Insurance Startup Oscar Health Bets on its Tech as it Files for IPO
Oscar Health filed preliminary paperwork for an IPO on Friday. The health insurance startup is betting that its technology can give it an edge as it fights for market share with bigger competitors.

After getting its start nine years ago by offering individual market plans, insurance startup Oscar Health is going public. Oscar filed preliminary paperwork with the Securities and Exchange Commission on Friday, and has not yet priced its stock or disclosed how many shares it will be offering. It plans to be traded on the New York Stock Exchange under the ticker “OSCR.”

It’s one of a crop of health insurance startups that tout their technology as a way to differentiate themselves from larger, less nimble competitors like UnitedHealth Group and CVS Health/Aetna for market share. For example, Oscar offers an app where patients can view lab test results, ask for prescription refills or call in for a virtual urgent care appointment. It also recently rolled out a virtual primary care service in some of its markets.

The company said 89% of its members had interacted with its platform or their care team, a group of five people assigned to each person, in its S-1 filing.

Meanwhile, established insurers are also taking a closer look at telehealth and patient engagement, a trend that was accelerated by the Covid-19 pandemic. Last month, UnitedHealthcare launched a virtual primary care service with Amwell to make it easier for members to stay connected with their primary care physician.  Managed care organizations, including the Kaiser Foundation Health Plan of Washington and Texas-based Community Health Choice have also launched their own “virtual first” plans.

“The health plan market has always been competitive, but what is new that we’re seeing now, is that the pandemic accelerated activity around virtual care and telehealth,” David Larsen, a managing director at BTIG who covers digital health and health IT, said in a phone interview.

He added that more insurers are taking a closer look at primary care, as well as digital assistants, to keep in closer contact with members. As insurers look to aggressively expand their telehealth capabilities, companies like Teladoc are also selling their services to more health plans and provider groups.

“All health plans are aware of this and doing what they can to make sure they maximize the use of digital solutions to serve members to the best of their ability,” he said.

 

Competition is increasing

Although Oscar has poured funds into increasing its footprint in recent years, it’s still a fraction of the size of insurance giants like UnitedHealthcare and Anthem. The startup currently operates in 291 counties across 18 states, and recently began offering individual market plans in Iowa, North Carolina and Oklahoma. It had a total of 402,044 members in 2020, most of whom were in its individual or small group plans.

By comparison, UnitedHealth Group had a total of 48 million members as of last September, and Anthem had 43 million, according to their quarterly filings. Both plan to beef up their individual market presence this year after pulling back in 2017.  

Centene, which is a big provider of ACA plans, had 2.2 million members in its individual market plans alone last September. In general, the ACA exchanges are becoming more competitive, with most markets offering plans from three or more insurers, according to the Kaiser Family Foundation.

Oscar is taking steps to expand into more types of insurance. It began offering Medicare Advantage plans in 2020, and recently teamed up with Cigna to offer a co-branded plan for small businesses. But these efforts are still early.

According to data recently released by the Centers for Medicare and Medicaid Services, it has 3,221 members in its Medicare Advantage plans across three states. Startups Alignment Healthcare and Clover Health, which focus on Medicare Advantage plans, had 77,239 and 64,461 members, respectively.

 

Billion-dollar deficit

Although its membership grew substantially between 2019 and 2020, Oscar’s revenue actually decreased.

Last year, Oscar brought in $462.8 million in revenue, a slight decrease from its $488.2 million in revenue in 2019. It also reported a widening net loss of $406.8 million, a 56% decrease from its $261.2 million net loss in 2019.

The company struck quota share reinsurance agreements with Axa France Vie and Berkshire Hathaway Specialty Insurance Company, ceding 77% of its claims. In an S-1 filing, Oscar said it struck the agreements to “…reduce our capital and surplus requirements, which enables us to more efficiently deploy capital to finance our growth.”

The company also disclosed that it has not been profitable since 2012, and had racked up a deficit of $1.43 billion by the end of 2020. The company plans to use an unspecified portion of its IPO proceeds to repay outstanding loans, and the remainder for general corporate purposes, including funding its growth and technology development.

Leading up to its IPO filing, Oscar raised $140 million last year led by Tiger Global Management. Some of its other backers include Alphabet, Founders Fund, and Thrive Capital, a VC-firm founded by Joshua Kushner, Donald Trump’s son-in-law and one of Oscar’s co-founders.

The company plans to go public as a controlled company, with most of its voting power held by Kushner and CEO and co-founder Mario Schlosser. This also means the company wouldn’t be required to have an independent board or compensation committee.

Source: Yahoo Finance

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