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Oscar Health Announces Results for Fourth Quarter and Full Year 2022

  • Membership as of December 31, 2022 of 1,151,483, a 93% increase YoY
  • For the year ended December 31, 2022:
    • Direct and Assumed Policy Premiums of $6.8 billion, a 99% increase YoY
    • Premiums earned of $3.9 billion, a 111% increase YoY
    • Medical Loss Ratio of 85.3%, a 360 bps improvement YoY
    • InsuranceCo Administrative Expense Ratio of 20.6%, a 125 bps improvement YoY
    • InsuranceCo Combined Ratio of 105.8%, a 490 bps improvement YoY
    • Adjusted Administrative Expense Ratio of 24.6%, a 440 bps improvement YoY
    • Net loss of $610 million, an increase of $38 million YoY; Adjusted EBITDA loss of $462 million, an increase of $32 million YoY

Health tech company Oscar Health, Inc. (NYSE: OSCR) today announced its financial results for the fourth quarter and year ended December 31, 2022 including significant improvement in core operating margins, delivering ~5 points of Combined Ratio improvement YoY.

“We enter 2023 with strong positive momentum, having executed according to our plan in 2022 and making meaningful improvements in many of the key metrics for our business,” said Mario Schlosser, CEO and Co-Founder of Oscar. “Our progress in bringing down our total cost of care and the work to achieve administrative cost savings positions us well vis a vis our profitability goals for 2023 and beyond.”

Total Direct and Assumed Policy Premiums for 2022 were $6.8 billion, up 99% year-over-year (“YoY”), driven primarily by robust membership growth, rate increases, and mix shifts to higher premium plans. Premiums earned for the year were up 111% YoY, driven by the same factors that drove the increase in Direct and Assumed Policy Premiums, as well as a lower percentage of ceded premiums to reinsurance partners.

Oscar’s InsuranceCo Combined Ratio, which is the sum of its Medical Loss Ratio (“MLR”) and the InsuranceCo Administrative Expense Ratio, improved 490 bps YoY to 105.8% for 2022, driven by both an improved MLR and lower administrative costs. Specifically, the MLR improved 360 bps YoY to 85.3%, primarily due to lower net COVID-19-related costs, pricing actions, mix shifts in member population, and medical management actions, partially offset by unfavorable prior period development. The InsuranceCo Administrative Expense Ratio improved 125 bps YoY to 20.6%, driven by operating expense leverage and scale efficiencies, partially offset by higher distribution expenses.

The 2022 Adjusted Administrative Expense Ratio improved 440 bps YoY to 24.6%, primarily due to operating expense leverage and scale efficiencies. The Adjusted EBITDA loss of $462 million increased by $32 million YoY, but decreased as a percentage of premiums before ceded reinsurance by 7 points as compared to the prior year. Net loss of $610 million increased by $38 million YoY and decreased as a percentage of premiums before ceded reinsurance by 10 points YoY.

The Company is introducing its outlook for 2023 including anticipated Direct and Assumed Policy Premiums of $6.4 billion to $6.6 billion, an InsuranceCo Combined Ratio at or less than 100%, and a significantly improved Adjusted EBITDA loss of ($175) million to ($75) million.

 

Financial Results Summary

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(in thousands)

Premiums before ceded reinsurance

$

1,332,931

 

 

$

705,502

 

 

$

5,334,520

 

 

$

2,712,988

 

Reinsurance premiums ceded

 

(365,474

)

 

 

(212,921

)

 

 

(1,463,403

)

 

 

(881,968

)

Premiums earned

$

967,457

 

 

$

492,581

 

 

$

3,871,117

 

 

$

1,831,020

 

Total revenue

$

995,127

 

 

$

496,067

 

 

$

3,963,638

 

 

$

1,838,715

 

Total operating expenses

$

1,217,606

 

 

$

692,322

 

 

$

4,553,505

 

 

$

2,383,196

 

Net loss

$

(226,560

)

 

$

(197,742

)

 

$

(609,552

)

 

$

(571,426

)

 

Key Metrics and Non-GAAP Financial Metrics

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Direct and Assumed Policy Premiums (in thousands)

$

1,784,012

 

 

$

872,904

 

 

$

6,842,439

 

 

$

3,436,626

 

Medical Loss Ratio

 

91.6

%

 

 

97.9

%

 

 

85.3

%

 

 

88.9

%

InsuranceCo Administrative Expense Ratio

 

22.3

%

 

 

24.5

%

 

 

20.6

%

 

 

21.8

%

InsuranceCo Combined Ratio

 

113.9

%

 

 

122.4

%

 

 

105.8

%

 

 

110.7

%

Adjusted Administrative Expense Ratio

 

26.0

%

 

 

34.4

%

 

 

24.6

%

 

 

28.9

%

Adjusted EBITDA(1) (in thousands)

$

(189,656

)

 

$

(164,017

)

 

$

(462,255

)

 

$

(429,826

)

(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 December 31,

 

 

2022

 

2021

Individual and Small Group

 

1,084,404

 

577,799

Medicare Advantage

 

4,452

 

3,864

Cigna + Oscar(1)

 

62,627

 

16,506

Total Members

 

1,151,483

 

598,169

(1)

 

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

Full Year 2023 Outlook

 

 

Low

 

High

Direct and Assumed Policy Premiums (in thousands)

 

$

6,400,000

 

 

$

6,600,000

 

Medical Loss Ratio

 

 

82

%

 

 

84

%

InsuranceCo Administrative Expense Ratio

 

 

17

%

 

 

18

%

InsuranceCo Adjusted EBITDA (1) (in thousands)

 

$

20,000

 

 

$

120,000

 

Adjusted Administrative Expense Ratio

 

 

20.5

%

 

 

21.5

%

Adjusted EBITDA(2) (in thousands)

 

$

(175,000

)

 

$

(75,000

)

(1)

 

Oscar has not provided a quantitative reconciliation of forecasted InsureCo Adjusted EBITDA to the appropriate forecasted GAAP metric within this press release because Oscar is unable, without making unreasonable efforts, to calculate certain reconciling items with confidence. InsureCo Adjusted EBITDA is defined as premiums before ceded reinsurance less medical claims and administrative expenses for the InsureCo, adjusting for the impact of quota share reinsurance, premium deficiency reserves, investment income, depreciation and amortization and stock-based compensation expense.

(2)

 

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, February 9, 2023, 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 September 30, 2022, filed with the Securities and Exchange Commission (“SEC”), and our other filings with the SEC, including our Annual Report on Form 10-K for the annual period ended December 31, 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 December 31, 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)

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

Revenue

 

 

 

 

 

 

 

Premiums before ceded reinsurance

$

1,332,931

 

 

$

705,502

 

 

$

5,334,520

 

 

$

2,712,988

 

Reinsurance premiums ceded

 

(365,474

)

 

$

(212,921

)

 

 

(1,463,403

)

 

 

(881,968

)

Premiums earned

 

967,457

 

 

 

492,581

 

 

 

3,871,117

 

 

 

1,831,020

 

Administrative services revenue

 

2,681

 

 

 

3,152

 

 

 

61,047

 

 

 

5,394

 

Investment income and other revenue

 

24,989

 

 

 

334

 

 

 

31,474

 

 

 

2,301

 

Total revenue

 

995,127

 

 

 

496,067

 

 

 

3,963,638

 

 

 

1,838,715

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

Claims incurred, net

 

884,904

 

 

 

482,492

 

 

 

3,280,798

 

 

 

1,623,995

 

Other insurance costs

 

195,859

 

 

 

124,434

 

 

 

706,439

 

 

 

410,363

 

General and administrative expenses

 

75,808

 

 

 

89,338

 

 

 

309,783

 

 

 

265,078

 

Federal and state assessments

 

71,788

 

 

 

36,244

 

 

 

281,518

 

 

 

139,085

 

Premium deficiency reserve release

 

(10,753

)

 

 

(40,186

)

 

 

(25,033

)

 

 

(55,325

)

Total operating expenses

 

1,217,606

 

 

 

692,322

 

 

 

4,553,505

 

 

 

2,383,196

 

Loss from operations

 

(222,479

)

 

 

(196,255

)

 

 

(589,867

)

 

 

(544,481

)

Interest expense

 

6,135

 

 

 

397

 

 

 

22,623

 

 

 

4,720

 

Other expenses (income)

 

(1,339

)

 

 

1,201

 

 

 

(2,415

)

 

 

1,201

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

20,178

 

Loss before income taxes

 

(227,275

)

 

 

(197,853

)

 

 

(610,075

)

 

 

(570,580

)

Income tax expense (benefit)

 

(715

)

 

 

(111

)

 

 

(523

)

 

 

846

 

Net loss

 

(226,560

)

 

 

(197,742

)

 

 

(609,552

)

 

 

(571,426

)

Less: Net income (loss) attributable to noncontrolling interests

$

(514

)

 

$

1,180

 

 

$

(3,277

)

 

$

1,180

 

Net loss attributable to Oscar Health, Inc.

$

(226,046

)

 

$

(198,922

)

 

$

(606,275

)

 

$

(572,606

)

 

 

 

 

 

 

 

 

Earnings (Loss) per Share

 

 

 

 

 

 

 

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

$

(1.05

)

 

$

(0.95

)

 

$

(2.85

)

 

$

(3.20

)

Weighted average common shares outstanding, basic and diluted

 

215,194,230

 

 

 

209,775,333

 

 

 

212,474,615

 

 

 

178,967,056

 

Oscar Health, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

December 31, 2022

 

December 31, 2021

 

(unaudited)

 

 

Assets:

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

1,558,595

 

 

1,103,995

 

Short-term investments

1,397,287

 

 

587,086

 

Premium and other receivables

216,475

 

 

138,414

 

Risk adjustment transfer receivable

49,861

 

 

40,659

 

Reinsurance recoverable

892,887

 

 

431,990

 

Other current assets

6,450

 

 

3,782

 

Total current assets

4,121,555

 

 

2,305,926

 

Property, equipment, and capitalized software, net

59,888

 

 

46,611

 

Long-term investments

222,919

 

 

844,476

 

Restricted deposits

27,483

 

 

28,085

 

Other assets

94,756

 

 

96,552

 

Total Assets

4,526,601

 

 

3,321,650

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

Current Liabilities:

 

 

 

Benefits payable

937,727

 

 

513,582

 

Risk adjustment transfer payable

1,517,493

 

 

794,398

 

Premium deficiency reserve

4,214

 

 

29,246

 

Unearned premiums

78,998

 

 

75,044

 

Accounts payable and accrued liabilities

297,841

 

 

234,788

 

Reinsurance payable

427,649

 

 

205,231

 

Total current liabilities

3,263,922

 

 

1,852,289

 

Long-term debt

297,999

 

 

 

Other liabilities

72,280

 

 

76,839

 

Total liabilities

3,634,201

 

 

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 December 31, 2022 and 2021

 

 

 

Class A common stock, $0.00001 par value; 825,000,000 shares authorized, 181,176,239 and 175,212,223 shares issued and outstanding as of December 31, 2022 and 2021, respectively

2

 

 

2

 

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

 

 

 

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

(2,923

)

 

(2,923

)

Additional paid-in capital

3,509,007

 

 

3,393,533

 

Accumulated deficit

(2,605,987

)

 

(1,999,712

)

Accumulated other comprehensive loss

(9,715

)

 

(3,671

)

Total Oscar Health, Inc. stockholders’ equity

890,384

 

 

1,387,229

 

Noncontrolling interests

2,016

 

 

5,293

 

Total stockholders’ equity

892,400

 

 

1,392,522

 

Total Liabilities and Stockholders' Equity

4,526,601

 

 

3,321,650

 

Oscar Health, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

(unaudited)

 

 

Cash flows from operating activities:

 

 

 

Net loss

 

(609,552

)

 

$

(571,426

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

Deferred taxes

 

(165

)

 

 

(101

)

Net realized loss (gain) on sale of financial instruments

 

1,274

 

 

 

(209

)

Loss on fair value of warrant liabilities

 

 

 

 

12,856

 

Depreciation and amortization expense

 

15,283

 

 

 

14,605

 

Amortization of debt issuance costs

 

713

 

 

 

329

 

Stock-based compensation expense

 

112,329

 

 

 

86,296

 

Investment amortization, net of accretion

 

2,480

 

 

 

8,031

 

Debt extinguishment loss

 

 

 

 

20,178

 

Changes in assets and liabilities:

 

 

 

(Increase) / decrease in:

 

 

 

Premium and other receivables

 

(78,061

)

 

 

(66,953

)

Risk adjustment transfer receivable

 

(9,202

)

 

 

(9,502

)

Reinsurance recoverable

 

(460,897

)

 

 

147,403

 

Other assets

 

(243

)

 

 

(11,299

)

Increase / (decrease) in:

 

 

 

Benefits payable

 

424,146

 

 

 

201,667

 

Unearned premiums

 

3,953

 

 

 

3,140

 

Premium deficiency reserve

 

(25,033

)

 

 

(55,325

)

Accounts payable and other liabilities

 

57,811

 

 

 

98,619

 

Reinsurance payable

 

222,418

 

 

 

(138,082

)

Risk adjustment transfer payable

 

723,095

 

 

 

78,028

 

Net cash (used in) provided by operating activities

 

380,349

 

 

 

(181,745

)

Cash flows from investing activities:

 

 

 

Purchase of investments

 

(1,192,706

)

 

 

(1,810,076

)

Sale of investments

 

360,616

 

 

 

624,077

 

Maturity of investments

 

633,467

 

 

 

430,694

 

Purchase of property, equipment and capitalized software

 

(29,012

)

 

 

(25,885

)

Change in restricted deposits

 

1,116

 

 

 

6,675

 

Net cash used in investing activities

 

(226,519

)

 

 

(774,515

)

Cash flows from financing activities:

 

 

 

Proceeds from long-term debt

 

305,000

 

 

 

 

Payments of debt issuance costs

 

(7,035

)

 

 

 

Proceeds from joint venture contribution

 

1,846

 

 

 

 

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

)

Convertible preferred stock and call option issuances

 

 

 

 

 

Proceeds from exercise of warrants and call options

 

 

 

 

9,191

 

Proceeds from partial sale of subsidiary to noncontrolling interest

 

 

 

 

7,230

 

Proceeds from exercise of stock options

 

1,299

 

 

 

49,584

 

Net cash provided by financing activities

 

301,110

 

 

 

1,238,712

 

Increase in cash, cash equivalents and restricted cash equivalents

 

454,940

 

 

 

282,452

 

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

$

1,580,497

 

 

$

1,125,557

 

 

 

 

 

Cash and cash equivalents

 

1,558,595

 

 

 

1,103,995

 

Restricted cash and cash equivalents included in restricted deposits

 

21,902

 

 

 

21,562

 

Total cash, cash equivalents and restricted cash and cash equivalents

$

1,580,497

 

 

$

1,125,557

 

 

Supplemental Disclosures:

 

 

 

Interest payments

$

10,079

 

 

$

4,256

 

Income tax payments

$

1,893

 

 

$

697

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

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

$

 

 

$

1,744,911

 

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 December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(in thousands)

Direct claims incurred before ceded reinsurance (1)

$

1,172,279

 

 

$

678,019

 

 

$

4,428,000

 

 

$

2,403,108

 

Assumed reinsurance claims

 

47,683

 

 

 

12,067

 

 

 

143,147

 

 

 

21,656

 

Excess of loss ceded claims (2)

 

(4,316

)

 

 

505

 

 

 

(18,632

)

 

 

(12,500

)

State reinsurance (3)

 

(1,901

)

 

 

(4,786

)

 

 

(30,544

)

 

 

(14,655

)

Net claims before ceded quota share reinsurance (A)

$

1,213,745

 

 

$

685,805

 

 

$

4,521,971

 

 

$

2,397,609

 

 

 

 

 

 

 

 

 

Premiums before ceded reinsurance

$

1,332,931

 

 

$

705,502

 

 

$

5,334,520

 

 

$

2,712,988

 

Excess of loss reinsurance premiums (4)

 

(8,115

)

 

 

(4,971

)

 

 

(31,502

)

 

 

(16,266

)

Net premiums before ceded quota share reinsurance (B)

$

1,324,816

 

 

$

700,531

 

 

$

5,303,018

 

 

$

2,696,722

 

Medical Loss Ratio (A divided by B)

 

91.6

%

 

 

97.9

%

 

 

85.3

%

 

 

88.9

%

(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 numerator and denominator in the calculation below reflect an adjustment to remove the impact of the Company’s quota share arrangements. Below is a calculation of our InsuranceCo Administrative Expense Ratio for the periods indicated.

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(in thousands)

Other insurance costs

$

195,859

 

 

$

124,434

 

 

$

706,439

 

 

$

410,363

 

Impact of quota share reinsurance (1)

 

40,745

 

 

 

24,260

 

 

 

154,741

 

 

 

82,246

 

Stock-based compensation expense

 

(13,043

)

 

 

(13,307

)

 

 

(51,495

)

 

 

(42,295

)

Federal and state assessment of health insurance subsidiaries

 

71,471

 

 

 

36,043

 

 

 

281,049

 

 

 

138,369

 

Health insurance subsidiary adjusted administrative expenses(A)

$

295,032

 

 

$

171,430

 

 

$

1,090,734

 

 

$

588,683

 

 

 

 

 

 

 

 

 

Premiums before ceded reinsurance

$

1,332,931

 

 

$

705,502

 

 

$

5,334,520

 

 

$

2,712,988

 

Excess of loss reinsurance premiums

 

(8,115

)

 

 

(4,971

)

 

 

(31,502

)

 

 

(16,266

)

Net premiums before ceded quota share reinsurance(B)

$

1,324,816

 

 

$

700,531

 

 

$

5,303,018

 

 

$

2,696,722

 

InsuranceCo Administrative Expense Ratio(A divided by B)

 

22.3

%

 

 

24.5

%

 

 

20.6

%

 

 

21.8

%

(1)

 

Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(1,788) for the three months ended December 31, 2022 and $(7,205) for the year ended December 31, 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 core performance of the consolidated insurance business, prior to the impact of quota share and net investment income.

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Medical Loss Ratio

91.6

%

 

97.9

%

 

85.3

%

 

88.9

%

InsuranceCo Administrative Expense Ratio

22.3

%

 

24.5

%

 

20.6

%

 

21.8

%

InsuranceCo Combined Ratio

113.9

%

 

122.4

%

 

105.8

%

 

110.7

%

 

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 December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(in thousands)

Total Operating Expenses

$

1,217,606

 

 

$

692,322

 

 

$

4,553,505

 

 

$

2,383,196

 

Claims incurred, net

 

(884,904

)

 

 

(482,492

)

 

 

(3,280,798

)

 

 

(1,623,995

)

Premium deficiency reserve release

 

10,753

 

 

 

40,186

 

 

 

25,033

 

 

 

55,325

 

Impact of quota share reinsurance (1)

 

40,745

 

 

 

24,260

 

 

 

154,741

 

 

 

82,246

 

Total Administrative Expenses

$

384,200

 

 

$

274,276

 

 

$

1,452,481

 

 

$

896,772

 

Stock-based compensation expense/warrant expense

 

(29,088

)

 

 

(28,268

)

 

 

(112,329

)

 

 

(99,152

)

Depreciation and amortization

 

(3,735

)

 

 

(3,970

)

 

 

(15,283

)

 

 

(14,605

)

Other non-recurring items (2)

 

 

 

 

 

 

 

 

 

 

(898

)

Adjusted Administrative Expenses (A)

$

351,377

 

 

$

242,038

 

 

$

1,324,869

 

 

$

782,117

 

Total Revenue

$

995,127

 

 

$

496,067

 

 

$

3,963,638

 

 

$

1,838,715

 

Reinsurance premiums ceded

 

365,474

 

 

 

212,921

 

 

 

1,463,403

 

 

 

881,968

 

Excess of loss reinsurance premiums

 

(8,115

)

 

 

(4,971

)

 

 

(31,502

)

 

 

(16,266

)

Adjusted Total Revenue (B)

$

1,352,486

 

 

$

704,017

 

 

$

5,395,539

 

 

$

2,704,417

 

Adjusted Administrative Expense Ratio (A divided by B)

 

26.0

%

 

 

34.4

%

 

 

24.6

%

 

 

28.9

%

(1)

 

Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(1,788) for the three months ended December 31, 2022 and $(7,205) for the year ended December 31, 2022.

(2)

 

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

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 December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(in thousands)

Net loss

$

(226,560

)

 

$

(197,742

)

 

$

(609,552

)

 

$

(571,426

)

Interest expense

 

6,135

 

 

 

397

 

 

 

22,623

 

 

 

4,720

 

Other expenses (income)

 

(1,339

)

 

 

1,201

 

 

 

(2,415

)

 

 

1,201

 

Income tax expense (benefit)

 

(715

)

 

 

(111

)

 

 

(523

)

 

 

846

 

Depreciation and amortization

 

3,735

 

 

 

3,970

 

 

 

15,283

 

 

 

14,605

 

Stock-based compensation/warrant expense (1)

 

29,088

 

 

 

28,268

 

 

 

112,329

 

 

 

99,152

 

Other non-recurring items (2)

 

 

 

 

 

 

 

 

 

 

21,076

 

Adjusted EBITDA

$

(189,656

)

 

$

(164,017

)

 

$

(462,255

)

 

$

(429,826

)

(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 year ended December 31, 2021.

Appendix

Reinsurance Impact

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(in thousands)

Quota share ceded premiums

$

(372,168

)

 

$

(192,003

)

 

$

(1,489,525

)

 

$

(904,764

)

Quota share ceded claims

 

328,841

 

 

 

203,314

 

 

 

1,241,173

 

 

 

773,615

 

Ceding commission, net of deposit accounting impact (1)

 

40,745

 

 

 

24,260

 

 

 

154,741

 

 

 

82,246

 

Experience refund

 

14,809

 

 

 

(15,948

)

 

 

57,625

 

 

 

39,062

 

Net quota share impact

$

12,227

 

 

$

19,623

 

 

$

(35,986

)

 

$

(9,841

)

(1)

 

Includes ceding commissions received from reinsurers, net of the impact of deposit accounting of $(1,788) for the three months ended December 31, 2022 and $(7,205) for the year ended December 31, 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 December 31,

 

Year Ended December 31,

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

(in thousands)

Reinsurance premiums ceded, gross

(380,592

)

 

(197,441

)

 

(1,524,157

)

 

(921,953

)

Experience refunds

15,118

 

 

(15,480

)

 

60,754

 

 

39,985

 

Reinsurance premiums ceded

(365,474

)

 

(212,921

)

 

(1,463,403

)

 

(881,968

)

Reinsurance premiums assumed

41,815

 

 

6,872

 

 

138,109

 

 

16,298

 

Total reinsurance premiums (ceded) and assumed

(323,659

)

 

(206,049

)

 

(1,325,294

)

 

(865,670

)

 

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 December 31,

 

Year Ended December 31,

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

(in thousands)

Direct claims incurred

1,172,279

 

 

678,019

 

 

4,428,000

 

 

2,403,108

 

Ceded reinsurance claims

(335,058

)

 

(207,594

)

 

(1,290,349

)

 

(800,769

)

Assumed reinsurance claims

47,683

 

 

12,067

 

 

143,147

 

 

21,656

 

Total claims incurred, net

884,904

 

 

482,492

 

 

3,280,798

 

 

1,623,995

 

 

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 December 31,

 

Year Ended December 31,

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

(in thousands)

Other insurance costs, gross

238,392

 

 

148,694

 

 

868,385

 

 

492,609

 

Ceding commissions

(42,533

)

 

(24,260

)

 

(161,946

)

 

(82,246

)

Other insurance costs, net

195,859

 

 

124,434

 

 

706,439

 

 

410,363

 

 

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

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

 

(in thousands)

Ceded reinsurance claim recoverables

 

$

776,266

 

$

406,017

Reinsurance ceding commissions

 

 

42,805

 

 

23,517

Experience refunds on reinsurance agreements

 

 

73,816

 

 

2,456

Reinsurance recoverable

 

$

892,887

 

$

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

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