Oscar Health was going to be a new kind of insurance company. Started in 2012, just in time to offer plans to people buying under the new federal health care law, the business promised to use technology to push less costly care and more consumer-friendly coverage.
“We’re trying to build something that’s going to turn the industry on its head,” Joshua Kushner, one of the company’s founders, said in 2014, as Oscar began to enroll its first customers.
These days, though, 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?
Oscar has attracted 135,000 customers, about half of them in New York state. And some of its efforts with technology have been successful. But for every dollar of premium Oscar collects in New York, the company is losing 15 cents. It lost $92 million in the state last year and another $39 million in the first three months of 2016.
“That’s not a sustainable position,” said Mario Schlosser, chief executive at Oscar.
Companies like Oscar were initially attracted by the potential of millions of new customers added to the individual market by the health law. But the reality has been far messier.
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.
But the market has turned out to be smaller than they hoped, with 12 million signed up for coverage in 2016. Fewer employers have dropped health insurance than expected, for example, keeping many healthy adults out of the individual market.
And among the remaining population, the insurers cannot pick and choose their customers. The law forces them to insure people with pre-existing conditions, no matter how expensive those conditions may be.
As a result, most insurers are still trying to develop a successful business model. Last year, only a quarter of the insurers appear to have made money selling individual policies, according to a preliminary analysis from McKinsey, a consulting firm. Giant insurers like UnitedHealth Group have stopped offering individual coverage through the public exchanges in some states. And most of the new insurance co-ops, which were founded to create more competition, have failed.
The heavy losses do not necessarily mean that the individual market is ready to implode. Some insurers, including large companies like Anthem, say they remain committed to the market.
But the turbulence is certainly greater than expected. And it may well lead many insurers to seek double-digit percentage rate increases and tighten their networks.
“There was tremendous uncertainty that even the very established companies were flummoxed by,” said Larry Levitt, an executive with the Kaiser Family Foundation, which has been closely following insurers’ progress.
Overall, insurance companies continue to make profits. 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.
The troubles in the individual market also underscore how some of the law’s provisions meant to protect the insurers have not worked as well as desired. Insurers did not receive all the payments they were due under one of the law’s provisions, and 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.
The companies that have fared best are those that have kept the tightest control over their costs, by working closely with low-cost providers or a limited group of hospitals and doctors. Many have abandoned the idea of offering the kind of access available through many employer plans. The successful companies have also avoided the very low prices found in some of the co-ops.
For most of the insurers, though, the math has just not added up, which is the case with Oscar.
In New York state, where Oscar is based, the company recently filed eye-catching requests to raise rates by a weighted average of nearly 20 percent for 2017. Regulators will make a decision in August.
“The market is overall too low in price,” Schlosser said. “We, like everybody else, have priced in a very aggressive way.”
Many of the big insurers, like Anthem, can rely on their other businesses to generate profits while they wait for this market to stabilize. Oscar does not have that luxury; it is focused on individual marketplaces. (In addition to New York, Oscar operates in California, New Jersey and Texas.)
Other new insurers that sell plans to employers or under government programs like Medicare have been a little more insulated. When Northwell Health, the system in New York previously known as North Shore-LIJ Health System, entered the insurance market, it created a new company. That company, CareConnect, has 100,000 customers, most of them individuals insured through both large and small employers.
“If we only had the individual market, we would have taken undue risk because we would not have understood that market,” said Alan J. Murray, CareConnect’s chief executive. He said the company is close to turning a profit.
Oscar says it plans to begin offering coverage to small businesses, but Schlosser was adamant that individuals will eventually be buying their own coverage, rather than relying on employers. The company is also racing to incorporate plans with smaller networks.
Bright Health, another startup, also plans to work closely with health systems to offer consumer-friendly plans.
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.
“Oscar talks about narrow networks like no one has seen one before,” said Dr. Sanjay B. Saxena, who works with insurers and health systems at the Boston Consulting Group.
Oscar has received $750 million from its investors, and Schlosser insists that the company understood how long it would take for the new insurance marketplaces to develop, calling these “very, very early days.”
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.
Promoting itself as a consumer-friendly alternative to the other insurers also has its risks. While Oscar has loyal customers, others say they are disappointed to find the insurer behaving like everyone else. Cosmin Bita, a real estate broker in New York, switched to Oscar from an insurer that had given him the runaround about whether it would pay for blood tests as part of his annual physical. Although Oscar said when he enrolled that the tests would be covered, he said, he found himself fighting with the company over whether everything was covered.
“The exact same thing happened,” Bita said.
Oscar executives said the company works hard to keep customers satisfied.
But so far, it has not proved that it has created a better model than the rest of the industry.
As Darren Walsh, a principal at Power & Walsh Insurance Advisors, said: “They haven’t invented a new mousetrap.”