‘Neoinsurer’ Oscar Health goes for $100 million IPO; Clover Health’s big SPAC under SEC microscope

Oscar Health, one of a number of US ‘insurtech’ or ‘neoinsurance’ private health insurance companies that have nipped at the heels of the Big 9, announced late Friday an IPO on the NYSE. The number of shares and their value is not on the SEC S-1 filing but the estimate of the raise is $100 million. Timing is not disclosed but rumored to be by March or early Q2. The offering is underwritten by Goldman Sachs, Morgan Stanley, and Allen and Company.

Oscar was one of the first to offer members apps, telehealth, and fitness trackers–revolutionary back in 2012 but routine now. Expanding beyond its original base of individual health insurance coverage, it now offers Medicare Advantage and small group coverage in 18 states to over 500,000 members. Oscar remains a virtual-first platform with the majority of its members in Florida, Texas, and California. Oscar makes much of member engagement and its partnerships; 47 percent of its overall subscribing membership and 44 percent of its 55-and-up subscribers are monthly active users. Oscar has also partnered with Cleveland Clinic and other larger insurers like Cigna. 

Financing for Oscar to date is over $1.5 bn. It has tidily grown in geographic coverage, members, and revenue–$1.67 billion in 2020 and $1.04 billion in 2019–no simple feat against the Big 9. Oscar’s problem is profitability–operating losses grew proportionately, $402.3 million (+56% from $259.4 million). Operating expenses also grew by 16 percent. TechCrunch gives additional crunch in the financial analysis (article in part, full paid access). Mobihealthnews

Oscar is one of a few health-tech heavy survivors of insurance companies that bloomed like flowers–and wilted–during and post-Obamacare. Clover Health, which thrived in a slice of the Medicare Advantage market, went the SPAC (blank check) route 8 January with Social Capital Hedosophia Holdings. Now with an enterprise value of approximately $3.7 billion, the SPAC indeed put Clover in the clover [TTA 14 Jan].

But perhaps short-lived. Clover’s SPAC is now being scrutinized by the SEC based on last week’s explosive charges by short-seller maven Hindenburg Research (!). Hindenburg’s research report alleges that Clover “lured retail investors into a broken business” by not disclosing a Department of Justice (DOJ) investigation that started (at least) last fall. Clover countered that the investigation is “routine” since Clover is in the Medicare business. Thus, it was not disclosed by Clover to investors as ‘non-material’. DOJ investigations are far more serious than CMS fines for compliance violations, which are not uncommon. Back in 2016, Clover was fined just over $106,000 by CMS on misleading marketing practices.

In short, DOJ investigations are never routine. They usually are the start point for enhanced claims scrutiny and a concatenation of charges, as WellCare, then a scrappy upstart insurer, found out over six agonizing years, 2006-2012, that were serious enough to send much of top management to Club Fed.  The Hindenburg paper (linked above) details other business practices that if true, are dodgy at best and fuel for further investigations.

The SEC notice of investigation was disclosed by Clover last Friday evening, usually a good time to disclose Bad News. This SPAC may have feet of clay.  PYMNTS.com, CNBC

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