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Oscar Health returned to a third-quarter profit and raised its full-year outlook Thursday, reporting stronger revenue and a lower share of premiums going toward medical expenses. A favorable change in risk-adjustment estimates also supplied a substantial boost to revenue.
The health insurer reported net income attributable to Oscar of $167.3 million, or 49 cents per diluted share, compared with a loss of $137.5 million, or 53 cents per diluted share, a year earlier. Those are GAAP results, not adjusted earnings.
Revenue rose to $5.139 billion from $2.986 billion, according to Oscar’s earnings release. The company attributed the increase to rate increases and higher membership. Total effectuated membership, meaning people actively enrolled whose required premiums have been paid or remain within a grace period, reached about 2.692 million, compared with 2.117 million a year earlier.
The $250 million estimate benefit matters
Third-quarter revenue included a $250 million favorable benefit from updated risk-adjustment estimates. Oscar cited changes in its risk scores relative to the market and modestly favorable market morbidity relative to expectations.
Risk adjustment is designed to balance differences in the health risks insurers cover. In the federal program Oscar describes, plans with lower-than-average risk scores generally pay into a pool, while those with higher scores generally receive distributions.
The estimate benefit is therefore part of the reported financial improvement, not simply extra premium revenue from signing up more customers. It should not be confused with a new benefit paid to members or an announced reduction in their bills.
Medical-cost ratio falls, but medical spending rises
Oscar’s medical loss ratio was 84.0%, down from 88.5% a year earlier. In plain terms, the company recorded about $84 in medical expenses for every $100 of net premiums before ceded quota-share reinsurance, compared with $88.50 a year earlier. Risk adjustment affects the premium side of this measure.
That lower ratio does not mean total medical spending fell. Oscar’s reported medical expenses increased to about $4.233 billion from $2.586 billion as the business grew. The company said the ratio improvement was primarily driven by its pricing strategy.
The selling, general and administrative expense ratio fell to 14.0% from 17.5%. Operating earnings were $178.0 million, reversing a $129.3 million operating loss.
Higher outlook is a forecast, not a promise to policyholders
Oscar now expects full-year revenue of $19.0 billion to $19.3 billion, compared with its previous range of $18.7 billion to $19.0 billion. It raised expected earnings from operations to $850 million to $950 million from $600 million to $800 million.
CEO Mark Bertolini said this was the company’s third increase in its earnings-from-operations outlook this year. The guidance remains a forecast subject to risks, including medical costs and risk-adjustment estimates.
For people choosing or using health insurance, these results describe the insurer’s business, not the terms of an individual policy. They do not, by themselves, announce lower premiums, smaller deductibles, broader provider networks or a change to coverage. Members still need to check the price, benefits and network of the specific plan they are considering.
Shares lower in an intraday snapshot
Yahoo Finance’s quote showed Oscar shares at $33.81, down $1.38, or 3.92%, as of 3:10:40 p.m. Eastern Thursday, while the market was still open. That is an intraday snapshot, not a closing price, and it does not establish why the shares moved. The earnings figures and guidance are not investment advice.
JBizNews Desk | New York
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