When the Affordable Care Act expanded the individual insurance market, many recognized an opportunity for new businesses to take on legacy payers and disrupt the insurance industry. Since then, hundreds of millions of dollars have been invested in dozens of fledgling health insurance companies. More than $1.3 billion was invested in these companies in the United States in 2015 alone, according to CB Insights. With all the funds and fanfare surrounding health insurance startups, how do they plan to change the insurance industry?
Health insurance startups face high barriers to entry
Startups encounter numerous obstacles as they attempt to establish themselves in insurance markets, an Oscar spokesman told Healthcare Dive via email. Oscar was founded in 2012 and currently offers health insurance plans in New York, Texas, and California.
A lot of groundwork needs to be laid before health insurance startups can even begin selling plans. They must have sufficient resources to meet statutory reserves in the markets where they operate. They also need to establish provider networks that meet adequacy standards. Additionally, plan prices need to be submitted eight months before coverage begins, without clear signals about potential risk in the market or the pricing decisions other insurers will make.
How do health insurance startups differ from traditional payers?
Most established payers have built themselves around the employer-sponsored insurance market. This background didn’t translate to insurance exchanges and is at least part of the reason why some are losing money and backing out.
When the ACA passed, it included incentives for payers to actively manage the heath of diverse patient populations. “Oscar was built from the ground up to be sold to, and used by, individuals,” the spokesperson said. “We want to be simple and intuitive, and proactive in helping out members navigate the healthcare system.”
Many of the payers enjoying success on the insurance exchanges are the ones with experience with low-income patients in poor health. For instance, Centene, which had experience administering Medicaid plans prior to the ACA is one payer profiting off of the insurance exchanges. They are doing so by selling narrow-network plans.
Oscar also offers narrow network plans, but these aren’t traditional narrow network plans, according to the spokesperson. Most narrow network plans are constructed with the single goal of cutting costs. They meet network adequacy standards by including only providers who are willing to be reimbursed at low rates.
“In contrast, we carefully curate our networks by collaborating with provider systems that want to work closely with us to manage the health of our members,” the spokesperson said. “While fostering this tight alignment does create economic benefits, it also ensures that we can more effectively work with a select subset of healthcare providers to provide a truly curated, consumer-friendly experience.”
Bright Health, which will begin selling plans on Colorado insurance exchanges in 2017, will follow a similar path, according to an April statement. The payer will partner exclusively with an established provider organization in the markets where it intends to sell plans to support stronger relationships between patients and providers.
Adapting along the way
Health insurance startups are facing many of the same problems that legacy payers are on the insurance exchanges. Enrollment has been well below expectations and those signing up for insurance are generally in poor health and purchasing the cheapest options available. The Oscar spokesperson also noted that government programs intended to stabilize the market, such as risk corridor and risk adjustment, haven’t worked as intended or have been phased out.
Oscar has 135,000 patients covered by its plan in three states and some of its technology initiatives have been successful, according to a recent The New York Times article. However, for every dollar it collects in premiums in New York, it is losing 15 cents, the Times noted in June. Based on its experiences on the insurance exchanges so far, Oscar is making some adjustments to its business model. It requested to raise rates in New York by an average of nearly 20% and is expanding beyond the individual market.
Oscar remains committed to its mission. “Though, in the short term, we’ve made adjustments to our market presence, our long term strategy has not changed,” the spokesperson said. “We believe that, in the long run, all health insurance will be consumerized and that our value proposition is equally relevant in any such market.”