Losses mount for ACA startup Oscar as repeal looms

(Bloomberg) — Oscar Insurance Corp., the startup trying to reinvent medical insurance with its Affordable Care Act public exchange-focused plans, lost more than $200 million on the products in 2016 as it heads into a year that may see the undoing of the health law.

The company offered plans in four states in 2016 and lost about $204.9 million on premium revenue of $425.9 million, according to filings. The loss widened from $121.7 million in 2015.

The company says it exited some markets, invested in operations and is aiming for a turnaround in 2017, yet its fate may be closely linked to one of its key backer's relatives. Oscar co-founder Joshua Kushner is brother to Jared Kushner, who is the husband of Ivanka Trump and a senior adviser to President Donald Trump. Trump has promised to "repeal Obamacare," without clearly defining what he includes in the term "Obamacare." The repeal efforts seem likely to affect the ACA exchange public, the ACA individual commercial health insurance rules and other provisions Oscar was founded to profit from.

Oscar Chief Executive Officer Mario Schlosser remains optimistic for the insurer's prospects, saying that this year, the company's fourth in those markets, will show a "significant improvement." In New York, its largest market, the startup has moved to cut costs by working with a smaller set of hospitals and doctors, called a narrow network, a strategy already used in other regions. It also stopped selling in two areas, and boosted premiums significantly.

Small business

"It's really the first time, 2017, that we were able to price fully on our own systems and our own networks and with more visibility," said Schlosser, who's also an Oscar co-founder. "We've got the machinery now together."

The company said it isn't gaining any special insight from the Kushner brothers' relationship.

The company is also moving to sell health insurance to small businesses in New York and California. That'll help Oscar diversify away from the volatile individual market and eventually target large companies.

Under the current ACA rules, the individual commercial health insurance market has been a tough market for insurers, who've had to contend with enrollment shortfalls, costly customers, and the failure of a government program intended to ease losses. UnitedHealth Group Inc. and Aetna Inc. and others exited most of their individual major medical and ACA small-group exchange business ahead of 2017 to stem losses, which McKinsey & Co. estimates at $8.9 billion industrywide last year.

In 2017, Oscar has 54,000 enrollees in the New York City area. (Photo: Allison Bell/LHP)

In 2017, Oscar has 54,000 enrollees in the New York City area. (Photo: Allison Bell/LHP)

ACA solution

Oscar is betting that lawmakers will come up with an ACA solution that stabilizes the individual market and continues to create demand for the insurer's product. The company's executives said Oscar may expand into new markets for 2018, even as others pull back.

"There will be a market going forward and we're optimistic about the stabilization drive coming out of the government right now," Schlosser said.

As a state-regulated insurer, Oscar's results are publicly available at least quarterly in three of its markets, and annually in New Jersey. That means that the general outlines of its loss — about $128 million across New York, California and Texas in the first nine months of the year — were already known. Here's Oscar's 2016 annual premium revenue and 2017 sign-up level by state:

New York: $246,266,928 in revenue; 54,343 sign-ups.
New Jersey: $82,007,699 in revenue; no sign-ups (exited).
California: $9,105,813 in revenue; 11,560 sign-ups.
Texas: $88,529,393 in revenue; 38,400 in sign-ups.

Oscar's backers include Kushner's Thrive Capital, as well as Fidelity Investments, Khosla Ventures and Founders Fund, whose co-founder Peter Thiel is a Trump ally. The startup raised funds in early 2016 at a $2.7 billion valuation.

Oscar offers insurance in the ACA's individual market in the New York City area, San Francisco, Los Angeles and San Antonio, and exited the Dallas-Fort Worth area and New Jersey this year. Oscar has raised its premiums about 20 percent in New York, 24 percent in San Antonio and 12 percent in the Los Angeles area.

For 2016, the company spent about $479 million on medical costs such as hospital visits and drugs, about $50 million more than it took in as premiums. The rest of the loss, just over $150 million, stems from administrative costs and Oscar's investments in its technology and operations to grow the company.

Narrow network

In New York, Oscar signed up about 54,000 people and centered its network around Montefiore Medical Center, Mount Sinai Health System and Long Island Health Network.

"Our expectation is that leads to future fantastic returns," said Brian Singerman, a Founders Fund partner who sits on Oscar's board. "None of these things are built overnight. We're in this for the long term."

Oscar's discussions with lawmakers in Washington indicate a desire to stabilize the health insurance market, said Joel Klein, the company's chief policy and strategy officer.

"The basic view, while they may not put it this way, is while there's plenty of room for improvement, until you have something better, don't upset what you've got," he said.

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