The New York Times’ Reed Abelson has a great piece about Oscar Health’s trouble turning a profit. As you know, I’ve been skeptical about Oscar as I can’t figure out their business model besides build a cool app and then profit???
Let me pull out a couple of quotes from the Times article:
Oscar is more of a case study in how brutally tough it is to keep a business above water in the state marketplaces created under the Affordable Care Act. And its struggles highlight a critical question about the act: Can insurance companies run a viable business in the individual market?
Yep, insurance is a low margin business where at our core we are a pass through entity with some very specific skills and varying leverage points. Insurers can make money on Exchange but there are only a few business models where it seems like it works.
In an effort to attract customers, insurers put prices on their plans that have turned out to be too low to make a profit. The companies also assumed they could offer the same sort of plans as they do through employer-based coverage, including broad networks of doctors and hospitals.
Profitability is happening with plans that are either Medicaid managed care based, working in active buyer markets that disallow a lot of the race to the bottom tactics, or near monopoly players. The competitive markets where Exchange gaming is happening is a nasty market.
The dearth of profits from the individual markets, though, show how challenging it is to make insurance affordable when it is not subsidized by the government or an employer.
I really don’t like this line and requested a correction. The on-exchange population is subsidized to very heavily subsidized through the combination of Advanced Premium Tax Credits and Cost Sharing Reduction Subsidies. The off-Exchange population (which is where I think “life style” carriers can make their money) is not subsidized.
another provision, meant to even out the risk among companies to protect those that enroll sicker individuals, has been described as flawed by many health care experts. Federal officials have said they would tweak those formulas.
This is referring to risk adjustment. The biggest flaw from my perspective is CMS did not initially account for partial year membership. They are adding a partial year multiplier for the next round of risk adjustment to account for the fact that short term membership is more expensive than long term membership. The main complaint that Oscar and other newer companies have is the size of their risk adjustment payments. Some start-ups have seen 20% to 30% of their premium revenue go out the door for risk adjustment because they are signing up young, healthy members combined with not having either an understanding of risk adjustment optimization that incumbent insurers have as a matter of course (and my 1:30 meeting today) or the deep data sets to effectively optimize their risk adjustment. Breaking into a new business against experienced incumbents is hard.
While Oscar has had to use another insurer’s network in New York, the company’s goal is to form partnerships with systems to create networks that specialize in managing care. The company began experimenting with these networks this year in Texas and California.
Rental networks are expensive. Anyone in the insurance industry could have told the Oscar Board that in 2013. Building a network from scratch is a pain in the ass but it is the best way to have some cost control. This should not have been surprising. Now that 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.
Oscar points to its technological edge as a way to manage patients’ health better than the established insurers. It has created teams, including nurses, who are assigned to groups of patients and can intervene when its data flags a potentially worrisome condition like a high blood sugar level.
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. Her work saves millions and the screens are getting tighter and better. The other issue with this concept as a profit center and differentiator is the problem of churn. Avoiding a crisis can result in short run cost savings but effectively managing a condition where the savings is several years away has that better managed individual probably not being insured by Oscar by the time major cost savings accumulate.
Promoting itself as a consumer-friendly alternative to the other insurers also has its risks.
There is a market segment for not being an asshole towards members. However on the subsidized Exchange market, good customer service is not a strong choice predictor for healthy individuals. They want a cheap post-subsidy premium. Good customer service might be a selection tool for sicker people. Off exchange and non-subsidized Exchange plans could be where paying for good service is a good business case.
As Darren Walsh, a principal at Power & Walsh Insurance Advisors, said: “They haven’t invented a new mousetrap.”
Calouste
Probably the same business model as Uber: build a cool app, stuff the people who do the actual work, ignore regulations, and then profit.
Punchy
OT question — Every June, for the past 4-5 years, huge SCOTUS decisions have been released. To many people, waiting breathlessly, with lots of fanfare and analysis. THIS year, it’s halfway through June and I haven’t heard a single decision that’s made news or blogs.
Are there just zero blockbuster cases this year, or must we wait another 2 weeks to get the real important ones? Or is excitement completely muted due to expected ties in every case?
Kylroy
@Calouste: Maybe that was their thought, but they barely even tried to do the middle two. They *rented* their network, thereby paying providers more than other insurance companies; and they made no effort to weasel out of their risk-adjustment payment (and indeed structured their entire company as if they didn’t know such a thing existed). They’re not even Uber, they’re Pets.com – they assumed that magic Internet fairy dust would make them awesomer than the old stodgy corporations that have been doing the same thing for decades.
Richard Mayhew
@Kylroy: Exactly, Oscar’s entire marketing strategy guarantees massive risk adjustment outflows… not that there is anything wrong with that (Centene makes money despite massive risk adjustment outflows)
Mike J
@Punchy: No cert on CT assault rifle ban.
piratedan
@Punchy: I believe SCOTUSblog was just updated today with some recent activity…..
Ian
Can you explain this more? How does your company handle the people that it views as about to be expensive?
burnspbesq
@Punchy:
Thursday could be the day. Or it could hold over into next week.
The big cases still hanging are Whole Women’s Health, Fisher, Texas v. U.S. (the immigration case), and Dollar General (about taxes and Native American tribal sovereignty).
Some interesting speculation, based on historical patterns of trying to even out the Justices’ workloads, that either Breyer or Kagan has the majority opinion in Whole Women’s Health.
SRW1
NYT linky no worky.
p.a.
Isn’t profits ➡️ 0 the standard microeconomic model of a competitive system? Even given gvt. intervention re: regulations, subsidies etc. which actually seems to foster a competitive environment.
Richard Mayhew
@Ian: It really depends. Some of the early screens indicate that people are getting into a crisis (physical or behavioral health) so we’ll send someone to knock on their door to just talk (amazing how effective that can be). Some indicators have people experiencing chronic pain, so we’ll ping their PCP to set up a pain specialist visit to hopefully solve their actual problem as well as minimize risk of dependency/abuse issues popping up. Other cases will see low medication compliance, so we’ll have a pharmacist call them to see what the barrier is (understanding the pills, nasty side effects, transportation, the asshole at the counter made them feel like shit etc)
West of the Rockies (been a while)
Richard, may I request a post on your perspective as to why insurance is so expensive? I hear some people blame greedy doctors; others blame “the damn trial lawyers”. Still others point to the “greedy insurance companies and their investors” or “all the damn illegal immigrants showing up without insurance at the ER.”. Please note, these are NOT my views.
Is it a combination of the above? Have I missed still others at fault (bureaucrats)?
Insurance costs have gone waaay up, yes? I don’t recall my late parents fretting about insurance so much in the 70s and 80s.
mac007
My wife experienced this first-hand. She gets her insurance with a large regional insurer through work. She filled a prescription for Metformin, which is typically used to treat type 2 diabetes, but was prescribed to her for an off-label usage. I swear to FSM she got a call the next day from a nurse asking how she could help manage her diabetes. It was a little Orwellian but I understand how expensive poorly managed diabetes can be.
In any case, it appears the big insurers are already using their data this way. Seems like Oscar’s “competitive advantage” isn’t much of one at all.
Tripod
@Ian:
One option is partnering with providers in integrated clinics that keep patients out of acute care facilities (aka hospitals).
gene108
@Richard Mayhew:
I view the intervention stuff as a way for insurance to work around HIPPA laws and get your actual medical files or a close approximation, so they can figure out how much to jack premiums up year after year.
Insurance companies are scary good at figuring out what’s wrong with you just based on doctor visits and the prescriptions you are on.
Actually having insurance companies work with your medical providers just gives the insurance company more data to
cherry pickmine about its enrollees.gene108
@West of the Rockies (been a while):
Even in the 1990’s insurance costs were no where near what they are today.
Something changed about 15 years ago, and medical inflation started to sky rocket.
burnspbesq
@gene108:
Do you have any other fantasies you’d like to share?
Richard Mayhew
@gene108: we get the medical files anyways as we pay the claims and the Rx plus standard contract language allows us to review any/all charts for a very broad array of reasons.
Richard Mayhew
@West of the Rockies (been a while): and
@Ian: I think you two gave me good topics for the week