# Oscar Health, Inc. (OSCR) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Oscar Health, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1568651/000156865125000008/oscr-20241231.htm
Accession: 0001568651-25-000008
Filing date: 2025-02-20
Report date: 2024-12-31
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/fy2023/ (FY 2023)
Next year: /company/OSCR/mda/fy2025/ (FY 2025)

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

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

INDEX TO MD&A

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

[[GREPCENT_TABLE]]
[["","Page"],["Overview","59"],["Recent Developments, Trends and Other Key Factors Impacting Performance","55"],["Critical Accounting Policies and Estimates","62"],["Components of our Results of Operations","65"],["Results of Operations","66"],["Liquidity and Capital Resources","69"]]
[[/GREPCENT_TABLE]]

Overview

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

We regularly review our Total Revenue, MLR, Selling, General and Administrative Expense Ratio (“SG&A Expense Ratio”), Net Income (loss) attributable to Oscar Health Inc., and Adjusted EBITDA, a non-GAAP financial metric, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, and make strategic decisions. We believe these operational and financial measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP.

Total Revenue

Total revenue includes Premium revenue, Investment income, and Services and other revenue. We believe Total revenue is an important metric to assess the growth of our business, as well as the earnings potential of our investment portfolio.

MLR

MLR is a metric used to calculate medical expenses as a percentage of net premiums before ceded quota share reinsurance. The impact of the federal risk adjustment program is included in the denominator of our MLR. We believe MLR is an important metric to demonstrate the ratio of our costs to pay for healthcare of our members to the net premium before ceded quota share reinsurance. MLR in our existing products are subject to various federal and state minimum requirements.

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SG&A Expense Ratio

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

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

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

Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)

Adjusted EBITDA is defined as Net income (loss) for the Company and its consolidated subsidiaries before interest expense, income tax expense (benefit), and depreciation and amortization, as further adjusted for stock-based compensation and other items that are considered unusual or not representative of underlying trends of our business, where applicable for the period presented. We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Adjusted EBITDA is a non-GAAP measure. Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations.

We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate Adjusted EBITDA in the same manner.

Management uses Adjusted EBITDA:

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

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

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

•to evaluate our capacity to expand our business.

By providing this non-GAAP financial measure, together with a reconciliation to the most comparable U.S. GAAP measure, Net income (loss), we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for Net income (loss) or other financial statement data presented in our Consolidated Financial Statements as indicators of financial performance. A reconciliation of Adjusted EBITDA from Net income (loss) is provided under “Results of Operations-Adjusted EBITDA”.

Recent Developments, Trends and Other Key Factors Impacting Performance

Regulatory Update

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

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

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

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

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

Members

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

SEP Market Dynamics

SEP or other market dynamics that drive enrollment and/or mix changes throughout the year may impact the per member levels of premiums, claims, and/or risk adjustment transfers. During the year ended December 31, 2024, the increase in membership was due in part to an increase in member enrollments through SEP which impacted our MLR. Higher SEP growth in certain markets throughout 2024 may have contributed to the increase in our risk transfer payable for the year ended December 31, 2024. We currently anticipate lower SEP membership growth during 2025.

Risk Adjustment

The risk adjustment programs in the markets we serve are administered federally by CMS and are designed to mitigate the potential impact of adverse selection and provide stability for health insurers. Under this program, each plan is assigned a risk score based upon demographic information and current year claims information related to its members. The risk score is used to adjust plan revenue to reflect the relative risk of the plan's enrolled population. We reevaluate our risk adjustment transfer estimates as new information and market data becomes available until we receive the final reporting from CMS in later periods, up to twelve months in arrears.

Our risk transfer estimates are subject to a high degree of estimation and variability, and are affected by the relative risk of our members, and in the case of ACA, relative to that of other insurers. There is a higher degree of uncertainty associated with estimates of risk adjustment transfers at the beginning of the policy year resulting from composition of the risk score being based on concurrent claim data. There is additional uncertainty for both markets and blocks of business that experience outsized growth, compounded by the lack of credible experience data on the newly enrolling population. Furthermore, there

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is also uncertainty associated with changes in other carriers operations, which may impact the ultimate degree of market level risk. Actual risk adjustment calculations and transfers could materially differ from our assumptions.

Claims Incurred

Medical expense primarily consists of both paid and unpaid medical expenses incurred to provide medical services and products to our members. Medical claims include fee-for-service claims, pharmacy benefits, capitation payments to providers, provider disputed claims and various other medical-related costs. Our development of the benefits payable estimate is a continuous process we monitor and refine on a monthly basis as additional claims receipts and payment information becomes available. Our medical expenses are impacted by seasonal effects of medical costs, such as the utilization of deductibles and out-of-pocket maximums over the course of the policy year, which shift more costs to us in the second half of the year as we pay a higher proportion of covered claims costs, and the number of days and holidays in a given period. Our medical and pharmacy costs can also exhibit seasonality depending on selection effects or changes in the risk profile of our membership and the proportion of our membership that is new in the calendar year. The emergence of medical and pharmacy claims is influenced by the aforementioned drivers, and further mix shifts may continue to alter claims incurred patterns in future periods.

Seasonality

Our business is generally affected by the seasonal patterns of our member enrollment, medical expenses, and health plan mix shift and product design. SEP or other market dynamics that drive enrollment and/or mix changes throughout the year may impact the per member levels of premiums, claims, and/or risk adjustment transfers. Additionally, medical expenses have historically been highest towards the second half of the year due to a number of factors discussed above.

Reinsurance

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

Critical Accounting Policies and Estimates

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

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

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Benefits Payable

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

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

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

Completion Factors

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

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

[[GREPCENT_TABLE]]
[["Changes in Estimates","Increase (Decrease) in Benefits Payable (in thousands)"],["(1.00)%","$","172,729"],["(0.75)%","129,221"],["(0.50)%","85,931"],["(0.25)%","42,858"],["0.25%","(42,644)"],["0.50%","(85,076)"],["0.75%","(126,673)"],["1.00%","(165,622)"]]
[[/GREPCENT_TABLE]]

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

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

Risk Adjustment

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

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

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Components of our Results of Operations

Premium

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

Investment Income

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

Services and Other

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

Medical

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

Selling, General and Administrative Expenses

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

Other Expenses (Income)

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

Income Tax Expense (Benefit)

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

Net income (loss) attributable to noncontrolling interests

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

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Results of Operations

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

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands, except percentages)","2024","","2023"],["Revenue"],["Premium","$","8,971,259","","","$","5,686,069"],["Investment income","185,729","","","155,447"],["Services and other","20,576","","","21,353"],["Total revenue","9,177,564","","","5,862,869"],["Operating Expenses"],["Medical","7,332,589","","","4,642,024"],["Selling, general, and administrative","1,755,565","","","1,425,766"],["Depreciation and amortization","32,145","","","30,694"],["Total operating expenses","9,120,299","","","6,098,484"],["Earnings (loss) from operations","57,265","","","(235,615)"],["Interest expense","23,734","","","24,603"],["Other expenses (income)","105","","","7,082"],["Earnings (loss) before income taxes","33,426","","","(267,300)"],["Income tax expense","7,305","","","3,294"],["Net income (loss)","26,121","","","(270,594)"],["Less: Net income (loss) attributable to noncontrolling interests","689","","","134"],["Net income (loss) attributable to Oscar Health, Inc.","$","25,432","","","$","(270,728)"],["Medical Loss Ratio (MLR)","81.7","%","","81.6","%"],["SG&A Expense Ratio","19.1","%","","24.3","%"],["Adjusted EBITDA(1)","$","199,234","","","$","(45,238)"]]
[[/GREPCENT_TABLE]]

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

Premium

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

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

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["Membership by Offering","","2024","","2023"],["Individual and Small Group","","1,636,400","","","967,002"],["Medicare Advantage","","\u2014","","","1,781"],["Cigna+Oscar (1)","","40,570","","","67,500"],["Total Members (2)","","1,676,970","","","1,036,283"]]
[[/GREPCENT_TABLE]]

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

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

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Investment Income

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

Medical Expenses and MLR

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands, except percentages)","2024","","2023"],["Medical","$","7,332,589","","","$","4,642,024"],["Less: Ceded quota share reinsurance claims (1)","(2,029)","","","2,057"],["Net claims before ceded quota share reinsurance (A)","$","7,334,618","","","$","4,639,967"],["Premium","$","8,971,259","","","$","5,686,069"],["Less: Ceded quota share reinsurance premiums (2)","(881)","","","(2,211)"],["Net premiums before ceded quota share reinsurance (B)","$","8,972,140","","","$","5,688,280"],["Medical Loss Ratio (A divided by B)","81.7","%","","81.6","%"],["(1)Represents prior period development for claims ceded to reinsurers pursuant to quota share treaties accounted for under reinsurance accounting, which are in runoff"],["(2) Represents prior period development for premiums ceded to reinsurers pursuant to quota share treaties accounted for under reinsurance accounting, which are in runoff."]]
[[/GREPCENT_TABLE]]

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

Selling, general and administrative expenses increased by $329.8 million, or 23%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This increase was driven by higher distribution, taxes and fees associated with higher membership year over year, partially offset by the impact of the acceleration of stock compensation expense associated with the cancellation of the Founders Awards in the first quarter of 2023. The SG&A Expense Ratio improved 520 basis points year over year for the year ended December 31, 2024, primarily due to improved fixed cost leverage and variable cost efficiencies.

Income Tax Expense (Benefit)

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

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

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

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Adjusted EBITDA

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands)","2024","","2023"],["Net Income (loss)","$","26,121","","","$","(270,594)"],["Interest expense","23,734","","","24,603"],["Other expenses (income)","105","","","7,082"],["Income tax expense","7,305","","","3,294"],["Depreciation and amortization","32,145","","","30,694"],["Stock-based compensation (1)","109,824","","","159,683"],["Adjusted EBITDA","$","199,234","","","$","(45,238)"]]
[[/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. Additionally, these expenses are reported net of any stock-based compensation that has been capitalized for software development costs. Year ended December 31, 2023 includes a non-recurring charge of $46.3 million related to accelerated stock-based compensation expense recognized as a result of the cancellation of the Founders Awards. Refer to Note 10 - Stock Based Compensation for additional information.

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Liquidity and Capital Resources

Overview

We maintain liquidity at two levels of our corporate structure, through our health insurance subsidiaries (any subsidiary of Oscar Health, Inc. that has applied for or received a license, certification, or authorization to sell health plans by any state Department of Insurance, Department of Financial Services, Department of Health, or comparable regulatory authority) and through our holding company (our parent company, Oscar Health, Inc., on a standalone basis (“Parent”) and subsidiaries excluding our health insurance subsidiaries).

The majority of the assets held by the holding company are in the form of cash and cash equivalents and investments. As of December 31, 2024 and December 31, 2023, total cash and cash equivalents and investments held by the holding company was $189.8 million and $234.1 million, respectively, of which $12.8 million and $12.6 million was restricted for 2024 and 2023, respectively.

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

Our health insurance subsidiaries’ states of domicile have statutory minimum capital requirements that are intended to measure capital adequacy, taking into account the risk characteristics of an insurer’s investments and products. The combined statutory capital and surplus of our health insurance subsidiaries was estimated to be approximately $1,242.7 million as of December 31, 2024, and it was $800.6 million as of December 31, 2023, which was in compliance with and in excess of the minimum capital requirements for each period. The health insurance subsidiaries historically have required capital contributions from Parent to maintain minimum levels. The health insurance subsidiaries in aggregate exceeded the minimum statutory RBC requirement by $301 million as of December 31, 2023 and are projected to have approximately $774 million of excess capital as of December 31, 2024. The health insurance subsidiaries may be subject to additional capital and surplus requirements in the future, as a result of factors such as increasing membership and medical costs, which may require us to incur additional indebtedness, sell capital stock, or access other sources of funding in order to fund such requirements. During periods of increased volatility, adverse securities and credit markets, including those due to rising interest rates, may exert downward pressure on the availability of liquidity and credit capacity for certain issuers, and any such funding may not be available on favorable terms, or at all.

As our health insurance subsidiaries have collectively become profitable and to the extent their levels of statutory capital and surplus continue to exceed minimum regulatory requirements, we may make periodic requests for dividends and distributions from our subsidiaries to fund our operations or seek to enter into transactions or structures that enable us to efficiently deploy this excess capital, which may or may not require approval by our regulators. During the year ended December 31, 2024 and 2023, the Parent received approximately $133 million and $52 million capital distribution, respectively, from the insurance subsidiaries. For additional information see Part I, Item 1A “Risk Factors—Risks Related to our Business—If state regulators do not approve payments of dividends and distributions by our health insurance subsidiaries to us, or do not approve other capital efficiency structures we may pursue, we may not have sufficient funds to implement our business strategy.”

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

Short-Term Cash Requirements

The Company’s cash requirements within the next twelve months include benefits payable, risk adjustment transfer payable, current lease liabilities, interest payable on debt, other current liabilities and purchase commitments and other obligations. We expect the cash required to meet these obligations to be primarily funded by cash available for general corporate use, cash flows from current operations, and/or the realization of current assets, such as accounts receivable. Based on our current forecast, we believe the Company's cash, and cash equivalents and investments, not including restricted cash, will be sufficient to fund our operating requirements for at least the next twelve months.

Some of our payments and receipts, including risk adjustment transfers and reinsurance receipts, can be significant. For example, during the third quarter of 2024, we made a payment through our health insurance subsidiaries of approximately $1,056.8 million into the risk adjustment program, for the 2023 policy year. As such, timing of payments and receipts can influence cash flows from operating activities in any given period which would have a negative impact on our operating cash flows.

Long-Term Cash Requirements

Our long-term cash requirements under our various contractual obligations and commitments include operating leases. We expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations. See Note 13 – Leases to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

Convertible Senior Notes

On February 3, 2022, we issued $305.0 million in aggregate principal amount of convertible senior notes due 2031 (the “2031 Notes”) in a private placement to funds affiliated with or advised by Dragoneer Investment Group, LLC, Thrive Capital, LionTree Investment Management, LLC and Tenere Capital LLC (the “Initial Purchasers”). In connection with the sale and issuance of the 2031 Notes, on January 27, 2022, we entered into an investment agreement with the Initial Purchasers (the “Investment Agreement”) and on February 3, 2022, we entered into an indenture with U.S. Bank, as Trustee (the “Indenture”). The 2031 Notes bear interest at a rate of 7.25% per annum, payable in cash, semi-annually in arrears on June 30 and December 31 of each year, commencing on June 30, 2022. The 2031 Notes will mature on December 31, 2031, subject to earlier repurchase, redemption, or conversion.

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

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

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

Revolving Credit Facility

On December 28, 2023, we entered into a third amendment to our senior secured credit agreement (the “Third Amendment”), with Wells Fargo Bank, National Association, as lender and the administrative agent, and certain other lenders party thereto from time to time (collectively the “Lenders”), and Oscar Management Corporation, as a subsidiary guarantor, which amended the senior secured credit agreement, dated as of February 21, 2021 (as amended by the First Amendment to Credit Agreement, dated as of January 27, 2022, and as further amended by the Second Amendment to Credit Agreement, dated as of July 21, 2023, the “Credit Agreement” and as amended by the Third Amendment, the “Amended Credit Agreement”). The Amended Credit Agreement provides for a revolving loan credit facility (the “Revolving Credit Facility”) in the aggregate principal amount of $115 million, with proceeds to be used for general corporate purposes. Borrowings under the Revolving Credit Facility bear interest equal to, at our option, one of two variable rates plus an applicable margin.

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

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

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

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

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Investments

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

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

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

Our restricted investments consist primarily of cash and cash equivalents and U.S. Treasury securities; we have the ability to hold such restricted investments until maturity. The Company maintains cash and cash equivalents and investments on deposit or pledged to various state agencies as a condition for licensure. We classify our restricted deposits as long-term given the requirement to maintain such assets on deposit with regulators.

Summary of Cash Flows

Our cash flows used in operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts.

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

Our primary operating cash flow sources are premiums and investment income. Our primary operating cash flow uses are payments for claims, risk adjustment transfers, and operating expenses, including interest expense. For the year ended December 31, 2024, net cash provided by operating activities was $978.2 million as compared with $272.2 million used in operating activities for the same period in 2023. The change was primarily due to higher premiums received, which were partially offset by higher claim disbursements.

Cash flows from investing activities primarily include the purchase and disposition of financial instruments. For the year ended December 31, 2024, net cash used in investing activities was $1,387.4 million as compared to $577.2 million net cash provided by investing activities for the same period in 2023. The change was primarily due to an increase in purchases of securities and a lower level of maturing investments.

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

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