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Insurers are bailing on Obamacare. This startup is betting on it.

Vox.com logo Vox.com 2/16/2017 Sarah Kliff
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Massive uncertainty over Obamacare’s future has left some insurers, like Humana, wary of selling on the marketplaces next year.

Not Oscar. The venture capital–backed insurer launched in 2014, positioning itself as a "simple, smart" alternative to stodgy industry giants — a health plan meant to live on smartphones and deliver virtual doctor visits.

Just like the Obamacare marketplaces, Oscar had a rocky launch. In New York alone, the insurer lost $92.4 million in 2015.

Still, in an interview Tuesday, top Oscar executives said they remain bullish on the future of the marketplaces. In 2018, they currently expect to stay in markets where they sell now, focusing on narrow-network plans that allow them to integrate into a small number of health systems.

“There could be an opportunity, in fact, with Humana pulling out,” Joel Klein, Oscar’s chief policy and strategy officer, says. “Nobody has a perfect crystal ball, but I sense some real movement in the Senate to people talking about 2018 and the effects of destabilization.”

Oscar is only three years old, but it has become accustomed to the spotlight. The insurer has been the subject of lengthy articles about whether it could use the Obamacare marketplaces to “change health insurance forever.”

This fall, it started to get attention for a new reason: One of Oscar’s co-founders, Josh Kushner, is the brother of Jared Kushner, senior adviser and son-in-law to President Donald Trump.

Klein declined to comment on whether the insurer has had any meeting with the White House that might contribute to its bullish attitude on the law. “I would not go into specific meetings; a lot of our meetings have been confidential,” Klein said. “We’re very mindful of all the issues you’re talking about.”

Instead, he and Oscar chief executive Mario Schlosser focused on the results of a massive experiment they ran with their New York plan in 2016 as driving their optimism. To save money and increase efficiency, the insurer cut its provider network in half — and raised premiums 20 percent. It was a tough pitch: Would Oscar enrollees want a plan with fewer doctors and higher monthly costs?

Now the results are in — and a sizable number of Oscar members said yes. Oscar’s membership in New York City held steady at right about 54,000. Their market share held constant too: 21 percent in 2016 and 20 percent in 2017.

“This was at the high end of my expectations,” Schlosser says. “It was a difficult conversation to have, but the fact that we were able to renew about half of the people who had relationships with doctors leaving the network ... shows significant brand loyalty.”

The experiment is not a full success yet. The insurer experienced significant losses in 2015, and we don’t know yet whether this move will turn it profitable. But retaining members in the face of a shrinking network and rising premiums, Oscar argues, is a promising first step in that direction.

The Oscar experiment

Oscar sells exclusively on Obamacare marketplaces, and heading into the most recent open enrollment it was losing millions. This wasn’t atypical: Two-thirds of the plans that participated in the marketplaces lost money in 2014.

So Oscar made a strategic decision meant to hold down premiums and improve patient care. The insurer cut its New York City provider network in half.

In 2016, it covered 40,000 doctors in the New York City area. This year, it covers only 20,000 providers. The hospital network fell from 77 facilities to just 31. Nearly all of the hospitals are part of three major systems: Montefiore, Mount Sinai, and the Long Island Health Network.

Doctor choice has always been a struggle for the Affordable Care Act. Marketplace plans often have especially narrow networks, and that can frustrate consumers.

Oscar ran the numbers and found that 44 percent of its New York City members would lose a doctor they had a relationship with. The insurer called those people, talked to them about the change, and asked if they wanted to renew. Forty-eight percent of those enrollees said yes, and stuck with Oscar even though it meant losing their doctor.

“That is really true brand loyalty in a sense,” Schlosser argues. “That 48 percent is saying that they don’t care about the rate increase, they don’t care about keeping their doctor, they want Oscar insurance.”

Overall, Oscar says 62 percent of its New York City members re-enrolled this year. Enrollment figures held constant thanks to 18,000 new enrollees.

Oscar also sells coverage in California and Texas, although neither of those markets saw such significant network revisions. The New York experiment bolsters Oscar’s confidence that it can sell a narrow network plan, with cheaper premiums, and customers won’t run for the hills.

Nimble and focused

Oscar executives acknowledge there is significant uncertainty ahead. But overall, they are optimistic that the marketplaces will remain functional despite their uncertain future — and that the big rate increases last year were a one-time course correction, not the new normal.

“We’ve had a lot of discussions on the Hill,” Klein says. “We’ve been saying, until you have something better, don’t hurt 20 million American people. Some people suggest, ‘What if you took out the mandate?’ We say that once you pull that thread, the whole suit unravels. The mandate has been critical.”

Asked about what role co-founder Kushner currently plays in the company, Schlosser said he is still involved in strategy and planning, helping the company figure out what the future of health insurance looks like.

“We have the same relationship we’ve had for the past 11 years, where we sit down and solve problems,” Schlosser says. “We try to build stuff people want to buy and tell their friends about. That’s the nature of my conversations with Josh.”

Oscar is already diversifying into other markets. In April, it will begin selling coverage to small businesses in New York (a decision it made before the 2016 election). This will be Oscar’s first foray outside the individual market. Right now, Oscar only sells in three cities. But it’s open to expanding to others if it feels the moment is right.

“We are looking at new possibilities but have made no commitments,” Klein says. “We want to be nimble and focused.”

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