Oscar is the “hip”, “tech-forward”,”disruptive” health insurance company out of New York. It is a young company that is seeking to disrupt the health insurance industry with cool new online disease management tools.
It is losing money.
And I can’t think of how the business model works on two aspects.
The first aspect is the simplest aspect. Insurers make money when they pay out less in claims than they take in premiums. Pre-PPACA there were three major areas an insurer could control. The first is that it could pay a low rate per service used. This is a strategy of network design and leverage. Big insurers can use the hundreds of thousands of covered lives that they control to leverage a good deal from providers. It is a volume versus price trade-off.
The second means of financial performance control is minimizing the number of services. This is a benefit design question. Deductibles and co-insurance and co-pays are used to keep people from using services. Tiered benefit structures with high level premier providers and then a basic level of in-network providers attempts to drive people to low cost providers that are not prone to prescribing marginally useful but expensive services.
The third means is avoiding expensive people through aggressive underwriting and dumping people once they are expensive.
PPACA significantly restricts the third option (there are a few ways companies still try to do this by making fugly networks and high tiering drugs).
The first and second forms of financial control still remain. And this is where I have a disconnect on their business model.
Modern Healthcare has a decent article on Oscar but one thing really stood out to me:
Oscar appears to be picking up steam near its home base of New York and New Jersey. Anthony Cancela, CEO of Cancela Insurance Brokerage in South Plainfield, N.J., said Oscar rents out a “fairly larger network” for its individual customers and rolled out an extensive advertising campaign.
Renting networks is not cheap. The network builders take a cut between the charge rate of the providers and the contracted rates. It is very seldom a rate that is competitive with other providers. It is a rate that tends to be much higher than Medicare plus a smidgen that is the dominant exchange pricing strategy. So that leaves utilization control as the last form of financial control for an insurer. Oscar may have some decent predictive modeling tools and utilization diversion tools that shift people to PCPs and urgent cares instead of ERs or diabetics to wound clinics instead of in-patient hospitalizations, but those tools are only so good.
The other part of the Oscar business model I can’t figure out is that they are a large net payer of risk adjustment dollars. Oscar is actively marketing itself to young, tech-savvy and healthy people. That is a good way to control utilization as young people tend to use a lot less services than old people. However the Exchanges have risk adjustment that makes this a near net revenue neutral strategy. Risk adjustment sends money from insurers that have low cost and good health populations to insurers that are covering a sicker and more expensive population.
It’s targeted market is young and it is healthy so it means Oscar is paying in:
Oscar is attracting the highly sought-after younger, healthier crowd, but it has been losing money as it gains insurance price-setting experience. The CMS said in September that Oscar owed roughly $8.1 millionunder the Affordable Care Act’s risk-adjustment program for the individual market. Risk adjustment requires plans that had healthier, lower-cost members to pay into a pool that is then directed to health plans that had sicker members.
So 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.