Here are five things to know about Oscar:
Oscar has a large market opportunity
The U.S. health-insurance market is a huge one, accounting for about $4 trillion in annual spending, or 18% of GDP. As a new, tech-savvy company, Oscar has a pretty strong market opportunity, assuming it is able to compete with incumbent insurers.
The company believes it’s the third biggest for-profit health insurer in the 18 states it operates in. The company may also benefit from the shift to telehealth that has accelerated during the coronavirus pandemic and saw 62% more telehealth visits per 10,000 members in March 2020 compared with the year-earlier month. It may also benefit from an overall positive reception of other recent telehealth IPOs, including Teladoc Health Inc. /zigman2/quotes/207420252/composite TDOC -3.47% , Lemonade /zigman2/quotes/219257798/composite LMND -6.67% and American Well Corp. /zigman2/quotes/220991557/composite AMWL -3.39% , according to MKM’s Kulkarni.
Oscar’s founders will retain control of the company
The IPO envisages a dual-class share structure with Class A and Class B stock, with the latter carrying 20 voting rights per share compared with the Class A’s one vote per share. The Class B shares are to be held by co-founders Kushner and Schlosser, and Kushner’s Thrive Capital, which together will own about 82.9% of voting rights once the deal is completed.
That means regular shareholders will have little say in the running of the company.
Other investors include Tiger Capital, Coatue Management and Dragoneer Investment Group, which have said they are interested in purchasing $125 million of shares each, or $375 million in shares in total.
Oscar is not profitable and may never be
The company has never made a profit and had an accumulated deficit of $1.427 billion as of Dec. 31, 2020, according to its prospectus.
“We incurred net losses of $261.2 million and $406.8 million in the years ended December 31, 2019, and 2020, respectively,” says the prospectus.
Revenue fell to $462. 8 million from $488.2 million.
The company’s adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) losses are also growing, rising to $402.4 million in 2020 from $222.2 million in 2019.
Its medical loss ratio stood at 84.7% at end 2020, while its administrative ratio stood at 26%, giving it an overall combined ratio of more than 110%, which “implies negative operating margins despite rising scale,” said MKM analyst Kulkarni.
The company intends to make “significant investments” to further market, develop and grow the business, with a focus on its technology platform and member-engagement engine. That effort will mean hiring more people. As a public company, it is also expecting higher legal, accounting and compliance costs than has been the case as long as it was private.
“We may not achieve or maintain profitability, and we may continue to incur significant losses in the future,” the company says in its list of risk factors.
Oscar is highly exposed to the Affordable Care Act
Oscar is highly exposed to the Affordable Care Act, the signature piece of healthcare legislation achieved during the presidency of Barack Obama, which continues to be the subject of lawsuits and efforts to change its provisions. Plans that are subject to regulation under the ACA accounted for 95% of its revenue in 2020 and 96% in 2019, says the prospectus.
While the act may remain safe under President Joe Biden — Obama’s vice president — there is no guarantee a future Republican administration would not seek to overturn it and with it, a large part of Oscar’s business.
A constitutional challenge brought in Texas in December 2018 is still working its way through the system and is now captioned California v. Texas and awaiting a Supreme Court decision, said the prospectus.
“In the interim, Congress and President Biden may consider other legislation and/or executive orders to change elements of the ACA, including for example, the January 28, 2021 Executive Order issued by President Biden directing the Secretary of HHS to consider opening a Special Enrollment Period for the Health Insurance Marketplace as well as directing federal agencies to examine all existing regulations, orders, guidance documents, policies and similar agency actions to determine if any such actions are inconsistent with the policy set forth in the Executive Order to protect and strengthen Medicaid and the ACA and make high-quality healthcare accessible and affordable for every American,” it said.
Those changes could materially impact Oscar’s business, results and financial condition, it concludes.
Oscar has no plans to pay dividends
Like many companies when they first go public, Oscar does not plan to pay dividends in the foreseeable future. That means shareholders will have to rely on price gains for returns.
The ability to pay dividends in the future is also restricted by some of the terms of its revolving loan facility, which may be embedded in future credit agreements, says the prospectus.