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My thoughts on the Oscar IPO. Accumulated deficit of $1.5 billion. Quite an impressive accumulated loss. And their admin ratio went up as their membership increased. https://twitter.com/ZTracer/status/1357863732421013506
It's kind of hard to tease our what their true MLR is; they run a lot of premium through their quota share reinsurance. Does seem like a trend-line down but 2020 was not... a hard year to decrease MLR.
Their biggest challenge seems to be risk adjustment payables. They are cash flow positive for 2020 but that's only because they owe a ton to the risk adjustment pools that they'll need to pay out in August
They also are on their third accounting firm in three years.... which seems odd to me but I'm not a regular follower of CPA firm hirings and firings in other companies so maybe it's not that unusual
They're proposing to keep the board elected entirely by Kusher/Thrive capital (with one exception for the IPO shares). They're really confident they know what they're doing and don't want independent directors....
I still don't get what their unique pitch is honestly, e.g.
"Approximately three out of four of our subscribing members who have a medical visit use our care routing tools to search for a provider each year." In other words... 75% of members used the provider search
"Approximately three out of four of our subscribing members who have a medical visit use our care routing tools to search for a provider each year." In other words... 75% of members used the provider search
They claim it's their tech: "For example, in 2020, 92% of our claims below $30,000 were auto-adjudicated without human intervention." That's decent but frankly not that impressive, especially considering how much they spent building their claims system
"Our claims system and other internal tools also power our cost estimates tool: when a member contacts our Care Team for an estimate of what a particular service or item will cost, the result is calculated in real-time by our claims engine."
This is somewhat unique... but new price transparency rules and the No Surprises Act make this a requirement of all insurers. So it won't be a differentiator for long.
And though there may be a few payers willing to buy the tech from them if they go after that market, I can't imagine too many are keen on buying from a competitor.
They're making a play for Medicare Advantage, which is a growing market, but it's a hard one to get into successfully. This recently published Milliman paper goes into how well folks do (hint, it's not that much membership) https://www.milliman.com/-/media/milliman/pdfs/2021-articles/1-31-21-so-you-want-to-start-a-medicare--plan-v1.ashx
Health insurance is a low margin, capital-intensive business. United's fully insured block has about a 5% operating margin. That's with massive scale and decades of experience.
Maybe I'm missing some secret sauce, but so far Oscar's positive differentiators to me have been marketing and ability to raise capital. Running a successful health plan? Less so.
One small thing I saw: they sold their $210 million risk corridor receivable to a litigation financing firm for $30 million several years ago. When SCOTUS ruled in insurers' favor, Oscar had to pay $10.5 million to the class action counsel.
Which means they got to keep $19.5 million of their $210 million RC receivable. $190.5 million sure seems like it would have come in handy.
