While the health insurance marketplace is well-populated already by the big guns of the industry, at least one startup feels it can beat them at their own game.
New York-based Oscar Insurance Corp., which sells itself as a friendlier, more accessible brand of health plan, has already raised $155 million in venture capital since its launch last October. Oscar features include a pretty, easy to use website with a Google Maps-style doctor-finder, free phone calls to doctors 24/7 and a service that allows users to compare prices of commodity services like MRIs.
According to Forbes, the health plan, which operates solely in New York state at the moment, has about 16,000 customers who pay an average of $4,500 per year, pegging its revenue at around $72 million. More impressively, Oscar's valuation sits about $800 million, or an 11X multiple on sales. All that for a company whose senior management has no insurance experience, as far as I can tell.
To my view, Oscar's valuation doesn't necessarily reflect overwhelming confidence in the company. Early reviews by some customers suggest that the baby health plan doesn't have its IT act together, has a limited provider network, offers spotty coverage and imposes very strict limitations on what drugs and lab tests it will cover. (Though it does have very pretty sales materials—everyone agrees on that!)
No, I'd argue that people are vigorously backing Oscar because they believe it's going to take a new type of health plan—designed from the ground up and run as a tech company—to win in the ACA marketplace. Clearly, Oscar is the lead horse in this race; it's been dubbed "disruptive" by every publication that covers it, the biggest compliment the tech world can dish out. I fail to see what's so disruptive about its model, which seems to echo much of what the big boys are doing while wrapping it in pretty paper and hip talk, but then I'm not one of its investors.
Is newer really better?
The real question, I'd argue, is whether it really does take a completely new form of insurance, from a completely new company, to succeed in the ACA marketplace. I don't think it does.
From what I've seen so far, giants like Aetna, Humana and Cigna are struggling to succeed on the health insurance marketplace, but not to the point where they can't make money. And these companies already have robust customer service, planet-spanning IT infrastructure, huge marketing engines, mature underwriting staff and provider networks in place. It's noteworthy that after their initial go-round, these companies are threatening to raise their premiums but aren't backing out of the marketplace.
Sure, Oscar may be hip and cool and fashionable, but in this marketplace, I'd argue that such trappings won't be enough to beat the insurance giants at their own game. Anything a tiny insurance company does, a big one can imitate, quickly and easily. And no matter how much VC money Oscar gets, it will never match the firepower of billion-dollar giants like Cigna or United Healthcare.
So invest in Oscar if you like. Heck, if it had an IPO I'd consider investing myself, as I do believe that it will ride the wave it's on for a while and its stock would do well at first. But if I were a product manager at a leading health insurer, I wouldn't be breaking a sweat.