Friday late night, Oscar Health Is filed to the public, Adding another company to today’s IPO market. The New York-based health insurance Econorn has raised well over $ 1 billion northward during its life, making its public debut an important event to host investors.
Oscar Health raises a placeholder value of $ 100 million in its IPO filings, providing only directional guidance that its public offering will raise nine figures of capital.
Both high-profile SPACs for Oscar and Clover Medical will prove to be a test for the venture capital industry’s confidence in their ability to disrupt traditional healthcare companies.
The eight-year-old company launched to capitalize on comprehensive health insurance reforms passed under President Barack Obama’s administration provides insurance products to individuals, families and small businesses. The company claimed 529,000 “members” as of January 31, 2021. Oscar Health reported the number as a sign of its success since 31 January 2017, “representing a compound annual growth rate of 59%, or CAGR.”
However, while Oscar has shown a strong ability to raise private funds and increase the revenue of its insurance business, such as the many insurance-focused startups TechCrunch has covered in recent years, it is a deeply unprofitable enterprise.
Inside Oscar Health
We have to dig a bit into insurance terminology to understand Oscar health, but it will be as painless as we can manage. So, how did the company perform in 2020? Here are its 2020 metrics, and their 2019 comps:
- Total Premium Earned: $ 1.67 billion ($ 1.04 billion to + 61%).
- Premiums given to reinsurers: $ 1.22 billion (+ 113%, from $ 572.3 million).
- Net Premium Earned: $ 455 million (-3% from $ 468.9 million).
- Total Revenue: $ 462.8 million (-5% from $ 488.2 million).
- Total Insurance Cost: $ 525.9 million (-8.7% from $ 576.1 million).
- total operating expenses: $ 865.1 million ($ 747.6 million to + 16%).
- Operating loss: $ 402.3 million ($ 259.4 million to + 56%).
Let’s walk through the numbers together. Oscar Health did a major job to increase its total premium volume in 2020, or, in simpler terms, it sold more insurance in 2019 than in the previous year. But it claims a much higher premium than reinsurance companies in 2020 2019. So what? Eliminating premiums is revenue-revenue, but can serve to boost overall insurance margins.
As we can see in the net premium earned line, Oscar totals declined in 2020 compared to 2019, as premium seeding greatly expanded. Indeed, thanks to that effort, its total revenue fell in 2020 compared to 2019. But the premium is working for the seeding company, as its total insurance costs (other than our claim line item and “other insurance costs” category) fell from 2020 to 2019 despite selling far more insurance last year.
Sadly, all of that work did not mean that the company’s overall operating expenses fell. They did not increase 16% either in 2020 as compared to 2019. And as we all know, higher operating costs and lower revenue meant that operating losses widened, and they did.
Oscar Health’s net loss is close to its operating loss, so we spared you more data. Now, to better understand the basic economics of Oscar Health’s insurance business, let’s get our hands dirty.