Covered California made it official last week: After two years in the wilderness, UnitedHealthcare will return to the state’s individual insurance market and begin selling health plans on California’s exchange later this year.
Not much can overshadow news about the nation’s largest insurer — except maybe a story about one of the smallest.
That’s the clever framing that founders of the buzzed-about startup health insurer Oscar have used for their website and advertisements. And the company will soon introduce itself to Californians; Covered California also confirmed that Oscar will start selling plans in Los Angeles and Orange County.
But can Oscar’s services live up to its press clippings? And is the New York-based company ready to compete in a brand-new market, more than 3,000 miles away from its home base?
Why Covered California Let Oscar In
California’s exchange is infamous for its selectivity; unlike nearly every other exchange across the country, the number of plans participating in Covered California actually shrunk last year.
“Choice is important,” Covered California’s director Peter Lee said at a January 2015 board meeting, not long after news broke that the exchange had turned away Moda Health, a popular Oregon-based insurer. “But adding more plans that are either not by price, network, or design substantially different is not necessarily an advantage for consumers.”
Yet Oscar’s entrance into the California market seems almost preordained.
CEO Mario Schlosser and his co-founders have a Silicon Valley pedigree — they have youth, Harvard degrees, and experience with firms like Instagram, Microsoft and Vostu. They’re backed by venture capitalists like Peter Thiel.
They’ve got an Internet company-like valuation: After officially launching in New York two years ago, Oscar is already valued at $1.5 billion — despite having just 40,000 members.
(In comparison, UnitedHealthcare is valued at $115 billion and has about 45 million members. A smaller rival insurer, Health Net, is valued at about $5 billion — and has more than 3 million members.)
And Oscar’s staff evangelizes about its product in a way that’s familiar to anyone who’s spent much time in the San Francisco startup scene.
“Health care is broken; we’re trying to fix it,” Oscar’s LinkedIn page reads. “Backed by a renowned set of investors and advisors, we’ve set out to revolutionize health care.”
“Oscar was created by people with a background in technology,” co-founder Kevin Nazemi wrote to the Covered California board in January 2015, as the company began to lay the groundwork for its arrival. “Oscar’s founders were frustrated with the available health insurance choices and thought there was a better way to provide health insurance coverage.”
Oscar has tried to distinguish itself through Web savvy, like its personalized search engine for members, and mobile-friendly services.
And that tech-heavy message resonated with Covered California, spokesperson Lizelda Lopez told California Healthline.
“While our examination of Oscar’s experience in New York gave us confidence they understood the complexities of operating in a state-based Exchange environment, and could be successful in California, that was not our principal reason for adding them,” Lopez said via email.
“The level of innovation they bring to the marketplace is what we found most compelling.”
Oscar’s Hype vs. Oscar’s Reviews
One of the state’s leading consumer advocates is hailing the move to add Oscar.
“I think it’s positive that [Oscar] is coming into the California market,” California Insurance Commissioner Dave Jones told California Healthline. He’s been critical of Covered California’s selectivity in the past. “The more insurers the better,” Jones added.
But as Oscar starts to introduce itself to Californians, there’s still a big question about the company: How much is skillful marketing, and how much is actual breakthrough innovation?
For instance, CEO Schlosser touted Oscar’s “unique set of features for its customers, including 24/7 telemedicine and incentivized health and fitness goals.”
It’s worth noting that Anthem, already one of the major players on the exchange, offers its own 24/7 telemedicine service. And many insurers are debuting or have already launched their own wellness services, too.
Schlosser also said that Oscar’s simple message and ease-of-use will set it apart. “As in New York and New Jersey, the Oscar approach suits the needs of Californians looking for accessible, transparent and human health care in the current consumer health care landscape,” he told California Healthline.
But more than a few New York-area customers have complained that Oscar’s smooth packaging hasn’t always delivered a similarly smooth experience with the health care system. Some customers have warned that they were misinformed about Oscar’s provider networks and copays.
“Agree with the rest here,” a user named Mary B. writes on Yelp. “Slick on the surface. Bad coverage for the money.”
Another disgruntled Oscar customer ranted to the much-read blog “Valleywag” last year, sharing personal communications with the company and even posting pictures of the bill.
“In the emerging health and wellness markets, startups like Oscar intimately disrupt and destroy their customer’s lives through incorrect datasets where an A/B testing mentality results in exorbitant fees, angry hospital administrators and patients with no recourse except to bankrupt themselves paying bills they didn’t expect,” the customer wrote.
Can Oscar Succeed in California?
It’s tough to know how much stock to place in Oscar’s grouches. Despite all the disgruntled online reviews, Oscar’s mediocre 2.5 stars on Yelp in New York are downright luxurious compared to the one star for United Healthcare and other insurance companies.
But experts agree that Oscar will face at least one major challenge in California: How can the company compete in a state that’s already dominated by a handful of health insurers?
“We still have a problem with the degree of concentration that the top four insurers have,” Jones told California Healthline, pointing out that Anthem, Blue Shield, Health Net and Kaiser Permanente, are collectively responsible for 94% of all enrollment on Covered California. As California Healthline previously reported, small health plans have consistently had trouble attracting customers on the state’s exchange.
Oscar’s advertising strategy will be interesting to watch. The company gained awareness in New York City thanks to ubiquitous, clever advertisements in the city’s subway; Southern Californians aren’t known for their love of public transportation.
(Oscar declined to comment on the company’s goals for the next enrollment period.)
And in the growing retail insurance market, where customers often shop by price, Oscar is not slated to have the cheapest plan — or the biggest, most recognizable name. That could scare away some would-be customers, several experts told California Healthline.
“I agree that Oscar’s price may be prohibitive for many people, but they may have decided to compete on network and choice,” said Dylan Roby of UCLA’s Center for Health Policy Research.
He pointed out that Oscar does have one ace in their hole in Southern California: They’re including UCLA Medical Center in their network. The pricey hospital had been left out of nearly every other Covered California plan.
“They are an EPO plan,” Roby added, “so perhaps they will try to draw the smaller group of people who want UCLA doctors and no gatekeeper as would occur in an HMO product.”