# Oscar Health, Inc. (OSCR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Oscar Health, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1568651/000156865124000006/oscr-20231231.htm
Accession: 0001568651-24-000006
Filing date: 2024-02-15
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/OSCR/
All MD&A years: /company/OSCR/mda/
Previous year: /company/OSCR/mda/fy2022/ (FY 2022)
Next year: /company/OSCR/mda/fy2024/ (FY 2024)

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:

[[GREPCENT_TABLE]]
[["","Page"],["Overview","54"],["Recent Developments, Trends and Other Factors Impacting Performance","55"],["Financial Results Summary and Key Operating and Non-GAAP Financial Metrics","57"],["Components of our Results of Operations","61"],["Results of Operations","63"],["Liquidity and Capital Resources","65"],["Summary of Cash Flows","68"],["Critical Accounting Policies and Estimates","69"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Financial Results Summary"],["","Year Ended December 31,"],["(in thousands)","2023","","2022"],["Premiums before ceded reinsurance","$","5,696,978","","","$","5,334,520"],["Reinsurance premiums ceded","(10,909)","","","(1,463,403)"],["Premiums earned","$","5,686,069","","","$","3,871,117"],["Total revenue","$","5,862,869","","","$","3,963,638"],["Total operating expenses","$","6,098,484","","","$","4,553,505"],["Net loss","$","(270,594)","","","$","(609,552)"]]
[[/GREPCENT_TABLE]]

Key Operating and Non-GAAP Financial Metrics

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands, except percentages and members)","2023","","2022"],["Members","1,036,283","","","1,151,483"],["Direct and Assumed Policy Premiums","$","6,647,658","","","$","6,842,439"],["Medical Loss Ratio","81.6","%","","85.3","%"],["InsuranceCo Administrative Expense Ratio","17.9","%","","20.6","%"],["InsuranceCo Combined Ratio","99.5","%","","105.8","%"],["Adjusted Administrative Expense Ratio","21.0","%","","24.6","%"],["Adjusted EBITDA(1)","$","(45,238)","","","$","(462,255)"]]
[[/GREPCENT_TABLE]]

(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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands, except percentages)","2023","","2022"],["Direct claims incurred before ceded reinsurance (1)","$","4,459,702","","","$","4,428,000"],["Assumed reinsurance claims","227,058","","","143,147"],["Excess of loss ceded claims (2)","(3,117)","","","(18,632)"],["State reinsurance (3)","(43,676)","","","(30,544)"],["Net claims before ceded quota share reinsurance (A)","$","4,639,967","","","$","4,521,971"],["Premiums before ceded reinsurance (4)","$","5,696,978","","","$","5,334,520"],["Excess of loss reinsurance premiums (5)","(8,698)","","","(31,502)"],["Net premiums before ceded quota share reinsurance (B)","$","5,688,280","","","$","5,303,018"],["Medical Loss Ratio (A divided by B)","81.6","%","","85.3","%"]]
[[/GREPCENT_TABLE]]

(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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands, except percentages)","2023","","2022"],["Other insurance costs","$","824,457","","","$","706,439"],["Impact of quota share reinsurance(1)","(30,454)","","","154,741"],["Stock-based compensation expense","(66,060)","","","(51,495)"],["Federal and state assessment of health insurance subsidiaries","289,647","","","281,049"],["Health insurance subsidiary adjusted administrative expenses (A)","$","1,017,590","","","$","1,090,734"],["Premiums before ceded reinsurance (2)","$","5,696,978","","","$","5,334,520"],["Excess of loss reinsurance premiums","(8,698)","","","(31,502)"],["Net premiums before ceded quota share reinsurance (B)","$","5,688,280","","","$","5,303,018"],["InsuranceCo Administrative Expense Ratio (A divided by B)","17.9","%","","20.6","%"]]
[[/GREPCENT_TABLE]]

(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.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","2022"],["Medical Loss Ratio","","81.6","%","","85.3","%"],["InsuranceCo Administrative Expense Ratio","","17.9","%","","20.6","%"],["InsuranceCo Combined Ratio","","99.5","%","","105.8","%"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(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.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands)","2023","","2022","","$ Change","","% Change"],["Revenue"],["Premiums before ceded reinsurance","$","5,696,978","","","$","5,334,520","","","$","362,458","","","7","%"],["Reinsurance premiums ceded","(10,909)","","","(1,463,403)","","","1,452,494","","","*NM"],["Premiums earned","5,686,069","","","3,871,117","","","1,814,952","","","47","%"],["Administrative services revenue","15,442","","","61,047","","","(45,605)","","","(75)","%"],["Investment income and other revenue","161,358","","","31,474","","","129,884","","","413","%"],["Total revenue","5,862,869","","","3,963,638","","","1,899,231","","","48","%"],["Operating Expenses:"],["Claims incurred, net","4,642,024","","","3,280,798","","","1,361,226","","","41","%"],["Other insurance costs","824,457","","","706,439","","","118,018","","","17","%"],["General and administrative expenses","339,716","","","309,783","","","29,933","","","10","%"],["Federal and state assessments","290,725","","","281,518","","","9,207","","","3","%"],["Premium deficiency reserve (release)","1,562","","","(25,033)","","","26,595","","","*NM"],["Total operating expenses","6,098,484","","","4,553,505","","","1,544,979","","","34","%"],["Loss from operations","(235,615)","","","(589,867)","","","354,252","","","(60)","%"],["Interest expense","24,603","","","22,623","","","1,980","","","9","%"],["Other expenses (income)","7,082","","","(2,415)","","","9,497","","","*NM"],["Loss before income taxes","(267,300)","","","(610,075)","","","342,775","","","(56)","%"],["Income tax expense (benefit)","3,294","","","(523)","","","3,817","","","*NM"],["Net loss","$","(270,594)","","","$","(609,552)","","","$","338,958","","","(56)","%"]]
[[/GREPCENT_TABLE]]

*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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands)","2023","","2022","","Change"],["Net cash provided by (used in) operating activities","$","(272,159)","","","$","380,349","","","$","(652,508)"],["Net cash provided by (used in) investing activities","577,187","","","(226,519)","","","803,706"],["Net cash provided by financing activities","6,446","","","301,110","","","(294,664)"],["Net increase in cash and cash equivalents and restricted cash equivalents","$","311,474","","","$","454,940","","","$","(143,466)"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["Changes in Estimates","Increase (Decrease) in Benefits Payable (in thousands)"],["(1.00)%","$","116,012"],["(0.75)%","86,790"],["(0.50)%","57,714"],["(0.25)%","28,785"],["0.25%","(28,641)"],["0.50%","(56,797)"],["0.75%","(83,390)"],["1.00%","(109,549)"]]
[[/GREPCENT_TABLE]]

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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