- ‘The individual market isn’t working as intended,’ CEO says
- Company will stop selling insurance in Dallas, New Jersey
Health insurance startup Oscar Insurance Corp. will reevaluate its approach to Obamacare after suffering significant losses under the U.S. program and will pull out of two markets next year.
Oscar, which pitches itself as a tech-savvy alternative to traditional health insurers, plans to end sales of Affordable Care Act plans in Dallas, a market it entered this year, and New Jersey. It’s part of a more conservative approach by the New York-based company as it plans to introduce insurance products for businesses next year.
“The individual market isn’t working as intended and there are weaknesses in the way it’s been set up,” Chief Executive Officer Mario Schlosser said in an interview. “We want to focus on the markets we understand well, we want to focus on the markets where we have our own model in place.
Closely held Oscar, is backed by venture capital firms including Josh Kushner’s Thrive Capital, Founders Fund and GV, which is Alphabet Inc.’s venture capital arm. It was formed to take advantage of the new markets and millions of people who would gain coverage under the Affordable Care Act. Yet the company, with its cartoon ads on New York subways and consumer-focused approach, has run into many of the same problems that have forced bigger, more experienced rivals like UnitedHealth Group Inc. and Aetna Inc. to scale back from the Affordable Care Act’s exchanges as well.
Oscar was said to have been valued at $2.7 billion earlier this year, when it took in $400 million from backers led by Fidelity Investments. It lost about $105 million in 2015, and has posted losses of $83 million in New York, California and Texas in the first half of 2016. Quarterly filings aren’t available in New Jersey.
Oscar has about 130,000 customers, including 7,000 people in Dallas during its first year in the market there. In New Jersey, it covered 26,000. It will remain in the Los Angeles and New York City areas, as well as in San Antonio. It’s also expanding its Obamacare plans into the San Francisco area for 2017.
“Some of this is really looking at our opportunities and trying to pursue more aggressively the small-group market,” said Joel Klein, the company’s chief policy and strategy officer. “It’s a little bit of a rebalance given the underlying market forces.”
Funded to Last
Oscar has enough funds in the bank from investors to sustain itself over the next several years, Klein said. The company can also improve its margins on medical costs over the next two years, and that the company’s results were hurt by the failure of government programs that were meant to stabilize the Obamacare markets early on, according to Schlosser.
In Dallas, Schlosser said Oscar faced an unpredictable insurance market, with several large carriers pulling out and the state’s Blue Cross and Blue Shield insurer asking for big rate increases, along with climbing medical costs. The company said it’s quitting New Jersey mainly because its network of doctors, hospitals and other health providers isn’t a “narrow network” -- a relatively closed, but lower cost, group of providers that many in the industry see as a way to keep expenses down.
In the interview, Schlosser said the company’s new plans focus more on Oscar’s strengths, particularly narrow networks. Along with lower costs, using more narrow networks gives the company a larger role in coordinating the care of its customers, such as helping them pick doctors and using tools to keep track of their care. Oscar has said its also struck deals to share the cost of caring for patients with the health systems.
“We want to work with delivery system partners who understand us,” Schlosser said.
Sell to Companies
Next year in the second quarter it will start selling plans to smaller business, a product commonly known as small-group insurance. By the end of next year, Oscar wants to begin offering health plans for larger employers, Schlosser said.
While Oscar’s narrow networks could limit its appeal to the largest employers, Schlosser said the insurer hopes to convince companies to offer its health plans as one of several options.
Klein was chancellor of the New York city public school system when Michael Bloomberg was mayor. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.