🏥 The Oscar Epic Part 2

Where does Oscar go from here, and what can we learn from Oscar's past mistakes?

PARTNERED WITH Happy Thursday! I went to Costco yesterday and restocked on Celsius so we're taking things to the next level. Last week I left you on an epic cliffhanger in the story of the Oscar Odyssey. (Link to Part 1 and Part 2 combined here) Can our hero emerge from the abyss as a transformed champion? …sorry. That sounded like the start to a terrible epic fantasy novel.  But let's pick up with where I left Hospitalogists in part 1 with regard to Oscar. Was this email forwarded to you? 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Try out Dock's demo risk-free today. Schedule a Demo CONTINUING THE HERO'S JOURNEY Oscar's Current State of Affairs Checking back in with where we left off with Oscar in Part 1, the insurtech hit peak bearishness in 2023 after a long road: It had burned through billions of dollars in capital after raising money in an era of peak financial exuberance; It priced premiums to gain market share in new markets, but got toasted on the back end under the ACA's zero sum risk adjustment transfer program; Its rollout of + Oscar implementation failed miserably, burning HealthFirst in the process; It operates in health insurance, an incredibly tough segment of healthcare with capped gross margins due to medical loss ratio minimums; and It wasn't (isn't) profitable. Read in Browser And now Oscar is at an inflection point in 2023. It can continue its odyssey - its hero's journey - to make health insurance a more consumer friendly experience profitably, or the firm might wither away under the pressures of the current economy.   What do you think is next for Oscar? Respond with your comments to this e-mail and I'll include them in the online version of this post at the bottom. I've outlined some of the bull and bear cases for Oscar below.   The Return of Oscar: Bull Case   Some reasons to be optimistic about a return to glory for Oscar.   Management Experience. Perhaps one of the biggest reasons for the turnaround in Oscar share performance was its decision to transition its Co-Founder Mario Schlosser to the CTO role and bring in seasoned industry vet Mark Bertolini to lead the enterprise.   In healthcare, Bertolini most recently led at the helm of Aetna prior to its sale to CVS in late 2017. So not only does the move bring in someone with major ties to the industry, to my investor mind, it also signals a sale as a down-the-line possibility for Oscar.   And most interestingly, his pay is almost entirely performance-based: "And so we put together the comp structure, which I and Josh and Mario talked about was I don't get paid until the internal people get paid. So my gets are above their strike prices. And then there's a little bonus at the top if we get back to IPO. And I thought it's a good way to do it. I'm getting less salary than I have in probably 20 years, but that doesn't matter." - Mark Bertolini, Bank of America Securities 2023 Healthcare Conference To both of the points above, on the day of that announcement, Oscar shares jumped 50%+ and haven't looked back since. ACA Growth, and BUCAs Re-Entrance as a Signal. The BUCAs are re-entering the ACA exchanges en masse, a market signal that sustainable, profitable growth is there for the taking in the space. United, Aetna, Cigna, et al expanding in the market, with UnitedHealth entering 22 state marketplace exchanges this year.   Why, after rapidly exiting the ACA and getting their collective lunches eaten in 2016, would the BUCAs ratchet up growth in 2022 and 2023? Growing enrollment, Medicaid redeterminations, and subsidies.   Policy and Political Support for the ACA. All policies and bipartisan support for the ACA signal that it's here to stay. Congress extended ACA subsidies through 2025 as a part of the Inflation Reduction Act.   To add to this, the ACA is gaining bipartisan momentum, even in Republican states. Take Georgia as an example. When the ACA originally passed over a decade ago, Georgia lawmakers vehemently opposed it, going so far as to pass legislation to prevent the state from setting up its own health insurance exchange - EVER.   Welp, about a month ago, Georgia did a full 180 and is now setting up a state-run ACA exchange beginning in 2024. And this sort of arrangement is gaining steam in red states according to industry insiders I spoke with. As I understand it, you should expect other red states to follow this path under an emerging 'states' rights' movement - i.e., states want more control over policy rather than letting the federal government run things for them.   Up to this point, we've only seen blue states follow this path under the ACA and ironically, states setting up their own exchanges fell under the original intent of the healthcare reform. Big picture - seeing states like Georgia pass bills like these, or even Texas introducing exchange bills in both chambers of Congress is the clearest signal that the ACA will receive continued political support.   Finally, the growth of ICHRA, while a much more minor point on this list, is another data point in favor of the ACA sticking around.   Oscar's Demise: Bear Case   Oscar's bear case really revolves around a couple of key points.   Can Oscar hit its profitability goals? The biggest question facing Oscar today on its odyssey is whether it can continue to hit singles and doubles, grow responsibly, and optimize its existing, leaned-up footprint. Can Oscar get the core direct insurance business to breakeven?   Oscar's most significant bear case rests on this narrative. If, for whatever reason, Oscar can't get the numbers to work right (e.g., continues to get risk corridors and adjustment wrong, prices poorly), Oscar will follow the path of other struggling insurtechs. I guess Bertolini could always sell to BUCA at that point.   Will investors believe the growth story? Of course Oscar can skinny up and achieve profitability in core markets. But is it investable from that point? Is there a compelling growth story moving forward, and is that narrative believable after investors getting burned by both initial insurance growth objectives but also the + Oscar rollout?   To add to that point, is there a wider market appetite for insurtech investment in general given recent, high-profile failures and scalebacks from the likes of Bright and Friday Health Plans?   Conclusion: Hit the singles and doubles, not the home run   What can we learn from Oscar's hero's journey?   In healthcare, especially in an arena like health insurance or healthcare services, it's much more important to focus on hitting the singles and doubles rather than pulling your back swinging for the fences.   Instead of pulling out your driver on the tight, narrow golf hole, aim for the wide part of the fairway with your fairway finder.   Understand your core competencies, and have a thorough, comprehensive understanding of your market - like understanding how premium prices affect the type of member you're attracting to your platform. For Oscar and others in health tech, at certain times, tech hubris gets in the way of good business decisions (e.g., "let's rip out this insurance company's entire tech stack since we know we can do it better").   Sometimes the simplest solution is the right answer rather than doing it your own way and reinventing the wheel. In many arenas, we're trying to reinvent the wheel.   In healthcare, patience is key. These executives and health plans don't get to the top by taking massive risk. They get there by following the rules. And yes, some rules need to change, but we need to find a balance between attempting major disruption and status quo.   The singles, doubles, and even walks add up to a significant number of runs over time. And the keyword is time in healthcare. Execute today!   Will Oscar return to glory? Respond with your thoughts, and I'll include them in the online version with Akiff's response below (with any attribution as desired, can also be anonymous!)   Subscriber Commentary from Part 1   Just read your Oscar series part 1! Good stuff and liked it. As someone who was there relatively early (2016-2018) I've definitely seen the bumps and obstacles. Always was concerned it was over hyped and market seems to agree. I think ACA is a tough game to play and the real game becomes risk adjustment. Navigating care within a narrow network sounds cool but very very hard to do (esp in geo outside of nyc) - Akiff Premjee   Join my upcoming Virtual Event Discussing Insurtechs Join Ari Gottlieb and me as we talk about the recent struggles of Friday, Oscar, Bright, Clover, and what we can learn from their challenges. It'll be a collaborative conversation with audience Q&A encouraged! MISCELLANEOUS MADDENINGS This week we're headed down to Austin to stay at the Omni Barton Creek as a little mini vacation. Looking forward to getting a round of golf in down there at a really nice course and of course, couples massage and lounging. I'll see the Hospitalogists on Tuesday well rested and ready to go! Hope you all have a great weekend. Thanks for the read! Let me know what you thought by replying back to this email.   — Blake   Get your brand in front of 25,500 executives and healthcare decision-makers. Let's Partner Hospitalogy Presents: The Board Room Community  I'm building an exclusive community for top healthcare executives. Secure your seat. Workweek Media Inc.  1023 Springdale Road, STE 9E Austin, TX 78721   Want to ruin my day? Unsubscribe.