How Health Insurance Startup Oscar Is Going to Get to 1 Million Members

  • In first year, Texas tops New Jersey to be No. 2 Oscar market
  • California enrollment lags amid high premiums, competition

Oscar Health Insurance Corp. CEO Mario Schlosser has found the strategy he says will build his startup into a million-customer player in the health insurance industry: use tight, exclusive networks with hospitals to sell competitively priced insurance in perhaps 30 U.S. markets.

The tactic, a shift from Oscar’s beginnings in New York, has helped it grow to about 43,000 members in Dallas and San Antonio during its first year in the Texas market, according to preliminary figures provided by the company. Nationwide, Oscar boosted enrollment to 145,000 customers in 2016, up from about 40,000 last year. The company’s chief executive officer has said he wants to hit the million mark within five years.

“The bet we made in going deep with a couple of health systems, I love what we’re doing there,” Schlosser said in an interview. “We’ve got a very good blueprint now to go into new markets.” Since its founding in 2012, Oscar has raised money from private investors and has a $1.75 billion valuation.

The strategy taps into two key features of the markets created by President Barack Obama’s Affordable Care Act: Consumers tend to go with cheaper plans, and each customer can shop for his or her own policy. Using a narrow set of doctors and hospitals to build an insurance plan can help Oscar keep premiums low.

‘Price-Competitive’

That’s different from the market for insurance provided through employers, where most working-age people get their coverage. Companies typically choose broader networks, with multiple hospitals and physician groups, to satisfy employees who may have different needs or live in different parts of a region. That wider selection is typically more expensive.

“The good news for a startup is this is a very price-competitive market,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation health policy organization. “People flock to low-cost plans, and are willing to switch from one year to the next if they can get a better deal.”

When it started in New York, Oscar had a different strategy, using a broad network like a traditional insurer. In early 2014, Schlosser told an interviewer that he’d send a cancer patient to Manhattan’s Memorial Sloan Kettering Cancer Center, “because it may be more expensive in the short run, but she’ll get better care, which will be better for her and probably for us in the long run.”

Big Player?

Since then, Oscar has been cutting its hospital list, and Memorial Sloan Kettering isn’t on it. This year, Oscar patients in the New York region will no longer be able to go to New York-Presbyterian-affiliated hospitals, such as Weill Cornell Medical Center. New York Methodist Hospital in Brooklyn is also out. Instead, Oscar covers what it says are 40,000 health providers and more than 70 hospitals, including ones tied to New York University and Mount Sinai Health System. It’s allowed existing members to stick with their current health providers to avoid disruptions in care, according to a company spokeswoman.

With a million customers, Oscar wouldn’t rival the biggest health insurers in the U.S., but it would make the firm a big player in the individual market. UnitedHealth Group Inc. has about 42.3 million customers nationwide, while Anthem has 38.6 million, including about 1.7 million in the individual market.

Oscar’s new strategy hasn’t worked everywhere: A limited network wasn’t enough to keep pricing competitive in California this year. Oscar enrolled just 5,000 people in Los Angeles and the Orange County area. In Los Angeles, for example, a mid-level Oscar plan costs $338 a month. That’s $23 more than an Anthem Inc. offering, while the cheapest coverage costs $267 a month.

In all, about 1.6 million people bought plans for 2016 on California’s ACA exchange, as of Feb. 7, according to the state. Oscar’s figures include consumers who bought through California’s marketplace, as well as directly from the company.

‘Nobody Knows’

In San Antonio, by comparison, Oscar offers the least expensive mid-level plan on the Obamacare market. It’s using Tenet Healthcare Corp. and Baylor Scott & White Health in Dallas, and Tenet’s Baptist Health System in San Antonio.

“In Texas, Oscar is very competitive,” said Dylan Roby, a professor at the University of Maryland School of Public Health. In California, “You have to pay extra to get this plan that nobody knows about.”

Schlosser said he’s confident Oscar will grow in California. He pointed out that enrollment in New Jersey jumped from a few thousand last year to about 28,000 for 2016. The company has about 69,000 members in New York.

“When we go into a market like California, we don’t underprice,” Schlosser said. “We price for a good margin, what we think covers medical risk in a good way.”

In California, Oscar partnered with Providence Health to build a network that includes University of California, Los Angeles hospitals. The plan covers about 16 hospitals in the area.

Oscar and Providence also agreed to share the cost and profit of caring for patients, rather than Oscar paying Providence a fee each time a customer sees a physician or gets an x-ray. It’s an arrangement other insurers have used to cut down on unnecessary procedures, with the goal of maintaining a patient’s overall health.

“We want some skin in the game for both parties to deliver on performance,” said P.K. Khurana, chief strategic services officer at Providence Health. “We have a shared goal of really trying to transform the patient experience.”

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