Oscar and OMG losses

Bloomberg is reporting that Oscar Insurance, the shiny new disruptive ™ health insurance company with an awesome web app is hemorrhaging money in New York:

Startup Oscar Health lost $92.4 million in its New York health insurance business last year, a sign that insurers of all sizes are struggling in the new markets created by President Barack Obama’s health-care overhaul.
The loss, on premium revenue of $118.2 million, was disclosed by Oscar in a filing with New York regulators. Oscar said it had 52,815 customers in New York, its biggest market, as of Dec. 31. The company lost $27.6 million in the state a year earlier, when it had fewer customers. A company representative didn’t immediately return requests for comment.

Doing some quick calculations with a decent amount of an error bar as I don’t have full details, I can’t figure out their business model that justifies their buzz.

They collected $120 million, spend $210 million. Their revenue covered about 56% of their costs.

Some of their New York losses may be attributed to continued start-up costs.  They had previously stated it cost them about $20 million dollars to enter a new state.  However Oscar had been operating in New York for two years and should have already incurred most of their start up costs by the start of 2015.  Most of the expenditures were operating expenditures.  (As a side note, that $20 million to enter a new state with a decent product seems low to me).

Oscar is incurring losses of roughly $145 Per Member Per Month (PMPM) in its biggest market.  It is charging roughly $190 PMPM in net premiums.  Some of the loss is due to risk adjustment (~$20 PMPM) as Oscar’s entire business strategy is to cater to tech savvy individuals who tend to be young and healthy.

United Healthcare is collectively losing their shit about losing roughly $80 PMPM in 2015 on Exchange and roughly $50 PMPM in 2016.

I think there are two take-aways.  First, I still can’t figure out Oscar’s business model.

Secondly, setting up an insurance company or expanding an incumbent carrier into new lines of business and new areas is tough.  Even if there was no Risk Corridor Rubi-con that killed the Co-ops, we would have seen quite a few of them go under because it is tough to start a new insurer up from scratch.  Oscar is better capitalized with no restrictions on advertising or expertise buying while the Co-ops are and were severely hamstrung by federal rules on what they could market and who could invest in them with either money or expertise.


27 replies
  1. 1
    p.a. says:

    what is this, National Bigfoot a Blog Day?

  2. 2
  3. 3
    misterpuff says:

    Howcum its Obamacare/s fault? Lazy press.

    What is any startup’s success rate, even in insurance industry prior to ACA?

  4. 4

    As a New Yorker who purchased insurance on the exchange for 2014, I can only say I gave Oscar a good look and decided against them. The biggest reason I went with Emblem is that I could find my long-time physician in Emblem’s list of providers. Oscar seemed to have no approved providers at all, or none that I could find on their website. Perhaps they should have done a better job getting their ducks in a row before they went public.

  5. 5
    guachi says:

    Richard, are there any insurance companies that are doing well with Obamacare enrollees?

  6. 6
    Big R says:

    Could Oscar be a holding company tax loss harvest? Could their business model be, “invest in us and write off losses”?

  7. 7
    p.a. says:

    @Richard Mayhew: Well OK. I just ask to be kept in the loop on internet traditions. 😎

  8. 8
    dr. bloor says:

    I suspect underpants gnomes figured heavily in the formulation of their business plan.

  9. 9

    @p.a.: so you’re aware of all of them then?

    @guachi: Yep, insurers that offered narrow networks at either Medicaid plus a little bit or near Medicare provider rates are doing pretty well. California’s insurers paid most of the money into the Risk Corridor pot, so they were making decent money in 2014, and presumably did so in 2015…. It can be done, it just is not easy.

  10. 10
    Calouste says:

    But it’s an app! Disruptive! Web 3.14!!

    Someone at Oscar missed the clue that the reason con jobs like Uber and Airbnb make money is that dodging regulations is built into their business model, and that dodging regulations is quite a bit harder to do in insurance. They should have started in Kansas or so, there they could just have “convinced” the insurance regulators of their awesome business plan.

  11. 11
    SuperHrefna says:

    @Barbara O’Brien: Yes, I avoided Oscar for the same reason. I’m with Emblem now, since Heath Republic folded, but boy do I miss Health Republic. They were a great insurer. I’ll never forget the time they called me up because I hadn’t had an annual physical yet ( though I had seen my GP several times) and stayed on the phone while they patched my doctor’s receptionist into the call and made me an appointment for said annual. I felt very cared for.

  12. 12
    peach flavored shampoo says:

    First, I still can’t figure out Oscar’s business model

    If I had to guess, it involves paying their upper management millions upon millions of dollars. So there’s almost certainly that.

  13. 13
    Keith G says:

    Oscar Insurance….

    Do they cover African Americans?

  14. 14
    SarahT says:

    Crap. Looks like I’ll have to switch providers next enrollment period, then. Pity – we’ve actually been pretty satisfied with Oscar due to great customer service and really uuncomplicated bills. Oh well…

  15. 15
    ET says:

    This situation reminds a little of the talk around WebVan and some of the early Internet services that made such a splash and failed. Then, as now, it seems the yammering is less about the product itself.
    Is the technology cool (then just a web page now an app) – check.
    Is it shiny and new – check.
    Is it disruptive – check.
    Is it generating buzz – check.

    All of those are checks so it is successful. Right? Except for the fact that it isn’t making a profit or money and it doesn’t seem to be able to continue on under its own steam.

  16. 16
    Aardvark Cheeselog says:

    Not explainable by outsized expenditures on hookers and blow?

  17. 17
    Yutsano says:

    Even if there was no Risk Corridor Rubi-con

    What has been accomplished has been witnessed…

    And I’m aghast no one else caught this.

  18. 18
    The Ancient Randonneur says:

    This should remind everyone of early tech startups like WebVan. Oscar is being run and funded as a tech startup. With that in mind they are probably spending exorbitant amounts of money on talent (mostly software engineers). Disrutping the healthcare industry is a very popular thing these days and quite a few VC firms are going all in on this sector as they see it and fintech as the next areas ready for major disruption.

    I know this doesn’t answer the question how they make money but it doesn let you know what may be the mindset of the investors and the founders.

  19. 19
    Just Some Fuckhead says:

    It looks like their primary business model is raising hundreds of millions of dollars from investors.

  20. 20
    Sarah says:

    My husband and I have Oscar. Almost all of our doctors are on it, and everything has been smooth and satisfactory. I hope we won’t have to change, but this sure doesn’t sound good.

  21. 21
    SarahT says:

    @Sarah: Sarahs want their Oscar, dammit !

  22. 22
    Sad_Dem says:

    Oscar’s business model:
    1. Sign lots of people up
    2. ???
    3. Get sued by the Hollywood Oscar people
    4. Profit!

  23. 23

    @SarahT: I thought you want an EGOT

  24. 24
    SarahT says:

    @Richard Mayhew: Say what now ?

  25. 25

    @SarahT: Emmy Grammy Oscar Tony EGOT

  26. 26
    SarahT says:

    @Richard Mayhew: HA ! Nope, just insurance that I can afford and figure out. Reaching a live representative in under a minute is nice, too. PS: ” I’d like to thank my publicist, my agent, and Richard Mayhew for explaining stuff.”.

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