, continues to have an impact on our business. In addition, continued COVID-19 care, testing and vaccine administration, and the risk of new COVID-19 variants (which may be more contagious or severe, or less responsive to treatment or vaccines) may also result in increased future medical costs and drive changes in the way members utilize healthcare.

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To date, we have experienced and may continue to experience changes in the utilization patterns of our members, as the pandemic continues to affect the United States, and our members continue to change the way they utilize care. We experienced depressed non-COVID-19 related medical costs as a result of the pandemic and as vaccination rates have increased nationally, members began to resume their utilization of healthcare including care that was deferred, resulting in increased medical claims expenses. However, this trend may reverse if vaccination rates stall, COVID-19 variants continue to proliferate, or COVID-19 vaccines are not effective against new strains or become less effective over time. During 2021, we also experienced, and may continue to experience, increased COVID-19 testing and treatment costs. We will be monitoring external trends closely as these dynamics result in increased uncertainties around our expectations of both COVID-19 and non-COVID-19 related medical costs. We cannot accurately estimate the future net potential impact, positive or negative, to our medical claims expenses at this time.

Overall measures to contain the COVID-19 outbreak may remain in place for a significant period of time, as certain geographic regions have experienced a resurgence of COVID-19 infections and new variants of COVID-19 that appear to be more transmissible have emerged. Although the number of people who have been vaccinated has been increasing, the duration and severity of this pandemic is unknown and the extent of the business disruption and financial impact depends on factors beyond our knowledge and control.

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Financial Results Summary and Key Operating and Non-GAAP Financial Metrics

We regularly review a number of metrics, including the following key operating and non-GAAP financial metrics, 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.

Key Operating and Non-GAAP Financial Metrics

(1)Adjusted EBITDA is a non-GAAP measure. See “Adjusted EBITDA” below for a reconciliation to net loss, the most directly comparable U.S. GAAP     measure, and for information regarding our use of Adjusted EBITDA.

Members

Members are defined as any individual covered by a health plan that we offer directly or through a co-branded arrangement. 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.

Membership increased 49% to 598,169 as of December 31, 2021, from 402,044 as of December 31, 2020. The increase is attributable to growth in Florida and Arizona, expansion into new markets, and growth within the Cigna+Oscar plan. Membership growth was also driven by the American Rescue Plan, which allowed for the creation of the 2021 Special Enrollment Periods, expanded APTC eligibility and increased APTC subsidies.

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Direct and Assumed Policy Premiums

Direct Policy Premiums are defined as the premiums collected from our members or from the federal government during the period indicated, before risk adjustment and reinsurance. These premiums include APTC, or premium subsidies, which are available to individuals and families with certain annual incomes.

Assumed Policy Premiums are premiums we receive primarily as part of our reinsurance arrangements under our Cigna+Oscar small group plan offering.

We previously presented Direct Policy Premiums as a key operating metric for the year ended December 31, 2020, and for each of the quarterly and year-to-date periods ended March 31, June 30 and September 30 during our 2021 fiscal year and the corresponding periods in our 2020 fiscal year, as we had received only insignificant Assumed Policy Premiums prior to the launch of our Cigna+Oscar small group plan offering for the 2021 plan year. We believe Direct and Assumed Policy Premiums is an important metric to assess the growth of our individual and small group plan offerings going forward. Management also views Direct and Assumed Policy Premiums as a key operating metric because each of our MLR, InsuranceCo Administrative Expense Ratio, InsuranceCo Combined Ratio and Adjusted Administrative Expense Ratio are calculated on the basis of Direct and Assumed Policy Premiums.

Direct and Assumed Policy Premiums increased for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase in Direct Policy Premiums was primarily attributable to the growth in our membership in existing and new states and by a shift towards higher premium plans.

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Medical Loss Ratio

Medical loss ratio is calculated as set forth in the table below. Medical claims are total medical 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 risk sharing arrangements with certain of our providers. 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 health care of our members to the premiums before ceded reinsurance. MLRs in our existing products are subject to various federal and state minimum requirements. Below is a calculation of our MLR for the periods indicated.

(1)See Note 4 - Reinsurance to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a reconciliation of direct claims incurred to claims incurred, net appearing on the face of our statement of operations.

(2)Represents claims ceded to reinsurers pursuant to an excess of loss treaty, for which such reinsurers are financially liable. We use excess of loss reinsurance to limit the losses on individual claims of our members.

(3)Represents payments made by certain state-run reinsurance programs established subject to CMS approval under Section 1332 of the ACA.

(4)See Note 3 - Premiums Earned to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of premiums before ceded reinsurance.

(5)Represents excess of loss insurance premiums paid.

(6)Represents adjustments for litigation settlements recognized during the year ended December 31, 2020 related to risk corridor and risk adjustment programs. Refer to Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

MLR increased for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was primarily driven by lower utilization in 2020 due to the COVID-19 pandemic, higher levels of utilization in 2021 resulting from both COVID-19-related and non-COVID-19-related costs and the impact of significant SEP membership growth.

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InsuranceCo Administrative Expense Ratio

InsuranceCo Administrative Expense Ratio is calculated as set forth in the table below. The ratio reflects the costs associated with running our combined insurance companies. We believe InsuranceCo Administrative Expense Ratio is useful to evaluate our ability to manage our expenses as a percentage of premiums before ceded quota share reinsurance. Expenses necessary to run the insurance company are included in other insurance costs and federal and state assessments. These expenses include variable expenses paid to vendors and distribution partners, premium taxes and healthcare exchange fees, employee-related compensation, benefits, marketing costs, and other administrative expenses. Below is a calculation of our InsuranceCo Administrative Expense Ratio for the periods indicated.

(1)See Note 3 - Premiums Earned to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of premiums before ceded reinsurance.

(2)Represents adjustments for litigation settlements recognized during the year ended December 31, 2020 related to risk corridor and risk adjustment programs. Refer to Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

The InsuranceCo Administrative Expense Ratio decreased for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The decrease was primarily driven by operating leverage and the repeal of the health insurance industry fee, partially offset by an increase in investments for our Medicare Advantage and our Cigna + Oscar offerings.

InsuranceCo Combined Ratio

InsuranceCo Combined Ratio is defined as the sum of MLR and InsuranceCo Administrative Expense Ratio. We believe this ratio best represents the current overall performance of our insurance business for activities that can be compared to peers. The InsuranceCo Combined Ratio remained flat for the year ended December 31, 2021.

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Adjusted Administrative Expense Ratio

The Adjusted Administrative Expense Ratio is an operating ratio that reflects the Company’s total administrative expenses (or “Total Administrative Expenses”), net of non-cash and non-recurring items (as adjusted, “Adjusted Administrative Expenses”), as a percentage of total revenue, including quota share reinsurance premiums ceded and excluding excess of loss reinsurance premiums ceded and non-recurring items (or “Adjusted Total Revenue”). Total Administrative Expenses are calculated as Total Operating Expenses, excluding non-administrative insurance-based expenses and ceding commissions. Adjusted Administrative Expenses are Total Administrative Expenses, net of non-cash and non-recurring expense items. We believe Adjusted Administrative Expenses is a useful measure of our administrative expenses, as it excludes insurance-based expenses, non-cash expenses and non-recurring expenses. We believe Adjusted Administrative Expense Ratio is useful to evaluate our ability to manage our overall administrative expense base. This ratio also provides further clarity into our overall path to profitability. Below is a calculation of our Adjusted Administrative Expense Ratio for the periods indicated.

(1)Represents approximately $0.9 million of non-recurring expenses incurred in connection with the IPO during the year ended December 31, 2021.

(2)Represents adjustments for litigation settlements recognized during the year ended December 31, 2020 related to risk corridor and risk adjustment programs. Refer to Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Adjusted EBITDA

Adjusted EBITDA is defined as net loss for the Company and its consolidated subsidiaries before interest expense, income tax (benefit) expense, depreciation and amortization as further adjusted for stock-based compensation, warrant contract expense, changes in the fair value of warrant liabilities, and other non-recurring items as described below. 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.

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Management uses Adjusted EBITDA:

•as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;

•for planning purposes, including the preparation of our internal annual operating budget and financial projections;

•to evaluate the performance and effectiveness of our operational strategies; and

•to evaluate our capacity to expand our business.

By providing this non-GAAP financial measure, together with a reconciliation to the most comparable U.S. GAAP measure, 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 loss or other financial statement data presented in our consolidated financial statements as indicators of financial performance.

(1)Represents (i) 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, (ii) warrant contract expense, and (iii) changes in the fair value of warrant liabilities.

(2)Represents debt extinguishment costs of $20.2 million incurred on the prepayment of our Term Loan (refer to Note 15 - Debt and Warrants to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K) and approximately $0.9 million of non-recurring expenses incurred in connection with the IPO during the year ended December 31, 2021.

(3)Represents adjustments for litigation settlements recognized during the year ended December 31, 2020 related to risk corridor and risk adjustment programs. Refer to Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Components of our Results of Operations

Premiums Before Ceded Reinsurance

Premiums before ceded reinsurance primarily consist of premiums received, or to be received, directly from our members or from CMS as part of the APTC program, net of the impact of our risk adjustment payable. Premiums before ceded reinsurance are generally impacted by the amount of risk sharing adjustments, our ability to acquire new members and retain existing members, and average size and premium rate of policies.

Reinsurance Premiums Ceded

Reinsurance premiums ceded represent the amount of premiums written that are ceded to reinsurers either through quota share or XOL reinsurance. We enter into reinsurance agreements, in part, to limit our exposure to potential losses as well as to provide additional capacity for growth. Reinsurance premiums ceded are recognized over the reinsurance contract period in proportion to the period of risk covered. The volume of our reinsurance premiums ceded is impacted by the level of our premiums earned and any decision we make to increase or decrease limits, retention levels, and co-participations.

Investment Income and Other Revenue

Investment income and other revenue primarily includes interest earned and gains on our investment portfolio, along with income earned from administrative services performed as part of the +Oscar platform.

Claims Incurred, Net

Claims incurred, net primarily consists of both paid and unpaid medical expenses incurred to provide medical services and products to our members. Medical claims include fee-for-service claims, pharmacy benefits, capitation payments to

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providers, provider disputed claims and various other medical-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Medical claims are recognized in the period health care services are provided. Unpaid medical expenses include claims reported and in the process of being settled, but that have not yet been paid, as well as health care costs incurred but not yet reported to us, which are collectively referred to as benefits payable or claim reserves. The development of the claim reserve estimate is based on actuarial methodologies that consider underlying claim payment patterns, medical cost inflation, historical developments, such as claim inventory levels and claim receipt patterns, and other relevant factors. The methods for making such estimates and for establishing the resulting liability are continuously reviewed and any adjustments are reflected in the period determined. Claims incurred, net also reflects the net impact of our ceded reinsurance claims.

Other Insurance Costs

Other insurance costs primarily include distribution costs, wages, benefits, marketing, rent, costs of software and hardware, unallocated claims adjustment expenses, and administrative costs associated with functions that are necessary to support our health insurance business and are net of ceding commissions we receive from our reinsurance partners. Such functions include, but are not limited to, member concierge services, claims processing, utilization management, and related health plan operations, actuarial, compliance and portions of information systems, legal and finance.

General and Administrative Expenses

General and administrative expenses primarily include wages, benefits, costs of software and hardware, and administrative costs for our corporate and technology functions. Such functions include, but are not limited to executive management, and portions of legal, finance and information systems, including product management and development.

Federal and State Assessments

Federal and state assessments represent non-income tax charges from federal and state governments, including but not limited to healthcare exchange user fees, premium taxes, franchise taxes, and other state and local non-premium related taxes.

Health Insurance Industry Fee

The ACA includes an annual, nondeductible insurance industry tax that was levied proportionally across the insurance industry for risk-based health insurance products, which we were subject to in 2020. Beginning in 2021, the HIF has been permanently repealed.

Premium Deficiency Reserve Release

Premium deficiency reserve release is the year over year change in the premium deficiency reserve liability. Premium deficiency reserve liabilities are established when it is probable that expected future claims and maintenance expenses will exceed future premium and reinsurance recoveries on existing medical insurance contracts without consideration of investment income.

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Results of Operations

Year Ended December 31, 2021 compared to Year Ended December 31, 2020

The following table sets forth our results of operations for the periods indicated:

*NM - not meaningful

Premiums Before Ceded Reinsurance

Premiums before ceded reinsurance increased by $1,040.6 million, or 62%, to $2,713.0 million for the year ended December 31, 2021, from $1,672.3 million for the year ended December 31, 2020. This increase was primarily driven by an increase in direct and assumed premiums due to higher membership in existing markets driven by growth in the Open Enrollment Period and as a result of the creation of the 2021 Special Enrollment Periods, expansion into new markets, and a mix shift towards higher premium plans. Premiums before ceded reinsurance incorporates our estimated risk adjustment payable required under the ACA program, which represents approximately 21% and 27% of direct and assumed policy premiums for the years ended December 31, 2021 and 2020, respectively.

Reinsurance Premiums Ceded

Reinsurance premiums ceded decreased $335.3 million, or 28%, to $882.0 million for the year ended December 31, 2021, from $1,217.3 million for the year ended December 31, 2020. The decrease was primarily driven by a decrease in average quota share cession rates from 77% for the year ended December 31, 2020 to 34% for the year ended December 31, 2021.

Claims Incurred, Net

Claims incurred, net, increased $1,314.6 million, or 425%, to $1,624.0 million for the year ended December 31, 2021, from $309.4 million for the year ended December 31, 2020, which was primarily due to higher claims volume from increases in membership compared to the prior year, increased COVID-19 costs, increased non-COVID-19 healthcare costs as a result of lower utilization in 2020 due to the COVID-19 pandemic, and a decrease in quota share reinsurance.

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Other Insurance Costs

Other insurance costs increased $193.8 million, or 90%, to $410.4 million for the year ended December 31, 2021, from $216.5 million for the year ended December 31, 2020. The increase was primarily attributable to distribution fees including broker commissions and exchange fees, vendor costs, and the introduction of the Cigna + Oscar business, which began in the fourth quarter of 2020. A decrease in reinsurance commissions resulting from a decrease in quota share reinsurance also contributed to higher other insurance costs. Additionally, stock-based compensation expense contributed to the increase due to the issuance of new equity incentive awards with higher valuations.

General and Administrative Expenses

General and administrative expenses increased $98.4 million, or 59%, to $265.1 million for the year ended December 31, 2021, from $166.7 million for the year ended December 31, 2020. The increase was attributable to headcount-related growth to support strategic partnerships, platform technologies and costs to support requirements to operate as a public company. Stock-based compensation expense also contributed to the increase due to the issuance of new equity incentive awards with higher valuations.

Federal and State Assessments

Federal and state assessments increased $57.6 million, or 71%, to $139.1 million for the year ended December 31, 2021, from $81.5 million for the year ended December 31, 2020, which was primarily due to higher healthcare exchange fees and premium taxes driven by membership and premium increases.

Health Insurance Industry Fee

The health insurance industry fee has been repealed in 2021. The fee incurred for the year ended December 31, 2020 was $19.3 million.

Premium Deficiency Reserve Release

Premium deficiency reserve release decreased $127.1 million, for the year ended December 31, 2021, from a net expense of $71.8 million for the year ended December 31, 2020. The improvement was driven by a higher premium deficiency reserve balance at December 31, 2020, resulting in higher amortization.

Liquidity and Capital Resources

Overview

We maintain liquidity at two levels of our corporate structure, through our health insurance subsidiaries and through Holdco, our consolidated subsidiaries excluding our regulated insurance subsidiaries.

The majority of the assets held by our health insurance subsidiaries are in the form of cash and cash equivalents and investments. As of December 31, 2021 and December 31, 2020, total cash and cash equivalents and investments held by our health insurance subsidiaries was $1.8 billion and $1.3 billion, respectively, of which $17.0 million and $16.8 million, respectively, was on deposit with regulators as required for statutory licensing purposes and are classified as restricted deposits on the balance sheet.

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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 $474.8 million and $199.1 million at December 31, 2021 and December 31, 2020, 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 Holdco to maintain minimum levels. Our health insurance subsidiaries also utilize quota share reinsurance arrangements to manage our risk, which reduces our minimum capital and surplus requirements, enabling us to efficiently deploy capital to fund our growth. During the year ended December 31, 2021 and 2020, Holdco made $540.9 million and $366.2 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 insurance subsidiaries would have been required to hold approximately $147.9 million of additional capital as of December 31, 2021, which Holdco 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 insurance subsidiary’s capital adequacy. For additional information on our capital contributions, see “Risk Factors—Risks Related to Our Business—If state regulators do not approve payments of dividends and distributions by our subsidiaries to us, we may not have sufficient funds to implement our business strategy.”

Short-Term Cash Requirements

The majority of the assets held by Holdco are in the form of cash and cash equivalents and investments. As of December 31, 2021 and December 31, 2020, total cash and cash equivalents and investments held by Holdco was $738.6 million and $273.7 million, respectively, of which $11.0 million and $9.7 million was restricted for 2021 and 2020, respectively. We believe the cash, and cash equivalents and investments held by Holdco, not including restricted cash, will be sufficient to fund our operating requirements for no less than 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 and subsequent reinsurance receipts, can be significant. For example, during the third quarter of 2021, our insurance subsidiaries made payments of $461.8 million into the risk adjustment program for the 2020 policy year. Therefore, their timing can influence cash flows from operating activities in any given period which would have a negative impact on our operating cash flows.

The Company’s cash requirements within the next twelve months include subsidiary capital infusions, Holdco expenses, and interest expenses. Payments into the risk adjustment program are made annually in the third quarter. We expect the cash required to meet these obligations to be primarily funded by cash available for general corporate use, funds primarily generated through equity or debt financing transactions, cash flows from current operations, and the realization of current assets, such as accounts receivable.

Long-Term Cash Requirements

Our long-term cash requirements under our various contractual obligations and commitments include:

•Operating leases. See Note 13 of the Notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

•Noncontrolling interests. See Note 5 of the Notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail. We do not have any material required redemptions in the next twelve months.

We expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations. However, we also have the ability to generate cash to satisfy both our current and long-term requirements through increased commitments under the Revolving Credit Facility. We believe our capital resources are sufficient to meet future short-term and long-term liquidity needs.

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Term Loan Facility

On October 30, 2020, we entered into the term loan credit agreement with HPS Investment Partners, LLC, as administrative agent, and certain other lenders for the term loan facility (the "Term Loan Facility"), in the aggregate principal amount of $150 million. In connection with the IPO, we repaid in full outstanding borrowings, including fees and expenses, under our Term Loan Facility, including a prepayment premium equal to 6.50% of the principal amount of the Term Loan Facility plus accrued and unpaid interest through the six-month anniversary of the closing date of the Term Loan Facility. For additional information regarding the Term Loan Facility, see Note 15 - Debt and Warrants of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revolving Credit Facility

On February 21, 2021, we entered into a senior secured credit agreement, with Wells Fargo Bank, National Association as administrative agent, and certain other lenders for a revolving loan credit facility (the "Revolving Credit Facility") in the aggregate principal amount of $200 million. The Revolving Credit Facility is guaranteed by Oscar Management Corporation (formerly Mulberry Management Corporation), a wholly owned subsidiary of Oscar, and all of our future direct and indirect subsidiaries (subject to certain permitted exceptions, including exceptions for guarantees that would require material governmental consents or in respect of joint venture) (the "Guarantors"). Our Revolving Credit Facility is secured by a lien on substantially all of our and the Guarantors’ assets (subject to certain exceptions). Proceeds are to be used solely for general corporate purposes of the Company. The Revolving Credit Facility is available until February 2024, provided we are in compliance with all covenants.

The Revolving Credit Facility permits us to increase commitments under the Revolving Credit Facility by an aggregate amount not to exceed $50 million. The incurrence of any such incremental Revolving Credit Facility will be subject to the following conditions measured at the time of incurrence of such commitments: (i) no default or event of default, (ii) all representations and warranties must be true and correct in all material respects immediately prior to, and after giving effect to, the incurrence of such incremental Revolving Credit Facility and (iii) and any such conditions as agreed between the Borrower and the lender providing such incremental commitment.

As of December 31, 2021, there were no outstanding borrowings under the Revolving Credit Facility.

Interest Rate, Commitment Fees

The interest rate applicable to borrowings under our Revolving Credit Facility is determined as follows, at our option: (a) a rate per annum equal to the Adjusted LIBO Rate plus an applicable margin of 4.50% (Adjusted London Interbank Offered Rate, or LIBO rate, is calculated based on one-, three- or six-month LIBO rates, or such other period as agreed by all relevant Lenders, which is determined by reference to ICE Benchmark Administration Limited, but not less than 1.00%), or (b) a rate per annum equal to the Alternate Base Rate plus the applicable margin of 3.50% (the Alternate Base Rate is equal to the highest of (i) the prime rate, (ii) the federal funds effective rate plus 0.50%, and (iii) the Adjusted LIBO Rate based on a one-month interest period, plus 1.00%). A commitment fee of 0.50% per annum is payable under our Revolving Credit Facility on the actual daily unused portions of the Revolving Credit Facility. The Revolving Credit Facility also contains LIBO rate replacement provisions in the event LIBO rate becomes unavailable during the term of this facility.

The Revolving Credit Facility requires us to comply with certain restrictive covenants, including but not limited to covenants relating to limitations on indebtedness, liens, investments, loans and advances, restricted payments and restrictive agreements, mergers, consolidations, sale of assets and acquisitions, sale and leaseback transactions and affiliate transactions.

In addition, the Revolving Credit Facility contains financial covenants that require us to maintain specified levels of direct policy premiums and liquidity and require compliance with a maximum combined ratio.

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Convertible Senior Notes

On January 27, 2022, we entered into an investment agreement (the “Investment Agreement”) pursuant to which we agreed to issue and sell $305 million in aggregate principal amount of our 7.25% Convertible Senior Notes due 2031 (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”). The transaction contemplated by the Investment Agreement closed on February 3, 2022 (the “Closing Date”). In connection with the issuance of the 2031 Notes, on February 3, 2022, we entered into an indenture (the “Indenture”) between us and U.S. Bank National Association, as trustee. The 2031 Notes 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 are our senior, unsecured obligations and are (i) equal in right of payment with our existing and future senior, unsecured indebtedness; (ii) senior in right of payment to our existing and future indebtedness that is expressly subordinated to the 2031 Notes; (iii) effectively subordinated to our existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.

The 2031 Notes may be converted, subject to certain conditions, at an initial conversion price of approximately $8.32 (subject to customary adjustments), which reflects a 38% premium to the price of our Class A common stock as of the close of business on January 26, 2022. Upon conversion, the 2031 Notes will be settled, at our 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. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. Upon the occurrence of a fundamental change (as defined in the Indenture), holders of the 2031 Notes have the right to require us to repurchase all or some of their 2031 Notes for cash, subject to certain conditions. The repurchase price will be equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. The 2031 Notes have a stated maturity of December 31, 2031, subject to earlier conversion, redemption or repurchase in accordance with their terms. Additionally, pursuant to the Investment Agreement, after the fifth anniversary of the Closing Date, the initial Purchasers of the 2031 Notes have the right to require the Company to repurchase all of their Notes for cash, on each of June 30, 2027, June 30, 2028, June 30, 2029 and June 30, 2030 (each, a “Repurchase Date”), subject to certain notice requirements as described in the Investment Agreement.

We may not redeem the 2031 Notes prior to December 31, 2026. We may redeem all, but not less than all, of the 2031 Notes, at our option, on or after December 31, 2026 and on or before the 35th scheduled trading day immediately preceding the maturity date, for a cash purchase price equal to the redemption price, but only if the last reported sale price per share of Class A common stock exceeds 200% of the conversion price on each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date on which we send the redemption notice for such redemption. The redemption price will be a cash amount equal to the principal amount of the 2031 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

The 2031 Notes include customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), as well as customary covenants for convertible notes of this type, including restrictions on our ability to refinance our indebtedness and incur additional indebtedness.

Investments

Holdco and our health insurance subsidiaries generally hold investments in U.S. Treasury and agency securities. Holdco also invests in investment-grade, marketable debt securities to improve our overall investment return. These investments are purchased pursuant to board approved investment policies which conform to applicable state laws and regulations.

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 subsidiaries may invest. These investment policies require that our investments have final maturities of a maximum of three years from the settlement date. 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 where the loss position of those investments exceeds certain levels.

Our restricted investments principally include cash and cash equivalents and U.S. Treasury securities; we have the ability to hold such restricted investments until maturity. We maintain cash and cash equivalents and investments on deposit or

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pledged to various state agencies as a condition for licensure. We classify our restricted assets as long-term given the requirement to maintain such assets on deposit with regulators.

Summary of Cash Flows

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 loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period. The potential for a large claim under an insurance or reinsurance contract means that our health insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating cash flows.

The following table shows summary cash flows information for the periods indicated:

Operating Activities

Net cash used in operating activities increased $404.5 million to $181.7 million for the year ended December 31, 2021, compared to $222.7 million provided by operating activities for the year ended December 31, 2020, primarily due to an increase in net loss for the year ended December 31, 2021, as well as cash paid into the risk adjustment program during the year ended December 31, 2021. Our risk adjustment transfer payable increased as a result of membership growth and the health status of our members, who continue to have lower than average risk scores compared to the health status of other participants in ACA plans. Additionally, the change in receivables due from reinsurance programs resulting from decreases in our quota share reinsurance program contributed to the cash used in operating cash flows.

Investing Activities

Net cash used in investing activities increased to $774.5 million for the year ended December 31, 2021, compared to $344.7 million for the year ended December 31, 2020, an increase of $429.8 million. The increase was primarily due to the use of a portion of our IPO proceeds to fund the growth of the investment portfolio, as increased purchases more than offset sales and maturity of investments.

Financing Activities

Net cash provided by financing activities increased to $1.2 billion for the year ended December 31, 2021, compared to $611.7 million for the year ended December 31, 2020. The increase was primarily due to net proceeds of $1.3 billion from the sale of common stock during our IPO, a portion of which was used to repay in full the outstanding balance of the Term Loan.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities in our financial statements. We regularly assess these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of benefits payable, reinsurance, premium deficiency reserve, risk adjustment, stock-based compensation, and income taxes. The impact of changes in estimates is recorded in the period in which they become known.

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An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition, or operating performance. The accounting policies that reflect a significant level of estimation and that are most likely to have a material impact on our reported financial results are described below. Other significant accounting policies such as reinsurance, premium deficiency reserve, risk adjustment, stock-based compensation, and income taxes do not involve significant levels of uncertainty and are disclosed in Item 8, Financial Statements and Supplementary Data in this Annual Report on Form 10-K.

Benefits Payable

Benefits payable includes estimates of our obligations for health care services that have been rendered on behalf of members, but for which claims have either not yet been received or processed. Depending on the health care professional and type of service, the typical billing lag for services can be up to 90 days from the date of service. Approximately 90% of claims related to health care services are known and settled within 90 days from the date of service and substantially all within 12 months from the accepted claims submission.

In each reporting period, our operating results include the effects of more completely developed benefits payable estimates associated with previously reported periods. If the revised estimate of prior period health care claims is less than the previous estimate, we will decrease reported health care claims in the current period (favorable development). If the revised estimate of prior period health care claims is more than the previous estimate, we will increase reported health care costs in the current period (unfavorable development). Health care costs in the years ended December 31, 2021 and December 31, 2020 included favorable health care claim development related to prior years of $16.0 million (net of reinsurance) and unfavorable development of $1.0 million (net of reinsurance), respectively.

In developing our benefits payable estimates, we apply different estimation methods depending on the month for which incurred claims are being estimated. For example, in recent months, we estimate claim costs incurred by applying assumed medical cost trends to the PMPM medical costs incurred in prior months for which more complete claim data is available, supplemented by a review of near-term completion factors. Additional consideration is also given to settled claims that may reopen as a result of provider disputes.

Completion Factors

A completion factor is an actuarial estimate, based upon historical experience and analysis of current trends, of the percentage of incurred claims during a given period that have been adjudicated by us at the date of estimation. Completion factors are the most significant factors we use in developing our benefits payable estimates. For periods prior to the two most recent months, completion factors include judgments related to claim submissions such as the time from date of service to claim receipt, claim levels, and processing cycles, as well as other factors. If actual claims submission rates from providers (which can be influenced by a number of factors, including provider mix and electronic versus manual submissions) or our claim processing patterns are different than estimated, our reserve estimates may be significantly impacted. For the most recent two months, the completion factors are informed primarily from forecasted per member per month claims projections developed from our historical experience and adjusted by emerging experience data in the preceding months which may include adjustments for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and workday seasonality.

The following table illustrates the sensitivity of the estimated potential impact on our benefits payable estimates gross of reinsurance, for those periods as of December 31, 2021 to an increase (decrease) in the underlying completion factors:

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Management believes the amount of benefits payable is reasonable and adequate to cover our liability for unpaid claims as of December 31, 2021; however, actual claim payments may differ from established estimates as discussed above. Assuming a hypothetical 1% difference between our December 31, 2021 estimates of benefits payable and actual benefits payable, excluding any potential offsetting impact from premium rebates, net earnings for the year ended December 31, 2021 would have increased by approximately $49.1 million or decreased by approximately $48.1 million.

For more detail related to our medical claims expenses, see Note 2 - Summary of Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.