No one understands health insurance coverage. No one enjoys buying health insurance. No one likes his/her health insurance company. Luckily for all of us, Oscar is on the case.
Founded in 2012 by HBS alumni Mario Schlosser, Kevin Nazemi, and Joshua Kushner, Oscar has set out to change the way all of us pay for, consume, and navigate health care through multiple levers, including our wallets. Although young, the company has received more than $350 million of funding at a valuation of $1.75 billion.[i]
The beauty of Oscar’s approach is the alignment of its business and operating models.
Like most other insurance companies, Oscar creates value for members, health care providers, and society by pooling the individual risks of a population and guaranteeing its members coverage and providers quick reliable payment. Unlike other insurers, Oscar also creates value through its simplicity, convenience, incentives, and integration throughout the health care process.
Oscar captures the value it creates in three ways. First, the more members Oscar recruits to its plans, the more stable and predictable the combined risk profile of its pool becomes. Oscar is then able to charge premiums that reliably exceed claims paid and result in earnings. Second, since Oscar is typically able to take in premiums before having to pay out claims, Oscar operates with a “float” that it is able to invest elsewhere to earn further returns. Third, and most importantly, Oscar’s operating model acts to decrease risk and claims among its customers.
This third element, the operating model, is where Oscar truly differentiates itself from other insurers and creates synergy between it and the business model. Since the Revenue Act of 1954, which excluded from taxable income employers’ contributions to health insurance plans of their employees, the private health insurance market has been dominated by large firms that cater to employee-sponsored plans. Recent changes under the Affordable Care Act, however, have radically shifted the power of health insurance purchasing decisions into the hands of the individual consumers through healthcare exchanges, many mandates on required coverage minimums, and the requirement that all citizens obtain health insurance coverage.[ii]
With this shift has a come the opportunity for consumers to easily shop for different coverage. This choice suddenly makes aspects like ease-of-use, simplicity, convenience, transparency, and affordability of paramount importance. Large, traditional insurance providers such as Blue Cross and Aetna, however, have been slow to adapt to this new more consumer-facing model.
Oscar leverages it’s mobile and web app centered design to streamline not only health insurance but also provide a suite of services to keep its members healthier and, as a result, claims to a minimum. For example, members have access to 24/7 doctor on call telemedicine service for free, enabling patients to obtain advice and prescriptions anytime, anywhere. When necessary, members can also use Oscar to easily locate doctors in network, evaluate different providers based on multiple variables, set up appointments, review medical records, and fill out information related to appointments on their phones so that the data can be analyzed immediately. After signing up for Oscar, members also receive a fitness tracker that syncs with the app and incentivizes healthy behavior by allowing customers to accumulate gift cards based on the achievement of reasonable daily exercise goals. One of the simplest features of all is the fact that all primary care, OB/GYN, and mental health visits, generic prescription drugs, and lab tests are covered by every plan.[iii] This investment in and incentive to use the lowest cost and most preventative-medicine focused approach is likely to return cost savings and therefore increased profits down the road. Unlike with employer-based health insurance that changes from job to job and therefore limits an insurer’s incentive to keep members healthy long-term, consumer-purchased health insurance creates the opportunity for long-term customer loyalty and, as a result, the ability to actually capitalize on making investments in preventative-health.
The success or failure of Oscar hinges on its ability to accurately evaluate the risk of its member population and forecast utilization of its wrap-around services. Equally as important, Oscar must price appropriately. Despite the fact that Oscar’s tech-centric approach appears highly scalable and that its business and operating model seem effectively aligned, it is functioning within a highly regulated and competitive industry that does not usually operate by predictable market forces. If Oscar is able to grow beyond it’s some 70,000 members in four states, its fixed costs of data analysis, claims processing algorithms, and IT infrastructure can be spread across an even larger customer base, lowering costs further to create a fourth opportunity for capturing significant value. On Oscar’s website hioscar.com, little cartoon characters and well designed animations put a lighthearted and enjoyable spin on health insurance.[v] If Oscar succeeds at making health insurance enjoyable and easy to buy and use, then I will have the highest of hopes for what we are able to achieve throughout the remainder of the health care industry.