Oscar shareholder claims insurer misled IPO investors 

Oscar Health CEO Mario Schlosser

Photo: Courtesy Oscar Health

Oscar Health shareholder Lorin Carpenter is suing Oscar Health CEO Mario Schlosser and others asking for class action status, claiming the insurer misled investors about the costs associated with COVID-19 when they bought Class A common stock in the company.

The lawsuit was filed Thursday, May 12, in U.S. District Court in New York.

On March 3, 2021, in a Securities and Exchange Commission filing, Oscar said it sold more than 36 million shares of Class A common stock at a price of $39 a share. Oscar received $1.3 billion in the initial public offering.

Since then, the price of the stock has fallen to as low as $5.76 per share, a more than 85% decline from the $39 per share IPO price, the lawsuit said.

Carpenter requested a jury trial and wants compensatory damages for all class members, with the number of members estimated to be in the hundreds of thousands.

WHY THIS MATTERS

The lawsuit appears to be about whether Oscar omitted information during its initial public offering in March 2021 about potential headwinds caused by COVID-19 and other factors, that could cause its stock to plummet eight months later.

Oscar misled shareholders in March 2021 by omitting COVID-19 information, the lawsuit states. Instead, it touted its growth opportunities by reimagining healthcare as a health insurance company built around a full-stack technology platform.

The registration statement was "materially false and misleading" and omitted to state, it said, that Oscar was experiencing growing COVID-19 testing and treatment costs and that it would be negatively impacted by an unfavorable prior year Risk Adjustment Data Validation (RADV) result relating to 2019 and 2020, among other factors.

The lawsuit also claims that Oscar omitted that it was on track to be negatively impacted by significant Simplified Employee Pension (SEP) membership growth.

"As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, plaintiff and other Class members have suffered significant losses and damages," the lawsuit said.

THE LARGER TREND

On August 12, 2021, Oscar disclosed a medical loss ratio for the second quarter that was 82.4%, an increase from 60.7% in the second quarter of 2020, "primarily driven by meaningfully lower utilization in 2Q20 as a result of COVID-19, as well as higher COVID-19 testing and treatment costs and a return to more normalized utilization in 2Q21."

The net loss for the quarter was $73.1 million, an increase of $32.1 million year-over-year, the lawsuit said.

During the third quarter of 2021, Oscar said the medical loss ratio increased to 99.7%. The MLR increase was primarily driven by higher net COVID-19 costs, the lawsuit said. The net loss for the quarter was $212.7 million, an increase of $133.6 million year-over-year.

"During a conference call held the same day, Scott Blackley, the company's chief financial officer, stated, according to the lawsuit: 'We recognized approximately $20 million of risk adjustment expense this quarter related to our risk adjustment data validation audit, or RADV, results. The RADV exercise is atypical this year due to COVID. It spans two years, 2019 and 2020. The majority of the RADV headwinds relate to the 2019 audit results, which were recently completed.'" 

Oscar's share price closed that day, November 11, 2021, at $12.47 per share.

Oscar Health recently announced it would exit two markets for the 2023 plan year as the company focuses on driving toward profitability.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com