Is this a valuable core competency?

I admit it, I can not figure out why Oscar is a media darling.  I might be an old fuddy duddy stuck to the ways of a dinosaur industry but I can’t figure out what they are doing that is so vastly superior to what my former co-workers (who work at a profitable entity by the way) do. And then I read this write-up on Oscar in BackChannel and I know what their core competency is; getting the tech press to write fawning write-ups.  Is that truly a market breaking and market making core competency with sustainable value?

I just want to pull out a few things that had me wait the weekend to write this as I just couldn’t go into an immediate critique.

(By the way, “members” is Oscar’s preferred term for its users — “customers” sounds too meretricious, and “patients” implies that they are sick. Oscar thinks of itself as a wellness machine.)

Members is fairly standard language at every health insurer I have ever talked to, worked for or been covered by.  If I am talking with actuaries or the finance department, I’ll hear the term covered lives as well.  Per Member Per Month (PMPM) is a nearly universal metric for first pass cost analysis.  Quora had an answer for PMPM from 2011.

The collaboration with Mount Sinai is part of Oscar’s new “narrow network” in New York City. This term refers to a tightly bounded but high quality set of medical services, and is a key component of Oscars full-stack approach.

Everyone is doing a narrow network these days.  My previous insurance was through an IDN’s narrow network.  My new job’s insurance is through a narrow network.  Smart insurers use narrow networks to drive both pricing down and quality up.  This would have been innovative in 2004.  Now it is normal.  Penn’s LDI has a great brief on the evolution of QHP narrow networks.  

The numbers on Schlosser’s screen marking Oscar’s subscribers don’t seem game changing— some thousands in each age group; the largest chunk in the 26 to 35 bracket. It’s not surprising that young adults are susceptible to a health care insurer with the vibe of an internet startup; after all, Oscar has been called the “Hipster Health Insurer.” But there are both older and younger signups as well, even some people over 65. “It’s exactly on target,’” says Schlosser of the mix, his English heavily accented by his native German. As for the numbers themselves, Oscar had about 120,000 members last year and may not (because it left two markets) have many more this year

What I see in this paragraph is massive risk adjustment outflows.  

We know that the current Exchange market is an older market with a median age over 35.  Young people on average are net healthier individuals so their premiums will be used to cover sicker individuals.  The marginal young person dollar is far more likely to see a significant portion of that dollar leave a carrier’s coffers to balance the risk pool.  Oscar might be able to sign up a lot of people but the net of risk adjustment revenue is not impressive PMPM.  The one risk adjustment protection that they have is that their pricing is not that good.  For example in San Francisco (zip code 94105) they are the #3 Silver.  For a single 40 year old, they are priced $39 per month more than the benchmark Silver offered by Kaiser and $76 more than the low cost Silver offered by CCHP.  For a 25 year, it is a $30 spread from Oscar to Kaiser and $60 from Oscar to CCHP.  The lowest price Silver assuming the quality is not horrendous will get most of the healthy people who are cost sensitive and not network sensitive so they’ll get the most risk adjustment exposure.

To serve its New York members, Oscar has opened its first dedicated clinic, in collaboration with Mount Sinai Heath System, one of its new partners for services in the city. The fourth-floor facility near the Jay Street subway stop in Brooklyn doesn’t resemble a doctor’s office as much as a spa, or the headquarters of a cool startup—down to the Nespresso machine and free Kind bars. In a conscious homage to the Apple Genius Bar, the traditional crabby receptionist is replaced by smiling “greeters” who help you log in on an iPad. They are trained to stand next to visitors instead of behind them, to foment a feeling of collaboration. Those with actual ailments are shuttled to exam rooms where doctors continue the digital huddle; visiting Oscar members who are feelin’ good can drop into a “multipurpose wellness center,” which will host classes on disease maintenance, pregnancy, and yoga, as well as TED-type talks on subjects of community interest.

Cool clinics with modern design principles and yoga classes sound great.  They sound like a place to be hip and chill and part of Brooklyn’s third and fourth wave of gentrifiers while the real action for the next scene has passed the neighborhood by already.  I again am seeing massive risk adjustment outflows.  People who are active and taking classes and feeling good will have very low HCC scores.  An insurer needs those people to pay for the very sick and the very expensive but too many of those people in the QHP market means risk adjustment outflows.  If Oscar is optimizing their pitch to young and healthy people, making money under ACA rules and most likely any functional replacement of the ACA that has significant limitations on underwriting will be tough.

Plenty of insurers have adapted a neighborhood PCP clinic model.  Harken and  Zoom are also recent start-ups that had a focus on lifestyle and PCP access. Value Based Insurance Design (VBID) is proliferating where PCP care is very low or no cost sharing.


Optum and United Healthcare is making a major play far higher up the value chain with their most recent acquisition of a surgical specialty practice. They are also playing in the on-demand PCP business with MedExpress (I’ve used MedExpress for years and  the experience has been extremely nice and user friendly)

I am also seeing a core problem with the individual market.  Pre-ACA the individual market had two segments.  The first were long termers such as consultants and contractors.  They would stick around and PCP services could produce a decent return on investment through better future health.  The other segment of the market were short termers who needed coverage for a couple of months as they changed jobs or something better came their way. They were healthy enough to pass through underwriting screening but they would be gone with anything more than a flu shot was a money loser in terms of preventative care.  The ACA has added a third group, people who were either too sick or too poor to afford insurance.  But again, we know the QHP market is still a very high churn market.  Unless Oscar has almost no churn and can offer products in all lines of business in order to internalize the gains of prevention, PCP services are a poor financial investment for a carrier that is overwhelmingly in a high churn, individual market.  And since they are chasing Millenials, that is a group that is extremely likely to churn out of the individual market due to either job moves or geographic moves.

Warren oversees over 60 engineers, who not only work on the app and convivial interfaces but also are constructing a digital infrastructure to make Oscar a platform where third-party developers can add value. Down the road, he sees the company as a pioneer in exploiting machine learning to improve services for customers, and maybe even to anticipate medical crises.

My first thought on this is that I’ll bet on Carnegie Mellon or Google or  MIT or someone with millions of covered lives to really be able to effectively do deep data mining and predictive analytics rather than a company with 135,000 covered lives in 2016 and maybe 200,000 unique covered lives throughout its life.  Non-obvious solutions need both massive data sets and amazing expertise.  Oscar does not have the data sets that the Blues or Optum (UHC) or CalPers or Medicare has.

Secondly, sixty software engineers are not cheap.  And I think the idea of building an infrastructure where other developers can plug in is a great idea but there is a massive chicken and an egg problem.  Other people will want to plug in if and only if there are enough Oscar members to make it worthwhile to do so.  And Oscar won’t get those members if they can get their pricing both under control and profitable.  Right now Oscar is pricing their products in the middle of the market.  This pricing is still insufficient to cover their claims expense through the first nine months of 2016 in New York (126% MLR when a healthy insurer’s MLR is in the mid-80s) and their administrative build-out costs are very high (26% of premium admin expense when a health insurer has no more than half that as their admin costs)  Even if Oscar could run with no administrative costs, they would need to raise their premiums by 40% to break even on their medical costs.  Their story is that they’ll use the combination of their awesome technology and a lower cost narrow network as a means of reducing their medical expenses but they need to find some combination of $142 per member per month in spending reductions or increased revenue to break even before we even think about their administrative costs.

It’s fairly easy to get good press and decent start up numbers when you’re taking a 30% loss on the operational product and you have a hugely expensive back-end that has not achieved economies of scale nor useful operational.  The challenge and the thing that I still have not been able to figure out is how the hell does Oscar break even operationally in the individual and small group markets as those markets are extremely price sensitive and have higher than average churn.  I can’t figure out how Oscar does well in the large group market as their price sensitivity is a bit less but they want bigger networks and more technical sophistication.  I have been scratching my head for two years on Oscar and I am wearing out a bald spot over my right ear now.

So, if Oscar’s core competency is getting good press from the tech side, is that enough to actually pay the bills and be profitable?




37 replies
  1. 1
    MomSense says:

    Conservativea are all over the twitter machine gloating about how Obamacare not the ACA is being repealed.

    Suck it libtards. Ugh.

  2. 2
    WereBear says:

    @MomSense: gloating about how Obamacare not the ACA is being repealed

    Yep. I saw one commenter on Tumblr who was bragging that he had ACA and would keep his insurance when Obamacare, “that failed program,” was repealed.

    Yes, they have been lied to. But on the other hand, they prefer life that way.

  3. 3
    Pseudonymous Bosch says:

    @MomSense: Whatever happens: if it’s bad, it will be because of Obamacare; if it’s neutral or good, it will be because the Republican replacement, the ACA, replaced something bad that was Obamacare. Guaranteed.

  4. 4
    TimJ says:

    Perhaps the business model of Oscar is not actually to make any kind of operational profit, but to survive long enough to be bought out by a major player for their tech/brand.

    Never make a profit in a single year but the backers and the staff members with equity get a nice fat payout at the end.

  5. 5
    rikyrah says:

    Stupid muthaphuckas 😬😬😬

  6. 6
    mai naem mobile says:

    It’s core competency is that one of the founders is the BIL to the SIL of the PEOTUS. And some of its backers are the Chinese relatives of the former Chinese Premier who have lent money to the PEOTUS.

  7. 7

    @TimJ: I could see that model if their kung fu was amazing. I don’t know if their kung fu is that amazing compared to what my former co-workers do every day of the week while making a nice little profit.

  8. 8
    Baud says:

    And then I read this write-up on Oscar in BackChannel and I know what their core competency is; getting the tech press to write fawning write-ups.

    I find that’s true in the labor market, with self-promotion taking the place of the tech press.

  9. 9
    Sarah in Brooklyn says:

    We just left a Oscar because of the reduced network. I never found them all that.

  10. 10
    mattH says:


    Perhaps the business model of Oscar is not actually to make any kind of operational profit, but to survive long enough to be bought out by a major player for their tech/brand.


    Today Oscar announced that mutual fund giant Fidelity led a $400 million investment in the tech-savvy insurance start-up. The deal values Oscar at $2.7 billion, according to sources in the know. That’s up roughly $1 billion from September 2015 when Oscar took in $32.5 million from Google Capital at a $1.7 billion valuation. Also jumping into this round are previous investors Google Capital, General Catalyst, Founders Fund, Lakestar, Khosla Ventures, China’s Ping An and Thrive Capital (which is run by Oscar founder Josh Kushner)

    They are a “Tech Startup”, not a heatlhcare company. It’s the same thing again and again now; be the first to claim that you bring a “tech innovation” to a market, have connections, get money, hope you get bought before the VC/Angel/Mutual Fund money dries up. If you do, you win BIG. If not, you got paid well, you go quiet for a few months and start something new with those same connections.

  11. 11
    trnc says:

    Norquist is currently on Morning Joe lying about the effects of the ACA on the debt.

  12. 12
    RSR says:

    Since our youngest is named Oscar , it’s always amusing to me to read statements such as “I can not figure out why Oscar is a media darling. “

  13. 13
    MomSense says:

    @Richard Mayhew:

    Your former co workers do not brag enough. They probably need to make up more catch phrases or re-brand the old phrases. It’s also probably that when a Bschool dude shows up at a media interview looking, sounding, and acting like a Bschool dude he will be received by Bschool dudes as a god.

    I think there are many of us who have had the experience of making points over many years in organizations and being ignored when all of a sudden a shiny new guy comes in saying the same things and is treated as a savior or thought leader or ideas guy or whatever the lingo is when he arrives. No one wants to be the “bitter” person in the corner reminding people they had said the same thing last month.

  14. 14
    RSR says:

    Oscars full-stack approach

    I recognize ‘full stack’ from web development. Is it really used in other business situations? Maybe I just never noticed before.

  15. 15
    Eric U. says:

    @WereBear: I am ok with them keeping obamacare and claiming credit for it. Make it more generous and call it Trump care, I don’t gaf

  16. 16
    tamiasmin says:

    I think Oscar is confusing ‘meretricious’ with ‘mercantile,” which could lead to some unpleasantness.

  17. 17
    Barbara says:

    @TimJ: I think we have a winner! Yes, my assumption is that Oscar is built to be sold. The real question is, who would buy it? In my view, the optimal buyer would be a company that already has significant strengths in the individual market but might be able to make use of Oscar’s hypothetical innovations. A company that is strong in group and that needs to up its game in individual markets isn’t going to find that by buying Oscar. In all seriousness, the insurance business is hard, marrying low profit margins with significant possibility of downside risk. It is also hemmed in by the logic of whatever regulatory environment prevails for a given market — Medicaid, Medicare Advantage, Exchanges, etc. Exchange markets have much more in common with Medicaid than they do with group insurance, or with Medicare Advantage. Oscar’s approach seems to appeal more to group buyers than exchange buyers. I can’t prove that, but this is from looking at what has worked in exchange markets so far. Heavy duty focus on an appealing PCP experience does not seem to have yielded a lot of profits.

    ETA: Data mining has been a feature of managed are companies for more than 20 years. The challenge for insurers is to implement insights gleaned through data so that providers can/will use them.

  18. 18
    Scottinnj says:

    @mai naem mobile: nailed it. One of the umpteen grifts that will go full bore post Jan 20

  19. 19
    Barbara says:

    @mattH: I am giggling about the idea of Oscar as a tech start up. I had a client with an entire shop of software developers located in a foreign country, beginning more than 20 years ago. Some insurers are more this way than others, but still, insurers could probably write the manual on how to use big data. They all have big data. They all have what they call data warehouses where teams of people spend their whole career deciding what to do with it and how to make it useful. The issue is taking it from the knowledge base of the insurer and bringing it to others — providers, individual customers — in order to inform care and lifestyle decisions. A lot of data insights step on someone else’s financial toes. Telling doctors not to use certain kinds of drugs, or start with OTCs instead of Rx prescriptions, for instance.

  20. 20
    MazeDancer says:

    NYC is an unusual health care market. First, its geography is people jam-packed into small space. So it’s not hard to get the word spread or find your market. Next, there are lots of big name docs and hospitals. Plus, plenty self-employed people who buy their own insurance.

    Also many rich people. Which is why the concierge approach – docs taking money not insurance – is appealing to so many talented physicians.

    It is often hard to find a big deal doc who will take your insurance. It is often difficult to get an appointment anywhere. You have to know someone to get to the best docs. It’s like restaurant reservations.

    For the best of the best, you’re competing not just against rich NY’ers, rich people in the tri-state area, but also rich people around the nation and the globe. So offering not just access but easy “just click on your phone” ability to get name-brand medical care is going to appeal to a lot of people. That is worth way more than $39 a month extra in NYC. Time is a much more rare asset for many NY-ers than money.

    And, yes, PR and customer relationships are core competencies. Just look at any company that doesn’t have any skills in that area.

    But can understand why it would be irritating to see a company not really doing anything much except being slick about selling their not really doing anything. But sales is a big core competency. However, it seems, since they aren’t profitable yet, Oscar needs more demo of being core competent at sales.

  21. 21
    Doug says:

    “any functional replacement of the ACA”

    How does it do under a dysfunctional replacement? Because that seems a likely bet just now…

  22. 22
    Barbara says:

    @MazeDancer: Sure, people who have problems and need access to doctors might find this approach appealing IF it did what you say it does, but it doesn’t. Oscar has a narrow network and if you are someone who wants your dermatologist at this name brand hospital and your orthopedist at this other name brand hospital and your infertility specialist at yet another — Oscar won’t do that for you. Now, in my view, people in NYC get really fixated on these things because they have bought the Kool-Aid that they have the best of the best of the best and GD they want that — even if it’s only marginally true or not true at all. I had a friend who had to pay umpty thousand dollars for a hip replacement from the “best.” And yet, my mom got a hip replacement from an academic medical center that did not require umpty thousand more dollars and has done great. This kind of thing is concentrated in NYC and NJ, among people who are well off and not inclined to buy narrow network products of any kind, and it is unlikely to spread to the rest of the country anytime soon if ever. There are good doctors, there are bad doctors, but in most cases most doctors are trained to a high level of proficiency in most things. And what separates good from bad is often inscrutable to patients, and often discounted alongside other things that are considered more important to patient “experience,” like amenities that have really nothing to do with quality.

  23. 23

    @MazeDancer: But rich people are either getting insurance through work as they have good paying jobs (see Heidi Cruz’s Goldman Sach’s $40K/year anything goes insurance) or are rich enough to self-insure or making too much money to qualify for exchange subsidies.

    If this market segment who wants concierge like service actually want that service, Oscar is not providing that service. They are providing a fairly typical narrow network product aimed at people who qualify for subsidies on Exchange with magic fairy dust sprinkled on the customer facing interface that still does not make any money.

  24. 24
    Barbara says:

    @Richard Mayhew: The insight that Medicaid plans have is that young and healthy people rarely focus their lives around the expectation of needing medical care.

  25. 25

    @Barbara: Yep, they need something, a medicaid like plan is something and it is dirt cheap… voila big volume, low costs and large but anticipated risk adjustment outflows

  26. 26
    Applejinx says:

    I might be an old fuddy duddy stuck to the ways of a dinosaur industry but I can’t figure out what they are doing that is so vastly superior to what my former co-workers (who work at a profitable entity by the way) do. And then I read this write-up on Oscar in BackChannel and I know what their core competency is; getting the tech press to write fawning write-ups. Is that truly a market breaking and market making core competency with sustainable value?


    I don’t know much about insurance markets but this is one thing I do know because I’ve been living in the world of these Silicon Valley people for quite some time, more than you have, and have had to study what goes on pretty closely.

    When you say ‘market breaking’ you’re on the money, market ‘making’ you have to look at things more loosely. What you’re seeing is more and more common. Money is power, but money doesn’t have to be tied to things anymore if it can be tied to other money. Yes, hyping the tech press with a ‘disruptive’ thing is strong enough to break markets and replace existing functional businesses with bullshit. Look at Trump! Our world prefers it that way at the moment. It doesn’t matter if you can deliver on your promises if you can build a valuation to wreck OTHER people’s sustainable value, and the degree of growth required to be considered sustainable is sort of off the table for traditional businesses, even yours.

    Capital wants this. Doesn’t matter a whole lot what people want or need. And sustainable value doesn’t mean what you think it does. You’re still thinking in terms of doing things, existing in the real world. Capital has moved to a place where it needs much bigger promises than that, and everyone’s complicit, and there’s no opt-out here. You will live in the world Capital has made.

    So, redefine value, and get used to Oscar or things like it. ‘Vastly superior’ valuation is your tip-off. If the world worked the way you were thinking it must, then they would NOT have vastly superior value. Profitable/sustainable is bad, worse than nothing if it can be identified as ‘predictably not enough’: you become dead to capital if it’s obvious you cannot grow fast enough.

    Also, sustainable only matters until you cash out. The world will have to jump on the next thing to bubble up in that event, and will, and you’ll be asking the same questions then (or until you recognize what this is).

  27. 27
    Barbara says:

    @Applejinx: I do understand what you are saying. But literally, almost nothing that Oscar is doing has not been done by other insurers already. As Richard (!!) says, the notion that the term “member” is innovative is laughable. We have been doing “pmpm” deals since, like, forever. I have clients who will bite your head off if you refer to the people they insure as “patients” because it shows a glaring unfamiliarity with their business. We had a discussion the other day about Theranos and one thing stood out — the number of investors with no background in biotech. Insurance is one area where no one looks the other way when it comes to solvency. They have to keep the capital inflows coming until they make money or find a buyer. It’s that simple.

  28. 28

    I am reminded of Enron; there was no business model there and, ultimately, it went under. This is also Uber, which underpays its drivers and is losing money hand over fist.

    I am left thinking that we are on track for another crash involving massive fraud.

  29. 29
    Applejinx says:

    @Barbara: But that’s my point. Doesn’t matter what they’re doing, doesn’t matter if all they say is lies.

    They have to keep the capital inflows coming until they make money or find a buyer. It’s that simple.

    Yes, and keeping the capital inflows coming is making money. More and more, in every walk of life, these are the new rules.

    Money is power, and money can be tied to other money to make money. When that becomes more efficient at making money than any normal human endeavor, things change: and here we are.

    I’m not arguing this is good: folks around here know I’m a Vermont socialist and think all this is bullshit. But this is how it is, and I’m not nearly big enough to change it, nor are you, nor is the whole insurance industry. No industry is.

  30. 30
    Applejinx says:

    @Raven Onthill: Fraud implies there are rules. We may already be beyond that point.

  31. 31
    Barbara says:

    @Applejinx: I don’t care if Google Ventures or a hedge fund known as Thrive loses money. The main point I take from what you are saying is that there is too much money chasing too few real investments, leading to suboptimal or excess allocation of capital in ventures that are unlikely to create economic value in the long run. This has been the case for a while now. When you talk to venture capitalists many will say that they know that a high percentage of invested money leads nowhere but they only need a low percentage of success in order to be successful overall. It’s their money, and some tech companies have taken on the role of genetic engineering and biotech in that regard. It was amazing to me how long some biotech companies were able to keep themselves afloat with investor money in the face of nearly zero expectation of profit. After more than two decades there were maybe three that had a viable product (Amgen, Genentech, Millennium). After another two decades, there are way more than that. However, insurance companies are highly bottom line driven. If you can’t pay claims you can’t continue to be an insurance company. I suspect what Oscar is trying to do is to create IP that can be used (sold) independently of its success as an insurer. But to do that it needs to reach a certain scale as an insurer in order to develop enough data to create that kind of product. At least so far, most insurers develop tools that are proprietary and do not market them to other insurers. That doesn’t have to be the case. In addition, so called population health management tools could be sold to large scale providers for their use as well.

    ETA: Oscar isn’t the only company trying to do this or something like it.

  32. 32
    chopper says:

    And then I read this write-up on Oscar in BackChannel and I know what their core competency is; getting the tech press to write fawning write-ups.

    so it’s the insurance version of theranos.

    Is that truly a market breaking and market making core competency with sustainable value?

    see above.

  33. 33
    Applejinx says:

    @Barbara: Hm. So we agree, except you argue that Oscar is boned?

    You may be right. I didn’t say Oscar was a sure thing… just that they represent the only TYPE of thing being done anymore. Maybe they’re just not good enough at hype to defy reality? In that case they’re doubly boned.

    Or, they propose to Uber-fy their industry, in which case they are boned but their industry is also boned?

    ‘Interesting’ times we live in.

  34. 34

    @chopper: I am reluctant to go the full Theranos comparison for Oscar for a very basic reason.

    Both Theranos and Oscar tell a story that they have some magic pixie dust that completely disrupts and ravages a boring, established line of work. Theranos only ever really had the magic pixie dust to do the actual work it said it was doing.

    Oscar is paying claims and processing ID cards and taking premiums. It is trying to sprinkle its magic pixie dust on top of or into the boring work of being an insurance company but it is actually an (inefficient and unprofitable) insurance company.

    Theranos looks to be absolutely fraud. Oscar at worst looks to be bullshit.

  35. 35

    @Barbara: Oh, what Optum does and what UPMC/Evolent is trying to do :)

  36. 36
    Barbara says:

    @Richard Mayhew: Optum, Evolent, others too. The biggest hurdle some of these companies have is getting access to large scale usable data. I guess becoming your own insurer might be considered a radical way to get data, but it might actually be easier than some other methods. Agree that Theranos is not the same.

  37. 37
    Barbara says:

    @Applejinx: I am sure I don’t have enough knowledge to agree or disagree agree with you that they are the only type of thing being done. What I would say is that for all the hype of venture capitalists, many are quite risk averse and people like Elon Musk who are willing to take the risk of losing it all for a truly new thing are rare. Most people in his shoes buy an island or a sports team or fund vanity sailing competitions close to their headquarters just in time for a company-wide conference. If Oscar is the only “type” of thing being done, it’s because VC investors are looking for exactly that “type” of thing. It’s not optimal but I am not sure what else to say about it.

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