Oscar lays off their underpants gnomes



Oscar is able to get young and healthy people on an expensive network and high risk adjustment payments.  I can’t figure out their business model past the buzzwords.


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…

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.


Oscar’s strategy has been to use their web/mobile technology platforms to be the hip/cool/disruptive insurer for the next generation.

The market segment that both of these plans seem to be aiming for are people who are fairly young, active, technologically savvy and very healthy….

Assuming a hypothetical individual could be covered by both insurers for the same treatment, Centene is paying significantly less per service than Harken because Centene’s basing its provider contracts on Medicaid rates instead of commercial or Medicare rates.

Centene and other Medicaid like Exchange providers are targeting roughly the same type of population but since they are much cheaper post subsidy, they are probably getting a far larger population to amortize their fixed costs over plus any service that they do need to pay for, they are paying for at a lower rate.

From here, I am having a hard time seeing how plans that have a “lifestyle” component can compete against Medicaid like Exchange providers.  Maybe it is different off-Exchange where everyone is paying full premium and “cheapness” is not a strong selling point.


I’ve been skeptical about Oscar as I can’t figure out their business model besides build a cool app and then profit???

Ohhh… no one has ever thought about medical management and early chronic care intervention.  My cube wall mate spends 90% of her time working on our algorithms to identify members who are likely to be expensive before they become expensive so that we can intervene. …

Oscar is trying to go narrow network or quasi-TPA support for health systems that want to run a home host insurance product that should allow them to control costs. But those strategies are common.  That is what I spent most of 2013 working on building hyper narrow networks for both Exchange and Commercial ESI.  That is what my 11:30 meeting tomorrow is about.

And August from Bloomberg:

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 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…

By the end of next year, Oscar wants to begin offering health plans for larger employers, Schlosser said.

I have not been able to figure out Oscar’s business model.  It was always a flashy app/front end with loads of good marketing and Venture Capital buzzword bingo, handwaving about disrupting the marketplace and then PROFIT!!!

The little bit about Oscar trying to go to the large group market segment is interesting as in some ways that is the easiest segment to operate.  Bills get paid on time, there is no risk adjustment payment flows to worry about and the population is comparatively health with comparatively low variance.  It is also a segment that is most inclined to want big networks and is the least price sensitive.  It is a hard market to get into but a fairly easy market to set up the plumbing for.

But as the reality that being an insurer is HARD sinks in, let us all have a moment of silence for all of the now laid off underpants gnomes who have nothing to do between deploying cool frontward facing tech and PROFIT.  They have a rough life so let us appreciate those gnomes.

22 replies
  1. 1
    Fair Economist says:

    Their business plan was scamming unicorn-hunters. A common plan, actually.

  2. 2
    West of the Rockies (been a while) says:

    Mr. Mayhew, I would love to read your opinion as to why medical pricing in America is what it is.

    My father was a barber, my mother a typist clerk. They had four kids. Around 1972, my sister had an emergency spleenectomy. My father underwent surgery and radiation treatment for cancer. My oldest sister was in braces. But the costs did not destroy us.

    Now it seems everything is wildly different. Doctors blame insurance companies and trial lawyers. Insurance companies blame uninsured people and greedy doctors. Trial lawyers blame incompetent doctors. Throw in big pharma (which points to the high cost of R&D), and the blame is everywhere. Oh, and of course, plenty of blame goes to “the damn illegal immigrants who come here for free shit.”

    May I ask what are your thoughts?

  3. 3
    Earl says:

    Interestingly, one of Oscar’s founders is Josh Kushner, brother of Jared Kushner, Donald’s son in law, who is currently helping run his campaign.

    I guess the old health care companies actually did know a think or two about running an insurance business…

  4. 4

    Wait, complicated things are hard and can’t be easily replaced by an app? Actual disruption is hard? Most entrenched problems are entrenched for a reason, and the ones that crowdsourcing can readily break (e.g. taxis) are already being targeted?

    Don’t tell anybody in the Bay Area! Half my friends will be out of a job!

  5. 5
    JDM says:

    Business plan? The usual: claim it’s cool and earth-shattering, pick up investment from dummies, pocket as much of that as you can before everyone figures out that once again, “same ol’ same ol’ but done on computer/tablet” isn’t all that astounding an idea.

  6. 6
    ruckus says:

    @Major Major Major Major:
    I’ve always liked seeing people who should know better, IOW reasonably smart people, who think they are smart about everything, dig themselves a deep hole and jump in head first.

  7. 7

    @ruckus: They’re called engineers.

  8. 8
    Steeplejack (phone) says:

    It’s hard out there for a gnome.

  9. 9
    Feathers says:

    Reminds me of the wife of one of my husband’s co-workers. She was into all the new age woo and decided to go into business by starting up a psychic hotline. When I asked her how she was going to be different from the others out there, her reply was that she was going to be using real psychics.

    Starting a business because all the other people doing it MUST be idiots is unwise, but seems to happen all the time.

  10. 10
    RSR says:

    Joel Klein, failing to do for insurance what he failed to do for education.

  11. 11
    amygdala says:

    @Major Major Major Major: God, this. All of it, times a bazillion.

  12. 12
    Vhh says:

    @West of the Rockies (been a while): My guess is that sometime in the 1970s, medical insurance companies, hospitals, and medical practices started hiring lots of Ivy League MBA grads like Mitt Romney. These folks expect to be paid lots of money, and are increasingly in control of the entire medical system. Doctors are becoming employees. The same trend toward more and more overhead staff is what has made universities so much more expensive and rendered much manufacturing in the US impossible.Mr Mahew has the facts, and I’ll be interested to hear what he has to say.

  13. 13
    Lizzy L says:

    @Feathers: Come on, you can’t leave it there! What happened?

  14. 14
    Eric U. says:

    @Vhh: I really started noticing the medical management people in the ’80s. Thought it would end badly. There has been a legitimate increase in costs as well, but certainly the monetization of medicine is to blame for most of the increase.

    The quality and efficacy of medical care has definitely gotten better during my lifetime, no doubt about that. Not sure all of it really justifies how much it costs. I remember going to a doc that only took cash, but it was a reasonable amount. Not going to happen nowadays.

  15. 15

    @Vhh: I would push the story back a bit earlier to 1964 where to get Medicare passed, the Federal government agreed to stuff the entire provider universe (docs and hospitals) mouths full of gold and they exploited that as a baseline price level that they set themselves. Throw in a fucked up intellectual property system, a political process that has a very hard time to say no, regulatory and political capture and our stories are 90% alike.

  16. 16
    PJ says:

    Oscar is my current health insurer in New York. They seemed decent at first, but then they severed their contracts with half of their providers (thus narrowing the network), and started denying claims on completely ridiculous grounds (claiming that an EKG should not have been performed as part of a physical; claiming that a doctor was not in-network, when she was listed as such on their website; claiming that an eye test performed by an in-network ophthalmologist was not covered – it would have to be performed by an outside lab (?!!) to be covered, etc.) Their customer service is horrendous, too. So I will be selecting a new health insurer for 2017.

  17. 17
    horatius says:

    Richard, These underpants gnomes run Silicon Valley. They’ll find plenty of other marks.

  18. 18
    Ryan says:

    As one of the people bankrupting Oscar with my $8K/month medicine costs, this sucks.

  19. 19
    Betsy says:

    This is a very belated Thank You to you, Richard, for your many posts about the heathcare marketplace here in the U.S. I have learned so much from you and have been able to ask much more intelligent questions about my own family’s health insurance coverage because of you. Keep it up!!

  20. 20
    Scott Bowles says:

    I live in the Dallas market, and about six months ago, I saw lots of billboards touting Oscar. But until I read one of Richard’s pieces, I couldn’t figure out what the billboards were selling. The billboards were up for about a month, and since then, I’ve seen no sign of Oscar. I’m hardly surprised they’re getting out of here.

  21. 21
    Tokyokie says:

    I live in the Dallas market, and about six months ago, I saw lots of billboards touting Oscar. But until I read one of Richard’s pieces, I couldn’t figure out what the billboards were selling. The billboards were up for about a month, and since then, I’ve seen no sign of Oscar. I’m hardly surprised they’re getting out of here.

  22. 22
    larrybob says:

    This Esquire story on Jared Kushner has a lot on Josh and a bit on the founding of Oscar–a spur of the moment decision. Near the end of the article http://www.esquire.com/news-po.....-campaign/

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