Oscar faces shareholder lawsuit alleging it misled buyers

Live Brief:

  • An Oscar Health shareholder has filed a lawsuit, seeking class action certification, that claims the insurer omitted information it was required to disclose about the potential impact of the COVID-19 pandemic on its operations ahead of the company’s March 2021 initial public offering.
  • In the complaint, filed Thursday in the US District Court for the Southern District Court of New York, shareholder Lorin Carpenter accuses Oscar of violating the Securities Act by filing a “false and misleading” registration statement. Oscar omitted from the statement that its COVID-19 testing and treatment costs were increasing and that significant membership growth during the special enrollment period for marketplace plans would negatively affect its business, the suit alleges.
  • As a result, Carpenter and other class members suffered significant losses and damages, the complaint says. Oscar Health did not respond to a request for comment on the lawsuit.

Live Insight:

The insurance marketplaces created under the Affordable Care Act are a key business driver for Oscar, which saw its overall membership nearly double at the end of the first quarter of this year, to 1.1 million people, compared to a year ago.

But the insurtech startup, along with its peers Clover Health and Bright Health Group, has seen medical loss ratios jump during the pandemic due to elevated COVID-19 costs and new members acquired during the special enrollment period.

In its IPO, Oscar Health sold more than 36 million shares at $39 per share, receiving about $1.3 billion from the offering. Five months later, the company reported its medical loss ratio was 82.4% for the second quarter of 2021, up from 60.7% in the year-ago period, according to the lawsuit. Its second-quarter loss widened by $32.1 million from the prior year, to $73.1 million.

The shareholder lawsuit also contends that Oscar failed to disclose in its registration statement that it would be negatively affected by a risk adjustment data validation audit.

In November, Oscar Health said its third-quarter MLR rose to 99.7%, and it reported a net loss of $212.7 million, an increase of $133.6 million from the previous year. The company said higher COVID-19 costs, special enrollment member growth and an unfavorable risk adjustment data validation audit for 2019 and 2020 drove the MLR increase.

The company’s shares tumbled nearly 25% to $12.47 after the November disclosures and later traded as low as $5.76, an 85% decline from the IPO price, according to the lawsuit. The stock closed at $5.83 Friday on the New York Stock Exchange.

Also named in the suit are company executives including Oscar Health co-founders CEO Mario Schlosser and Vice Chairman Joshua Kushner, and several investment banks.

Oscar Health earlier this month said it will exit the Arkansas and Colorado markets next year while remaining in 20 states as it refocuses its strategy to achieve profitability. The 10-year-old company aims to turn a profit in 2023.

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