I spent a decent chunk of last night going through Oscar’s financials as there was an interesting article in Bloomberg on their 2016 results. I’m waiting for the full results to post at either the New York state regulator’s website or at NAIC.
Oscar Insurance Corp., the startup trying to reinvent medical insurance with its Obamacare-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.
This is actually an improvement in terms of percent of expenses covered by premiums. In 2015, about 56% of expenses were covered by premiums. In 2016, about 67% of expenses are covered by premiums. But they also lost a lot more money as they were making up their smaller percentage losses by increasing the volume. I’ve only ever worked at a profitable dinosaur of insurer that is not a VC darling, so I’m not sure if that is a good thing or not.
As I was finishing my first brown ale of the evening and thinking that I need to find a new hobby as I looked for the 3rd Quarter 2015 and 2016 YTD financials, I noticed something very interesting. The mixture of membership was changing. In 2015, 53% ofthe 3rd quarter membership was on-Exchange and the rest was off-Exchange paying full premium. In 2016, 60% of the membership was off-Exchange paying full price. Average premium had increased by 20%.
I found this interesting as it reminded me of this post I wrote last May on the fate of “lifestyle” insurers when they faced low price on-Exchange competition:
< blockquote>if Centene is attracting healthy people, Harken is attracting healthy people and both are paying large risk adjustment transfers, why is Centene making money and Harken probably losing money in Chicago? 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.
That seems to be what Oscar is doing, shifting towards a full premium model where the hipness/coolness plus enhanced customer service allows them to offer a fairly expensive product to an affluent but healthy market. My big question is what happens in 2017 after another large premium increase that their off-Exchange base absorbs the entire increment even as the Oscar network shrinks dramatically? There are two opposing forces here. Healthy people don’t care too much about networks but care a lot about prices so they could leave. Sick people who get most of their care at now out of network hospitals will leave but those who get their care at still in-network hospitals will stay. This is a tough empirical question as to what Oscar’s risk profile will look like.
With Trump’s pick for FDA Commissioner, “die quickly” becomes the official goal of the Trump Administration’s health care approach.
Destroying the FDA to save it? No, just destroying it
I think Oscar has fundamentally misjudged the market. Many people make a fetish of fitness and healthy lifestyle but they are looking at gyms and organic groceries, not doctors (and that is a fundamentally wise choice in my view). Unhealthy people make a fetish of health care. That is not to judge them. You would too if you needed to access health care services at a reasonably high clip. This is a fundamental divide. It’s why it’s so hard to provide affordable insurance without some kind of coercion over the healthy — there is the soft coercion of having your employer more or less force you to “buy” coverage by providing such tax favored status to health care coverage, and there is the hard coercion of the coverage mandate, with something in between being the Part B and Part D penalties for late enrollment. People who aren’t sick don’t like to think they will become sick and people who are sick think of little else. Your system has to be able to capture the former for the pool and, to some extent, tamp down the expectations of the latter that no price is too high for recapturing good health. Trying to induce healthy people to pay more by offering a theoretically better health care insurance experience is exactly the wrong approach. IMHO.
I do not know how the mechanics of how they do it, but Centene makes a ton of $$ delivering healthcare to the poor’s.
@Mart: Centene (and Molina) pay their docs little, hold the networks narrow and use a pricing strategy that captures a good chunk of the healthy population in a region.