Articles like this make me wonder about Oscar Health.
I've heard their innovation was also in pre-paying facilities for services. The collection rate for facilities from insurers is abysmal, so Oscar can negotiate a substantial discount by paying up front. Same idea as if you go to an MRI facility and offer them cash up front - they sometimes give discounts up to 75%. (Note: not 100% sure Oscar does this, I heard from investor and don't have time to research.)
> After two years in operation, the financial trajectory is becoming clear, both in terms of the growth and the costs. In New York, the company projected a sevenfold increase in premium revenue next year to $399 million from 2014. But it also projects a loss of 12% of premiums, equivalent to $47 million, according to regulatory filings.
...
> Oscar’s losses stem from two sources: higher medical costs as a percentage of premiums than rivals, and higher administrative costs, both of which are traditionally problems of scale in the industry.
> In New York, it projected that 91.5 percent of premium revenues would be eaten up next year by medical claims costs, among the highest projected ratios in the state. That leaves little left over to pay for administrative costs, estimated to be 17 percent of premiums next year, or taxes and fees. Included in administrative costs are the company’s engineering and marketing costs.
> History says insurance companies need at least 200,000 to 300,000 members in a state to be viable, according to Ash Shehata, a partner in KPMG’s health care practice; Oscar had 38,000 members in New York and New Jersey as of June 30, with plans to expand to Texas and California this year.
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> But Oscar believes it can succeed as a sustainable and profitable business with only 80,000 to 100,000 members per state, according to a person familiar with the company. Though scale is important to contain administrative costs, the person said, Oscar’s plan is to avoid playing the big insurance company game of using size to negotiate lower claims costs with providers. Instead, it will curb claims costs by partnering closely with select providers to exchange data.
'Partnering closely with select providers' is probably the same thing you're referring to - pre-paying facilities for services.
This sounds dumb to me.
Perhaps they thought that the administrative costs stemming from operating in NY wouldn't make/break the company - it's whether they can substantially reduce the claims costs that will really determine the outcome. And if they're from NYC, the founding team probably had preexisting contacts in the local medical institutions, which made it easier to form the partnerships that are key to making Oscar's business model work. One of the founders is Joshua Kushner (https://en.wikipedia.org/wiki/Joshua_Kushner), whose family is well-connected in NYC (for example, his brother's father-in-law is Donald Trump).
I know something about the history of the insurance giant I worked for. I know that their success has a lot to do with one of the founders having been a lawyer by trade and making strategic choices concerning things like where to found their headquarters.
I have trouble fathoming doing something less strategic while hoping to break into such a highly regulated industry, basically.
Anyway, thank you for replying. Have an upvote.