Oscar Health Announces Results for Third Quarter 2022

  • Membership as of September 30, 2022 of 1,075,445, an 81% increase YoY
  • For the quarter ended September 30, 2022:
    • Direct and assumed policy premiums of $1.7 billion, an 87% increase YoY
    • Premiums earned of $954 million, a 116% increase YoY
    • Medical Loss Ratio of 89.9%, decreased 980 bps YoY
    • InsuranceCo Administrative Expense Ratio of 20.7%, decreased 240 bps YoY
    • InsuranceCo Combined Ratio of 110.6%, decreased 1,220 bps YoY
    • Adjusted Administrative Expense Ratio of 24.8%, decreased 510 bps YoY
    • Net loss of $194 million, an improvement of $18 million YoY; Adjusted EBITDA loss of $160 million, an improvement of $28 million YoY

 

NEW YORK--()--Health insurtech company Oscar Health, Inc. (NYSE: OSCR) today announced its financial results for the third quarter ended September 30, 2022.

“As we look to 2023, we believe we are well positioned to achieve our profitability target for the InsureCo and we are focused on driving continued margin expansion across the business,” said Mario Schlosser, CEO and Co-Founder of Oscar. “With the positive leverage we see in our business, we are now targeting Total Company profitability in 2024, a year earlier than previously expected.”

Total Direct and Assumed Policy Premiums were $1.7 billion in the quarter, up 87% year-over-year (“YoY”), driven primarily by higher membership, rate increases and mix shifts to higher premium Silver plans. Premiums earned in the quarter were up 116% YoY, driven by largely the same factors that drove the increase in Direct and Assumed Policy Premiums, as well as lower ceded reinsurance premiums YoY.

Oscar’s InsuranceCo Combined Ratio, which is the sum of its Medical Loss Ratio (“MLR”) and the InsuranceCo Administrative Expense Ratio, improved 1,220 bps YoY to 110.6%, driven by both an improved MLR and administrative cost efficiencies. Specifically, the MLR improved 980 bps YoY to 89.9%, primarily due to lower net COVID-19 related costs, lower impact of unfavorable prior period, and pricing actions coupled with mix shifts in the population. The InsuranceCo Administrative Expense Ratio improved 240 bps YoY to 20.7%, driven by operating expense leverage, partially offset by higher distribution expenses.

The Adjusted Administrative Expense Ratio decreased 510 bps YoY to 24.8%, primarily due to operating expense leverage, partially offset by distribution expenses and additional expenses related to the cost of addressing operational challenges related to scale and implementing and performing under +Oscar arrangements. Net loss of $194 million improved by $18 million YoY and improved as a percentage of premiums before ceded reinsurance by 16 points YoY. The Adjusted EBITDA loss of $160 million improved by $28 million YoY, and also improved as a percentage of premiums before ceded reinsurance by 16 points as compared to the prior period.

Oscar is updating its FY22 outlook to reflect the impact of higher membership. The Company now expects Direct and Assumed Policy Premiums will be $6.7 billion to $6.9 billion and Adjusted EBITDA loss will be modestly above the ($480 million) high-end of the prior range of ($380 million) to ($480 million).

Effective December 1, Oscar’s current Chief Financial Officer (“CFO”), R. Scott Blackley, will transition to the new role of Chief Transformation Officer and the Company’s former CFO and current Board Member, Sid Sankaran, will return as Interim CFO. As part of his new role, Mr. Blackley will focus on aligning the overall revenues with costs to drive both Insurance company and Total company profitability. He will specifically oversee the Company’s operations, +Oscar business, and corporate strategy. Mr. Sankaran will oversee treasury, actuarial, financial reporting, capital management and investor relations functions.

Financial Results Summary

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

 

(in thousands)

Premiums before ceded reinsurance

$

1,318,048

 

 

$

673,460

 

 

$

4,001,589

 

 

$

2,007,486

 

Reinsurance premiums ceded

 

(364,384

)

 

 

(231,717

)

 

 

(1,097,929

)

 

 

(669,047

)

Premiums earned

$

953,664

 

 

$

441,743

 

 

$

2,903,660

 

 

$

1,338,439

 

Total revenue

$

978,427

 

 

$

443,979

 

 

$

2,968,511

 

 

$

1,342,648

 

Total operating expenses

$

1,170,799

 

 

$

655,659

 

 

$

3,335,899

 

 

$

1,690,875

 

Net loss

$

(193,547

)

 

$

(211,481

)

 

$

(382,992

)

 

$

(373,685

)

Key Metrics and Non-GAAP Financial Metrics

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

Direct and Assumed Policy Premiums (in thousands)

$

1,682,289

 

 

$

899,237

 

 

$

5,058,427

 

 

$

2,563,722

 

Medical Loss Ratio

 

89.9

%

 

 

99.7

%

 

 

83.2

%

 

 

85.8

%

InsuranceCo Administrative Expense Ratio

 

20.7

%

 

 

23.1

%

 

 

20.0

%

 

 

20.9

%

InsuranceCo Combined Ratio

 

110.6

%

 

 

122.8

%

 

 

103.2

%

 

 

106.7

%

Adjusted Administrative Expense Ratio

 

24.8

%

 

 

29.9

%

 

 

24.1

%

 

 

27.0

%

Adjusted EBITDA(1) (in thousands)

$

(159,754

)

 

$

(187,395

)

 

$

(272,599

)

 

$

(265,810

)

(1) Adjusted EBITDA is a non-GAAP measure. See “Key Operating and Non-GAAP Metrics - Adjusted EBITDA” in this release for a reconciliation to net loss, the most directly comparable GAAP measure, and for information regarding Oscar’s use of Adjusted EBITDA.

Membership by Offering

 

As of

 

 

September 30,
2022

 

September 30,
2021

Individual and Small Group

 

1,017,544

 

582,236

Medicare Advantage

 

4,577

 

3,881

Cigna + Oscar(1)

 

53,324

 

8,167

Total Members

 

1,075,445

 

594,284

(1) Represents total membership for Oscar’s co-branded partnership with Cigna.

Full Year 2022 Outlook

  • Direct and Assumed Policy premiums (in thousands) of $6,700,000 - $6,900,000
  • Medical Loss Ratio near the midpoint of the 84% - 86% range
  • InsuranceCo Administrative Expense Ratio at the high-end of the 19.5% - 20.5% range
  • InsuranceCo Combined Ratio towards the high-end of the 104% - 106% range
  • Adjusted Administrative Expense Ratio near the midpoint of the 24% - 26% range
  • Adjusted EBITDA(1) loss (in thousands) modestly above the ($480,000) high-end of the ($480,000) - ($380,000) range

(1) Oscar has not provided a quantitative reconciliation of forecasted Adjusted EBITDA to forecasted GAAP net loss within this press release because Oscar is unable, without making unreasonable efforts, to calculate certain reconciling items with confidence. These items include, but are not limited to, stock-based compensation expense. These items, which could materially affect the computation of forecasted GAAP net loss, are inherently uncertain and depend on various factors, some of which are outside of Oscar’s control. As such, any associated estimate and its impact on GAAP net loss could vary materially. For more information regarding Adjusted EBITDA, please see “Key Operating and Non-GAAP Metrics” below.

The foregoing statements represent management's current estimates as of the date of this release. Actual results may differ materially depending on a number of factors. Investors are urged to read the Cautionary Note Regarding Forward-Looking Statements included in this release. Management does not assume any obligation to update these estimates.

Quarterly Conference Call Details
Oscar will host a conference call to discuss the financial results today, November 8, 2022, at 5:00 p.m. (ET). A live audio webcast and a supplemental presentation will be available via the Investor Relations page of Oscar’s website at ir.hioscar.com. A replay of the webcast will be available for on-demand listening shortly after the completion of the call, at the same web link, and will remain available for approximately 90 days.

Non-GAAP Financial Information
This release presents Adjusted EBITDA, a non-GAAP financial metric, which is provided as a complement to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). A reconciliation of the non-GAAP financial information to the most directly comparable GAAP financial measure is provided in the accompanying tables found at the end of this release.

Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained herein are forward-looking statements. These statements include, but are not limited to, statements about our financial outlook and estimates, including direct and assumed policy premiums, medical loss ratio, administrative expense ratio and other financial performance metrics, and the related underlying assumptions, our business and financial prospects, and our management’s plans and objectives for future operations, expectations and business strategy. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other similar expressions. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict and generally beyond our control.

Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: the impact of COVID-19 on global markets, economic conditions, the healthcare industry and our results of operations, and the response by governments and other third parties; our ability to retain and expand our member base; our ability to execute our growth strategy and scale our operations; our ability to meet increased capital requirements as a result of expanding membership; our ability to maintain or enter into new partnerships, service arrangements or collaborations with healthcare industry participants; negative publicity, unfavorable shifts in perception of our digital platform or other member service channels; our ability to achieve and/or maintain profitability in the future; changes in federal or state laws or regulations, including changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”) and any regulations enacted thereunder; our ability to accurately estimate our incurred claims expenses or effectively manage our claims costs or related administrative costs, including as a result of fluctuations in medical utilization rates due to the impact of COVID-19; our ability to comply with ongoing regulatory requirements and applicable performance standards, including as a result of our participation in government-sponsored programs, such as Medicare, and as a result of changing regulatory requirements; changes or developments in the health insurance markets in the United States, including the passage and implementation of a law to create a single-payer or government-run health insurance program; our ability to comply with applicable privacy, security, and data laws, regulations, and standards; our ability to maintain key in-network providers and good relations with the physicians, hospitals, and other providers within and outside our provider networks, or to arrange for the delivery of quality care; unfavorable or otherwise costly outcomes of lawsuits, regulatory investigations and audits and claims that arise from the extensive laws and regulations to which we are subject; unanticipated results of risk adjustment programs; delays in our receipt of premiums; disruptions or challenges to our relationship with the Oscar Medical Group; cyber-security breaches of our and our partners’ information and technology systems; unanticipated changes in population morbidity and large-scale changes in health care utilization; and the other factors set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the Securities and Exchange Commission (“SEC”), and our other filings with the SEC, including our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022, to be filed with the SEC.

You are cautioned not to place undue reliance on any forward-looking statements made in this press release. Any forward-looking statement speaks only as of the date as of which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise.

About Oscar Health
Oscar Health, Inc. (“Oscar”) is the first health insurance company built around a full stack technology platform and a relentless focus on serving its members. At Oscar, our mission is to make a healthier life accessible and affordable for all. Headquartered in New York City, Oscar has been challenging the health care system's status quo since our founding in 2012. The company’s member-first philosophy and innovative approach to care has earned us the trust of over one million members as of September 30, 2022. We offer Individual & Family, Small Group and Medicare Advantage plans, and +Oscar, our full stack technology platform, to others within the provider and payor space. Our vision is to refactor health care to make good care cost less. Refactor is a term used in software engineering that means to improve the design, structure, and implementation of the software, while preserving its functionality. At Oscar, we take this definition a step further. We improve our members’ experience by building trust through deep engagement, personalized guidance, and rapid iteration.

Oscar Health, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

Revenue

 

 

 

 

 

 

 

Premiums before ceded reinsurance

$

1,318,048

 

 

$

673,460

 

 

$

4,001,589

 

 

$

2,007,486

 

Reinsurance premiums ceded

 

(364,384

)

 

 

(231,717

)

 

 

(1,097,929

)

 

 

(669,047

)

Premiums earned

 

953,664

 

 

 

441,743

 

 

 

2,903,660

 

 

 

1,338,439

 

Administrative services revenue

 

19,421

 

 

 

1,548

 

 

 

58,366

 

 

 

2,242

 

Investment income and other revenue

 

5,342

 

 

 

688

 

 

 

6,485

 

 

 

1,967

 

Total revenue

 

978,427

 

 

 

443,979

 

 

 

2,968,511

 

 

 

1,342,648

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

Claims incurred, net

 

852,689

 

 

 

453,576

 

 

 

2,395,894

 

 

 

1,141,503

 

Other insurance costs

 

174,978

 

 

 

111,302

 

 

 

510,580

 

 

 

285,929

 

General and administrative expenses

 

78,557

 

 

 

60,003

 

 

 

233,975

 

 

 

175,741

 

Federal and state assessments

 

71,114

 

 

 

35,453

 

 

 

209,730

 

 

 

102,841

 

Premium deficiency reserve release

 

(6,539

)

 

 

(4,675

)

 

 

(14,280

)

 

 

(15,139

)

Total operating expenses

 

1,170,799

 

 

 

655,659

 

 

 

3,335,899

 

 

 

1,690,875

 

Loss from operations

 

(192,372

)

 

 

(211,680

)

 

 

(367,388

)

 

 

(348,227

)

Interest expense

 

6,126

 

 

 

398

 

 

 

16,488

 

 

 

4,323

 

Other expenses (income)

 

(3,336

)

 

 

 

 

 

(1,076

)

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

20,178

 

Loss before income taxes

 

(195,162

)

 

 

(212,078

)

 

 

(382,800

)

 

 

(372,728

)

Income tax expense (benefit)

 

(1,615

)

 

 

(597

)

 

 

192

 

 

 

957

 

Net loss

 

(193,547

)

 

 

(211,481

)

 

 

(382,992

)

 

 

(373,685

)

Less: Net income (loss) attributable to noncontrolling interests

 

(634

)

 

 

 

 

 

(2,763

)

 

 

 

Net loss attributable to Oscar Health, Inc.

$

(192,913

)

 

$

(211,481

)

 

$

(380,229

)

 

$

(373,685

)

 

 

 

 

 

 

 

 

Earnings (Loss) per Share

 

 

 

 

 

 

 

Net loss per share attributable to Oscar Health, Inc., basic and diluted

$

(0.91

)

 

$

(1.02

)

 

$

(1.80

)

 

$

(2.22

)

Weighted average common shares outstanding, basic and diluted

 

212,822,733

208,159,343

211,560,332

 

168,585,157 

Oscar Health, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

September 30, 2022

 

December 31, 2021

Assets:

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

$

2,112,930

 

 

$

1,103,995

 

Short-term investments

 

718,228

 

 

 

587,086

 

Premiums and accounts receivable

 

215,471

 

 

 

138,414

 

Risk adjustment transfer receivable

 

44,256

 

 

 

40,659

 

Reinsurance recoverable

 

824,478

 

 

 

431,990

 

Other current assets

 

15,811

 

 

 

3,782

 

Total current assets

 

3,931,174

 

 

 

2,305,926

 

Property, equipment, and capitalized software, net

 

56,492

 

 

 

46,611

 

Long-term investments

 

196,454

 

 

 

844,476

 

Restricted deposits

 

27,459

 

 

 

28,085

 

Other assets

 

97,130

 

 

 

96,552

 

Total assets

$

4,308,709

 

 

$

3,321,650

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

Current Liabilities:

 

 

 

Benefits payable

$

995,760

 

 

$

513,582

 

Risk adjustment transfer payable

 

1,078,694

 

 

 

794,398

 

Premium deficiency reserve

 

14,966

 

 

 

29,246

 

Unearned premiums

 

75,134

 

 

 

75,044

 

Accounts payable and other liabilities

 

252,358

 

 

 

234,788

 

Reinsurance payable

 

435,632

 

 

 

205,231

 

Total current liabilities

 

2,852,544

 

 

 

1,852,289

 

Long-term debt

 

297,805

 

 

 

 

Other liabilities

 

73,791

 

 

 

76,839

 

Total liabilities

 

3,224,140

 

 

 

1,929,128

 

Commitments and contingencies

 

 

 

Stockholders' Equity

 

 

 

Preferred stock, $0.00001 par value; 82,500,000 shares authorized, none issued or outstanding as of September 30, 2022 and December 31, 2021

 

 

 

 

 

Class A common stock, $0.00001 par value; 825,000,000 shares authorized, 179,639,669 shares issued and outstanding as of September 30, 2022 and 175,212,223 shares issued and outstanding as of December 31, 2021

 

2

 

 

 

2

 

Class B common stock, $0.00001 par value; 82,500,000 shares authorized, 35,115,807 shares issued and outstanding as of September 30, 2022 and December 31, 2021

 

 

 

 

 

Treasury stock (314,600 shares as of September 30, 2022 and December 31, 2021)

 

(2,923

)

 

 

(2,923

)

Additional paid-in capital

 

3,479,392

 

 

 

3,393,533

 

Accumulated deficit

 

(2,379,941

)

 

 

(1,999,712

)

Accumulated other comprehensive income (loss)

 

(14,491

)

 

 

(3,671

)

Total Oscar Health, Inc. stockholders' equity

 

1,082,039

 

 

 

1,387,229

 

Noncontrolling interests

 

2,530

 

 

 

5,293

 

Total stockholders' equity

 

1,084,569

 

 

 

1,392,522

Total liabilities and stockholders' equity

$

4,308,709

 

 

$

3,321,650 

Oscar Health, Inc.

Consolidated Statements of Cash Flows

(in thousands) (unaudited)

 

 

Nine Months Ended September 30,

 

2022

 

2021

Cash flows from operating activities:

 

 

 

Net loss

 

(382,992

)

 

$

(373,685

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

Deferred taxes

 

6

 

 

 

8

 

Net realized gain (loss) on sale of financial instruments

 

1,269

 

 

 

(268

)

Loss on fair value of warrant liabilities

 

 

 

 

12,856

 

Depreciation and amortization expense

 

11,548

 

 

 

10,635

 

Amortization of debt issuance costs

 

519

 

 

 

329

 

Stock-based compensation expense

 

83,241

 

 

 

58,028

 

Investment amortization, net of accretion

 

4,138

 

 

 

5,490

 

Debt extinguishment loss

 

 

 

 

20,178

 

Changes in assets and liabilities:

 

 

 

(Increase) / decrease in:

 

 

 

Premiums and accounts receivable

 

(77,057

)

 

 

(52,211

)

Risk adjustment transfer receivable

 

(3,597

)

 

 

(11,941

)

Reinsurance recoverable

 

(392,488

)

 

 

165,604

 

Other assets

 

(12,159

)

 

 

(6,434

)

Increase / (decrease) in:

 

 

 

Benefits payable

 

482,178

 

 

 

185,410

 

Unearned premiums

 

90

 

 

 

(15,729

)

Premium deficiency reserve

 

(14,280

)

 

 

(15,139

)

Accounts payable and other liabilities

 

13,842

 

 

 

25,788

 

Reinsurance payable

 

230,401

 

 

 

(122,003

)

Risk adjustment transfer payable

 

284,296

 

 

 

(103,140

)

Net cash provided by (used in) operating activities

 

228,955

 

 

 

(216,224

)

Cash flows from investing activities:

 

 

 

Purchase of investments

 

(343,178

)

 

 

(1,525,908

)

Sale of investments

 

360,449

 

 

 

422,030

 

Maturity of investments

 

483,224

 

 

 

364,254

 

Purchase of property, equipment and capitalized software

 

(21,882

)

 

 

(18,679

)

Change in restricted deposits

 

1,548

 

 

 

3,625

 

Net cash provided by (used in) investing activities

 

480,161

 

 

 

(754,678

)

Cash flows from financing activities:

 

 

 

Proceeds from long-term debt

 

305,000

 

 

 

 

Payments of debt issuance costs

 

(7,035

)

 

 

 

Proceeds from joint venture contribution

 

1,324

 

 

 

 

Debt prepayment

 

 

 

 

(153,173

)

Debt extinguishment costs

 

 

 

 

(12,994

)

Proceeds from IPO, net of underwriting discounts

 

 

 

 

1,348,321

 

Offering costs from IPO

 

 

 

 

(9,447

)

Proceeds from exercise of warrants and call options

 

 

 

 

9,191

 

Proceeds from exercise of stock options

 

1,294

 

 

 

43,841

 

Net cash provided by financing activities

 

300,583

 

 

 

1,225,739

 

Increase in cash, cash equivalents and restricted cash equivalents

 

1,009,699

 

 

 

254,837

 

Cash, cash equivalents, restricted cash and cash equivalents—beginning of period

 

1,125,557

 

 

 

843,105

 

Cash, cash equivalents, restricted cash and cash equivalents—end of period

$

2,135,256

 

 

$

1,097,942

 

 

 

 

 

Cash and cash equivalents

 

2,112,930

 

 

 

1,076,699

 

Restricted cash and cash equivalents included in restricted deposits

 

22,326

 

 

 

21,243

 

Total cash, cash equivalents and restricted cash and cash equivalents

$

2,135,256

 

 

$

1,097,942

 

 

Supplemental Disclosures:

 

Interest payments

$

9,810

$

3,994

 

Income tax payments

$

1,660

$

936

 
 

Non-cash investing and financing activities:

 

Conversion of redeemable convertible preferred stock to common stock upon initial public offering

$

$

1,744,914

 

Net exercise of preferred stock warrants to preferred stock upon initial public offering

$

$

28,248

 

Adjustment to fair value of preferred stock warrant liability upon initial public offering

$

$

13,243

 

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.

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.

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 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.

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.

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2022

 

September 30,
2021

 

September 30
2022

 

September 30,
2021

 

(in thousands)

Direct claims incurred before ceded reinsurance (1)

$

1,153,270

 

 

$

668,966

 

 

$

3,255,721

 

 

$

1,725,089

 

Assumed reinsurance claims

 

38,667

 

 

 

5,504

 

 

 

95,464

 

 

 

9,589

 

Excess of loss ceded claims (2)

 

(4,392

)

 

 

(3,432

)

 

 

(14,316

)

 

 

(13,005

)

State reinsurance (3)

 

(10,368

)

 

 

(4,700

)

 

 

(28,643

)

 

 

(9,869

)

Net claims before ceded quota share reinsurance (A)

$

1,177,177

 

 

$

666,338

 

 

$

3,308,226

 

 

$

1,711,804

 

 

 

 

 

 

 

 

 

Premiums before ceded reinsurance

$

1,318,048

 

 

$

673,460

 

 

$

4,001,589

 

 

$

2,007,486

 

Excess of loss reinsurance premiums (4)

 

(8,621

)

 

 

(5,083

)

 

 

(23,387

)

 

 

(11,295

)

Net premiums before ceded quota share reinsurance (B)

$

1,309,427

 

 

$

668,377

 

 

$

3,978,202

 

 

$

1,996,191

 

Medical Loss Ratio (A divided by B)

 

89.9

%

 

 

99.7

%

 

 

83.2

%

 

 

85.8

%

(1) See the Appendix to this release 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) Represents excess of loss insurance premiums paid.

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 impact of the Company’s quota share arrangements is excluded from the numerator and denominator in the calculation below. Below is a calculation of our InsuranceCo Administrative Expense Ratio for the periods indicated.

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2022

 

September 30,
2021

 

September 30,
2022

 

September 30,
2021

 

(in thousands)

Other insurance costs

$

174,978

 

 

$

111,302

 

 

$

510,580

 

 

$

285,929

 

Impact of quota share reinsurance (1)

 

38,328

 

 

 

18,214

 

 

 

113,996

 

 

 

57,986

 

Stock-based compensation expense

 

(12,963

)

 

 

(10,122

)

 

 

(38,452

)

 

 

(28,988

)

Federal and state assessment of health insurance subsidiaries

 

70,806

 

 

 

35,112

 

 

 

209,578

 

 

 

102,326

 

Health insurance subsidiary adjusted administrative expenses(A)

$

271,149

 

 

$

154,506

 

 

$

795,702

 

 

$

417,253

 

 

 

 

 

 

 

 

 

Premiums before ceded reinsurance

$

1,318,048

 

 

$

673,460

 

 

$

4,001,589

 

 

$

2,007,486

 

Excess of loss reinsurance premiums

 

(8,621

)

 

 

(5,083

)

 

 

(23,387

)

 

 

(11,295

)

Net premiums before ceded quota share reinsurance(B)

$

1,309,427

 

 

$

668,377

 

 

$

3,978,202

 

 

$

1,996,191

 

InsuranceCo Administrative Expense Ratio(A divided by B)

 

20.7

%

 

 

23.1

%

 

 

20.0

%

 

 

20.9

%

(1) Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(1,758) for the three months ended September 30, 2022 and $(5,417) for the nine months ended September 30, 2022.

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.

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2022

 

September 30,
2021

 

September 30,
2022

 

September 30,
2021

Medical Loss Ratio

89.9

%

 

99.7

%

 

83.2

%

 

85.8

%

InsuranceCo Administrative Expense Ratio

20.7

%

 

23.1

%

 

20.0

%

 

20.9

%

InsuranceCo Combined Ratio

110.6

%

 

122.8

%

 

103.2

%

 

106.7

%

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. The Company believes Adjusted Administrative Expense Ratio is useful to evaluate the Company’s ability to manage its overall administrative expense base. This ratio also provides further clarity into the Company’s overall path to profitability. Below is a calculation of our Adjusted Administrative Expense Ratio for the periods indicated.

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2022

 

September 30,
2021

 

September 30,
2022

 

September 30,
2021

 

(in thousands)

Total Operating Expenses

$

1,170,799

 

 

$

655,659

 

 

$

3,335,899

 

 

$

1,690,875

 

Claims incurred, net

 

(852,689

)

 

 

(453,576

)

 

 

(2,395,894

)

 

 

(1,141,503

)

Premium deficiency reserve release

 

6,539

 

 

 

4,675

 

 

 

14,280

 

 

 

15,139

 

Impact of quota share reinsurance (1)

 

38,328

 

 

 

18,214

 

 

 

113,996

 

 

 

57,986

 

Total Administrative Expenses

$

362,977

 

 

$

224,972

 

 

$

1,068,281

 

 

$

622,497

 

Stock-based compensation expense/warrant expense

 

(28,560

)

 

 

(20,640

)

 

 

(83,241

)

 

 

(70,884

)

Depreciation and amortization

 

(4,058

)

 

 

(3,645

)

 

 

(11,548

)

 

 

(10,635

)

Other non-recurring items (2)

 

 

 

 

 

 

 

 

 

 

(898

)

Adjusted Administrative Expenses (A)

$

330,359

 

 

$

200,687

 

 

$

973,492

 

 

$

540,080

 

Total Revenue

$

978,427

 

 

$

443,979

 

 

$

2,968,511

 

 

$

1,342,648

 

Reinsurance premiums ceded

 

364,384

 

 

 

231,717

 

 

 

1,097,929

 

 

 

669,047

 

Excess of loss reinsurance premiums

 

(8,621

)

 

 

(5,083

)

 

 

(23,387

)

 

 

(11,295

)

Adjusted Total Revenue (B)

$

1,334,190

 

 

$

670,613

 

 

$

4,043,053

 

 

$

2,000,400

 

Adjusted Administrative Expense Ratio (A divided by B)

 

24.8

%

 

 

29.9

%

 

 

24.1

%

 

 

27.0

%

(1) Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(1,758) for the three months ended September 30, 2022 and $(5,417) for the nine months ended September 30, 2022.
(2) Represents approximately $0.9 million of non-recurring expenses incurred in connection with the Company’s initial public offering (“IPO”) during the nine months ended September 30, 2021.

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.

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 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.

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2022

 

September 30,
2021

 

September 30,
2022

 

September 30,
2021

 

(in thousands)

Net loss

$

(193,547

)

 

$

(211,481

)

 

$

(382,992

)

 

$

(373,685

)

Interest expense

 

6,126

 

 

 

398

 

 

 

16,488

 

 

 

4,323

 

Other expenses (income)

 

(3,336

)

 

 

 

 

 

(1,076

)

 

 

 

Income tax expense (benefit)

 

(1,615

)

 

 

(597

)

 

 

192

 

 

 

957

 

Depreciation and amortization

 

4,058

 

 

 

3,645

 

 

 

11,548

 

 

 

10,635

 

Stock-based compensation/warrant expense (1)

 

28,560

 

 

 

20,640

 

 

 

83,241

 

 

 

70,884

 

Other non-recurring items (2)

 

 

 

 

 

 

 

 

 

 

21,076

 

Adjusted EBITDA

$

(159,754

)

 

$

(187,395

)

 

$

(272,599

)

 

$

(265,810

)

(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 the Company's $150.0 million first lien term loan and approximately $0.9 million of non-recurring expenses incurred in connection with our IPO during the nine months ended September 30, 2021.

Appendix

Reinsurance Impact

 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

 

(in thousands)

Quota share ceded premiums

$

(374,092

)

 

$

(215,032

)

 

$

(1,117,357

)

 

$

(712,760

)

Quota share ceded claims

 

324,487

 

 

 

212,762

 

 

 

912,332

 

 

 

570,301

 

Ceding commission, net of deposit accounting impact (1)

 

38,328

 

 

 

18,214

 

 

 

113,996

 

 

 

57,986

 

Experience refund

 

18,330

 

 

 

(11,245

)

 

 

42,816

 

 

 

55,465

 

Net quota share impact

$

7,053

 

 

$

4,699

 

 

$

(48,213

)

 

$

(29,008

)

(1) Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(1,758) for the three months ended September 30, 2022 and $(5,417) for the nine months ended September 30, 2022

The composition of total reinsurance premiums ceded and reinsurance premiums assumed, which are included as components of total earned premiums in the consolidated statement of operations, is as follows:

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

 

(in thousands)

Reinsurance premiums ceded, gross

$

(382,597

)

 

$

(220,472

)

 

$

(1,143,565

)

 

$

(724,512

)

Experience refunds

 

18,213

 

 

 

(11,245

)

 

 

45,636

 

 

 

55,465

 

Reinsurance premiums ceded

 

(364,384

)

 

 

(231,717

)

 

 

(1,097,929

)

 

 

(669,047

)

Reinsurance premiums assumed

 

37,409

 

 

 

3,830

 

 

 

96,294

 

 

 

9,426

 

Total reinsurance premiums (ceded) and assumed

$

(326,975

)

 

$

(227,887

)

 

$

(1,001,635

)

 

$

(659,621

)

The Company records claims expense net of reinsurance recoveries. The following table reconciles the total claims expense to the net claims expense as presented in the consolidated statement of operations:

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

 

(in thousands)

Direct claims incurred

$

1,153,270

 

 

$

668,966

 

 

$

3,255,721

 

 

$

1,725,089

 

Ceded reinsurance claims

 

(339,248

)

 

 

(220,894

)

 

 

(955,291

)

 

 

(593,175

)

Assumed reinsurance claims

 

38,667

 

 

 

5,504

 

 

 

95,464

 

 

 

9,589

 

Total claims incurred, net

$

852,689

 

 

$

453,576

 

 

$

2,395,894

 

 

$

1,141,503

 

The Company records selling, general and administrative expenses net of ceding commissions. The following table reconciles total other insurance costs to the amount presented in the consolidated statement of operations:

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

 

(in thousands)

Other insurance costs, gross

$

215,064

 

 

$

129,516

 

 

$

629,993

 

 

$

343,915

 

Reinsurance ceding commissions

 

(40,086

)

 

 

(18,214

)

 

 

(119,413

)

 

 

(57,986

)

Other insurance costs, net

$

174,978

 

 

$

111,302

 

 

$

510,580

 

 

$

285,929

 

The Company records reinsurance recoverables within current assets on its consolidated balance sheets. The composition of the reinsurance recoverable balance is as follows:

 

 

September 30, 2022

 

December 31, 2021

 

 

(in thousands)

Ceded reinsurance claim recoverables

 

$

718,058

 

$

406,017

Reinsurance ceding commissions

 

 

45,181

 

 

23,517

Experience refunds on reinsurance agreements

 

 

61,239

 

 

2,456

Reinsurance recoverable

 

$

824,478

 

$

431,990

 

Contacts

Investor Contact:
Cornelia Miller
VP of Investor Relations
ir@hioscar.com
917-397-0251

Media Contact:
Jackie Kahn
SVP of Communications
comms@hioscar.com
202-538-0128

Contacts

Investor Contact:
Cornelia Miller
VP of Investor Relations
ir@hioscar.com
917-397-0251

Media Contact:
Jackie Kahn
SVP of Communications
comms@hioscar.com
202-538-0128