Insurance startup Oscar to leave 2 exchange markets, rethink plans

(Bloomberg) — Health insurance startup Oscar Insurance Corp. will reevaluate its approach to the Affordable Care Act public exchange system after suffering significant losses there, and it will pull out of two exchange programs next year.

Oscar, which pitches itself as a tech-savvy alternative to traditional health insurers, plans to end sales of exchange plans through the ACA exchange program in Dallas, a market it entered this year, and through the ACA exchange program in New Jersey. It’s part of a more conservative approach by the New York-based company as it plans to introduce insurance products for businesses next year.

“The individual market isn’t working as intended and there are weaknesses in the way it’s been set up,” Chief Executive Officer Mario Schlosser said in an interview. “We want to focus on the markets we understand well, we want to focus on the markets where we have our own model in place.

Closely held Oscar, is backed by venture capital firms including Josh Kushner’s Thrive Capital, Founders Fund and GV, which is Alphabet Inc.’s venture capital arm. It was formed to take advantage of the new markets and millions of people who would gain coverage through ACA coverage expansion initiatives. Yet the company, with its cartoon ads on New York subways and consumer-focused approach, has run into many of the same problems that have led bigger, more experienced rivals like UnitedHealth Group and Aetna to scale back their participation in the ACA exchange system.

Venture backing

Oscar was said to have been valued at $2.7 billion earlier this year, when it took in $400 million from backers led by Fidelity Investments. It lost about $105 million in 2015, and has posted losses of $83 million in New York, California and Texas in the first half of 2016. Quarterly filings aren’t available in New Jersey.

Oscar has about 130,000 customers, including 7,000 people in Dallas during its first year in the market there. In New Jersey, it covered 26,000. It will remain in the Los Angeles and New York City areas, as well as in San Antonio. It’s also expanding its ACA exchange plans into the San Francisco area for 2017.

“Some of this is really looking at our opportunities and trying to pursue more aggressively the small-group market,” said Joel Klein, the company’s chief policy and strategy officer. “It’s a little bit of a rebalance given the underlying market forces.”

Funded to last

Oscar has enough funds in the bank from investors to sustain itself over the next several years, Klein said. The company can also improve its margins on medical costs over the next two years, and that the company’s results were hurt by the failure of government programs that were meant to stabilize the ACA markets early on, according to Schlosser.

Sell to companies

Next year in the second quarter it will start selling plans to smaller business, a product commonly known as small-group insurance. By the end of next year, Oscar wants to begin offering health plans for larger employers, Schlosser said.

While Oscar’s narrow networks could limit its appeal to the largest employers, Schlosser said the insurer hopes to convince companies to offer its health plans as one of several options.

Klein was chancellor of the New York city public school system when Michael Bloomberg was mayor. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.