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Oscar Just Got Another Massive Cash Influx — What This Means for the Health Insurance Industry

by Precise Leads

April 9, 2018

Oscar Health’s latest funding round nets it $165 million and a valuation boost. It’s a sign that the upstart company could soon transform health insurance.

After pocketing $165 million in new funding, health insurtech startup Oscar is launching an aggressive growth strategy that will take its technology-based model into at least four to five cities each year. It will begin by offering services in several cities across Texas, New Jersey, and Ohio this year.

Oscar’s latest round of funding saw contributions from the likes of Founders Fund and Alphabet subsidiaries Capital G and Verily Life Sciences. The insurtech startup, founded four years ago by current CEO Mario Schlosser and Joshua Kushner, the brother of Trump administration advisor Jared Kushner, had previously raised $800 million.

In addition to the financial boost, the company’s valuation has reportedly soared from $2.7 billion to $3.2 billion in just two years. With 235,000 members in six states already and an ambitious expansion plan set to take off, the insurer projects gross premium revenues of $1 billion this year. In other words, the young company is aiming to disrupt the industry establishment and turn P2P health insurance into the new normal — and it’s looking more and more like they’re going to succeed.

Betting on Technology, ACA

Since its founding, Oscar has established a foothold in healthcare by integrating technology into its customer service model. Customers can use its mobile app to book appointments and consultations, monitor and update their insurance status, and speak to the customer service team whenever they like. Beyond member outreach through telemedicine, the company also mines data on providers so that it can match its members with specialists who can treat their specific condition.

Although it claims that its use of technology separates it from traditional health insurers, Oscar has nevertheless adopted some long-standing industry tactics. In an effort to control costs, it’s narrowed its provider networks by partnering with large health systems such as the Cleveland Clinic in Ohio and the Mount Sinai Health System in New York. Part of its expansion blueprint includes more partnerships with similar major healthcare providers. After exclusively selling individual plans over its first several years, Oscar now offers group plans to employers, as well.

Unlike established insurers, however, Oscar built its business by selling individual plans on the Affordable Care Act (ACA) exchange — an arena that many larger insurers have largely shunned or abandoned altogether. In that regard, Oscar resembles Centene Corp., which continues to maintain a strong presence on the state ACA exchange networks. Its approach to the individual marketplace could prompt larger insurers to invest more heavily in it in the future.

Turning a Corner on Profits?

Investors, meanwhile, are betting on Oscar’s potential rather than its current financials. Last year, the company reported a loss of $127 million on $390 million in gross profit premium revenue. At the time, its medical loss ratio — the percentage of premium payments that cover medical expenses — was well above 90%, an indication that the company lost money on claims.

Company officials, however, maintain the company is close to profitability. It reported an underwriting profit for the first time in its history in the third quarter, gaining $4 million against a loss of $36 million in the same quarter in 2016. The company also projects that its medical loss ratio will be in line with the industry’s standard of 85% in 2018.

Schlosser attributed the company’s losses to high administrative expenses that it has since reined in through improved in-house claim processing and network building procedures. Brian West, Oscar’s CFO, told CNBC the company would turn a profit soon. “It’s around the corner,” he said.

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