ACA startup Oscar has $45 million loss in three states

Oscar is staying in Los Angeles, New York and San Antonio, but it's leaving New Jersey. (Photo: Allison Bell/LHP)
Oscar is staying in Los Angeles, New York and San Antonio, but it’s leaving New Jersey. (Photo: Allison Bell/LHP)

(Bloomberg) -Oscar Insurance Corp., the Silicon Valley-backed health-care startup, continued to lose tens of millions of dollars in the third quarter as the company exits some markets and works to diversify away from of its Obamacare business.

The New York-based company sells health insurance to individuals in new markets set up by the Affordable Care Act. Its attempt to reinvent the insurance business has been marked by large losses - in the third quarter, closely held Oscar lost $45 million in New York, Texas and California, according to filings with regulators. That follows losses of $83 million in those states during the first six months of this year.

Related: Insurance startup Oscar to leave 2 exchange markets, rethink plans

Even before the election win by President-elect Donald Trump, who has promised to repeal or amend the ACA, Oscar was working to expand the types of insurance it sells while exiting some markets. About two-thirds of the losses this year are related to Oscar building out its business and technology, including setting up a network of hospitals and doctors in New York, and preparing to sell insurance to small companies. The rest of the losses stem from high medical costs, said a person familiar with the startup’s finances and who asked not to be identified because the details aren’t public.

“From the start, Oscar’s mission was to build an end-to-end health-care system that is designed to put the needs of consumers first,’’ Anne Espiritu, an Oscar spokeswoman, said in a statement. “Our commitment has required meaningful, upfront investments as we put the necessary building blocks in place that position Oscar for long-term success.’’

Trump impact

Trump’s election could be a negative for the insurer. The Republican has promised to repeal and replace the Affordable Care Act, though he’s softened that stance since his victory. The uncertainty could discourage some people from signing up for health plans, or Republicans could eliminate or reduce the tax subsidies in the law that are used to help pay for coverage.

“We anticipate that fundamental components of the future of health care will include consumer choice and competition in the marketplace, and Oscar, which has done significant pioneering work in the space, will continue to pave the way,” Espiritu said.

Oscar is on track to post a bigger net loss this year than in 2015, when the insurer lost about $105 million. The year-to-date loss doesn’t include results from New Jersey, which doesn’t make quarterly filings public. In the third quarter of 2016, the company lost $26.7 million in New York, $13.5 million in Texas, and $4.7 million in California, according to the filings.

Well-capitalized

Joel Cutler, a managing director at General Catalyst Partners, said he was confident the company was well-positioned.

“It has quite a substantial amount of capital and is extremely well-focused on the consumer in an industry where that’s hard to do,” Cutler said in a telephone interview.

General Catalyst was an early investor in Oscar, though Cutler declined to say how big the firm’s stake was. It may take long time for Oscar to succeed, given the complexity of the insurance business.

“I don’t think this is a problem that gets solved in a year, I think it takes many years,” he said.

The company had a private valuation of $2.7 billion after a $400 million fundraising round, Bloomberg reported in February, citing people familiar with the matter.

Shifting business

In the meantime, it’s making changes to its business. Those include building its own “narrow network” instead of renting one in New York, the company’s biggest market. The tight network of doctors and hospitals will be based around Montefiore Medical Center, Mount Sinai Health System and Long Island Health Network - and lead to better, more coordinated care for customers, according to Oscar. Along with New York, it’s already using a narrow-network strategy in Los Angeles and San Antonio. It’s exiting Dallas, as well as New Jersey, for 2017, while entering the San Francisco area, Oscar has said.

Oscar also wants to start selling health coverage to small businesses by the middle of next year, and move into selling policies to larger companies. That could help cushion damage from the Affordable Care Act, which is mostly focused on insurance sold to individuals.

Oscar is backed by venture capital firms including Josh Kushner’s Thrive Capital, Founders Fund and GV, which is Alphabet Inc.’s venture capital arm. The company, with its cartoon ads on New York subways and consumer-focused approach, has run into many of the same problems that have forced bigger, more experienced rivals like UnitedHealth Group Inc. and Aetna Inc. to scale back from the Affordable Care Act’s exchanges. Josh Kushner is the brother of Jared Kushner, who is married to one of Donald Trump’s daughters, Ivanka Trump. 

Related:

Health startup led by ex-UnitedHealth manager goes where rivals quit

Startup Oscar posts $105 million ACA loss for 2015

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