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Before that, however, the company has a decent medical loss ratio of 84.7%, which improved by 12 percentage points from 2017. It suffices to say that once Oscar Health reaches a certain size, it could cancel its reinsurance treaties and assume all the risk and profits for its premiums. Large insurers have minimal reinsurance expenses, as the premiums they collect are substantial enough to absorb unexpected losses. This ensures that if a force majeure (such as a global pandemic) led to a sudden increase in large claims, it won't bankrupt the company. However, the company paid out 72.8% of premiums to transfer the claim risks to reinsurers. Over the past year, Oscar Health's direct policy premiums actually grew by 72.5% to $2.29 billion. It's clear that the company's founders designed its business model with long-term sustainability in mind. Luckily, it does have a very promising business model, one that can likely enrich those who understand it.
Its way of doing business has put off risk-averse investors. To acquire customers, Oscar Health is reinvesting a lot of its cash flows into growth, as well as reinsurance so the company could not be forced into bankruptcy if unforeseeable events led to a sudden rise in large medical claims. Health insurance is a hypercompetitive industry. With such a steep sell-off, many investors might be wondering if now is a good time to buy the dip. Over the past six weeks, its shares are down 41.5% from their initial price of $39 apiece. Fool since April 2020.įollow Health 's ( NYSE:OSCR) initial public offering has proven to be a major flop despite having a top-rated health insurance business. Lately expanding into innovations in cryptocurrency alongside biotech/cannabis content. Investing in healthcare and cannabis is his passion, as well as looking out for new, actionable stock investment ideas in these sectors. Zhiyuan Sun is a statistician with a knack for analyzing clinical trials and company financials.