Today we're diving into Oscar's beginnings, its rise to public company, and then its fall into the abyss.
Next week, I'll be taking a look at Oscar's transformation and atonement for past transgressions, what's on the horizon for the insurtech, and why, despite past slip-ups, Oscar could be poised for a return.
Oscar Health's Journey
In 2012, Oscar Health started as a response to a shared frustration. The frustration that health insurance…sucks.
Co-founders Mario Schlosser, Joshua Kushner, and Kevin Nazemi recognized a critical gap in the market—healthcare was (is) confusing, opaque, and unapproachable for consumers. They took it upon themselves to reinvent healthcare with a tech-driven, patient-focused approach.
The idea was straightforward yet revolutionary: 'Let's use tech and consumer-friendly interfaces to simplify health insurance and improve patient care. From there, we'll grow our membership, achieve scale efficiency, and create a compelling competitor to the health insurance incumbents that exist today.' A tall, but ambitious task.
At the core of Oscar Health's thesis was its use of virtual care, mobile applications, and a simple user interface set it apart from traditional healthcare providers. It enabled patients to easily connect with healthcare professionals, navigate their insurance plans, and manage their health more effectively.
The insurtech launched in-step with the Affordable Care Act (ACA), selling insurance through the ACA's exchanges. Through growth in the individual markets and strategic partnerships with health systems and other payors, Oscar hit revenue and member milestones quickly.
By 2016, Oscar had hit 135,000 members. That number grew to almost 230,000 members in 2019 and total gross revenues (before reinsurance) of over $1 billion. Over its first 7 years of existence, Oscar expanded from New York into 9 states and 14 markets by 2019.
In 2019, Oscar had reached a $3.2 billion valuation on over $1.3 billion raised. CNBC named it as one of the world's top 50 disruptors in 2018 alongside names like SpaceX, Uber, and AirBnB. It notched major partnerships with health system players including Montefiore and Cleveland Clinic as well as payors including Cigna and Health First.
For a time, and with easy money policies, losses and valuation were justifiable as a private name funded by private capital in growth mode. But there were chinks in the armor along the way. Its ability to hit profitability in a tough market came into question as early as 2016. From the NY Times:
"But for every dollar of premium Oscar collects in New York, the company is losing 15 cents. It lost $92 million in the state last year and another $39 million in the first three months of 2016. 'That's not a sustainable position,' said Mario Schlosser, chief executive at Oscar.
Behind enormous topline growth, media attention, and capital investment (around $1.4B pre IPO), Oscar filed its S-1 and IPO'd on March 3, 2021 during the post-Covid peak of irrational market exuberance.
Hitting a peak of $39 / share good enough for a market cap of $7 billion+, Oscar was a hot commodity and held a powerful brand within healthcare and health tech (still does). A month after IPO, the firm launched its tech platform, +Oscar, to much fanfare, announcing that its partnerships with Cigna and Health First would use the tech platform to improve patient outcomes, care coordination, and administrative workflows. Oscar's thesis as both a tech-enabled insurance company and tech platform seemed to be blossoming.
Falling into the Abyss
But as Oscar entered the public arena, the market turned on Oscar and other speculative growth names. With increased scrutiny, a desire for a path to quicker profitability, and the quarterly demands of a publicly traded healthcare company, Oscar hit major operating speedbumps.
Throughout 2021 and 2022, it became quickly apparent that Oscar and other insurtech names had been going the route of the prodigal son, chewing up capital by entering new markets and growing membership with reckless abandon. Macroeconomic conditions exacerbated the losses piling up, and Oscar wasn't helping its image with investors.
Its growth strategy teetered like a whipsaw between touting +Oscar, entering Medicare Advantage, and achieving profitability in its core ACA business. Oscar presented odd, idiosyncratic operating metrics and spun everything - even dismal operating results - in a positive light, much to the chagrin of investors.
During one investor day, Oscar seemed to go all-in on its +Oscar platform as the next phase of the growth for the company, only to pause new implementations of the platform shortly thereafter. It lost a major contract with Health First, an MA plan with 60,000 members, over implementation struggles of +Oscar. From anecdotal, inside sources, I heard this implementation was a disaster to the point that +Oscar was unable to process claims or perform basic functions for the plan. Finally, Oscar's MA presence, a massive avenue for growth for major incumbent players, is next to nonexistent.
On unsure footing, investors caught on to Oscar's challenges. All of a sudden, they collectively understood they were throwing money at a health insurance company, an industry with capped profit margins and nuanced regulatory requirements, at multiples many turns above anything rational.
To put Oscar's fall into the Abyss into perspective, Oscar lost 85%+ of its value in less than 2 years. After raising $2.7 billion +, it sat at a sub-billion dollar market cap as recently as December 2022. Peak disillusionment. Peak bearishness in health tech. And deep into the Abyss goes the hero of our story.
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