Oscar started out with an advertising strategy designed to appeal to healthy, energetic young adults. (Photo: Allison Bell/TA)

(Bloomberg) — Oscar Insurance Corp. is starting to stem the bleeding after years of reporting large losses.

The privately held health insurer, created to sell plans under the Affordable Care Act, lost $25.8 million across three states in the first three months of this year, compared with a loss of $48.5 million a year earlier, according to regulatory filings Tuesday. The company is beginning to get a handle on its medical costs, as the premiums it collected exceeded what it spent on health services.

(Related: Startup Health Insurer Wants to Be Your Doctor)

The ACA public health insurance exchange system, and the off-exchange market for ACA-compliant coverage, have presented challenges for even experienced insurers. Oscar made big changes ahead of 2017, boosting premiums, pulling out of two regions and sharply limiting its network of hospitals and doctors in New York, its largest market.

“In 2017 I feel for the first time that all those pieces are in place,” Chief Executive Officer Mario Schlosser told attendees Monday at the TechCrunch Disrupt conference in New York, before the results were disclosed. “I think we will have a much better performance than in 2016.”

Changing the Affordable Care Act

Senate Republicans are working on a plan to de-fund and change the Affordable Care Act, arguing it’s already failing. Aetna Inc., Humana Inc., and UnitedHealth Group Inc. have all retreated from offering plans through the individual major medical market, after recording hundreds of millions of dollars in losses. The House recently passed  H.R. 1628, the American Health Care Act bill. The bill could replace the current ACA premium subsidy program and cost-sharing reduction subsidy programs with new programs. That could jeopardize companies like Oscar that are designed to work with the current ACA exchange system and individual health insurance rules.

Oscar has its own ties to the political drama. Co-founder Joshua Kushner is brother to Jared Kushner, a senior adviser to President Donald Trump and the husband of Trump’s daughter Ivanka. The company has said it isn’t gaining any special insights from the Kushner brothers’ relationship.

Schlosser said Monday that the bill that passed the House “has a lot of flaws, and it needs to get fixed up.” He said lawmakers needs to work toward a solution that creates a “viable” individual market, which would include rules that push people to buy insurance, as well as money to help them afford it. And he said the country has a moral obligation to make sure people can afford vital care.

Even with the improvements to its bottom line, Oscar is facing challenges. The company’s membership fell this year to 90,171 people as of March 31 from 106,000 across the three states a year earlier, weighing on revenue. The decision to exit markets, including New Jersey and part of Texas, also slowed growth. 

A look at the New York results shows the lengths Oscar still needs to go. Each month, Oscar took in an average premium of about $280 from each member. The company then spent $307 per member on medical costs, and about $130 on administration, leaving it with a big loss. In Texas and California, Oscar is taking in more in premiums than it’s spending on medical costs, though it’s still posting losses after spending on items like salaries and rent.

A New Model

Oscar says it’s trying to reinvent medical insurance from the perspective of a technology company. That means using data to design insurance products and to help guide members to the right kinds of health care when they need it. At the TechCrunch event, Schlosser showed how a consumer can use Oscar’s app to schedule an appointment with a doctor suggested by the insurer.

“We’re encouraged by the modest improvement,” Anne Espiritu, an Oscar spokeswoman, said of the first-quarter results. The results show that efforts to cut back on outsourcing and build a more limited network of doctors and hospitals “are bearing fruit,” she said in a statement.

The New York-based company has garnered investors including Joshua Kushner’s Thrive Capital, Founders Fund, Fidelity Investments, and General Catalyst. Jared Kushner is not currently an investor in Oscar, the company spokeswoman said. When the startup insurer last raised money, it was valued at $2.7 billion, a person familiar with the matter said in early 2016.

— Read Startups ZocDoc, Oscar to Help Obama Advertise ACA Exchange Systemon ThinkAdvisor.

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