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.