Policy
Why Tech Guys Think They Can Sell Health Insurance
When New York State announced the participants in its Obamacare exchange last week, there was an unfamiliar company on the list: Oscar Health Insurance. Started by tech venture capitalist Josh Kushner, and backed with $40 million from Silicon Valley investors such as Vinod Khosla and Peter Thiel, the company is seeking to solve a challenge few tech entrepreneurs have tackled: health insurance.
The pessimist’s take on state-sponsored insurance exchanges created by the Affordable Care Act goes something like this: Beginning in October, health insurers won’t be able to deny coverage to Americans with preexisting conditions; to offset the cost of carrying the sick and aged, insurers will need to convince young, healthy people to buy insurance. The Affordable Care Act takes a stick-and-carrot approach to getting Americans into the system, but neither premium subsidies nor tax penalties may be enough to convince healthy people to buy insurance. Rates rise for everyone.
Of course, there’s a rosier view of the individual mandate: Some 32 million (PDF) Americans are expected to join the health-care system in coming years, and many of them will buy health insurance on exchanges. Insurers competing for new customers, meanwhile, will have incentive to do a better job serving individuals. Is it possible to create an insurance plan with greater consumer appeal?
“We understand technology, data, and design,” says Kushner, who has invested in Instagram (FB), MakerBot, and Warby Parker, during an interview at Oscar’s New York City offices. For medical expertise, the company recruited Charlie Baker, former chief executive officer of Harvard Pilgrim Health Care, which sold individual plans on the Massachusetts exchange, as an investor and board member. The company also hired senior medical executives from EmblemHealth, which claims the mantle of the largest insurer in New York State.
Kushner says the initial inspiration for Oscar wasn’t health reform, but his experience of opening his insurance bill and realizing he couldn’t make any sense of it. He shared the idea with Mario Schlosser—previously at hedge fund Bridgewater Associates—and Kevin Nazemi, a former Microsoft (MSFT) exec, and the trio set to work building a health-care company they would want to use. That was 18 months ago. The New York-based company has since hired health-care executives, built a network of doctors, and won approval to operate as an insurer from New York State.
Starting from scratch has some advantages, Nazemi says, as does building an insurance company expressly for the individual market. “If you’re doing group plans, 99 percent of your focus is on the needs of human resources and brokers,” he says, because that’s how you sell the plans.
Oscar, he says, is aimed at improving the policyholder’s user experience. To make the company’s website pleasant to use, Oscar hired Tumblr’s (YHOO) former chief technology officer, Fredrik Nylander, and designed the site to make access to information quick and easy. To help answer medical questions, the company has doctors on call to chat online or over the telephone with customers. Oscar also lets customers check prices for procedures ahead of time and offers three free in-person doctor visits and free generic drugs. Industry incumbents have tried to include some of these options on their websites, Nazemi says, but the result usually “feels like you’re using an old, clunky ATM.”
Oscar, which has 28 employees, plans to expand staff when it starts selling insurance to residents of New York City, Long Island, and Westchester when the state’s exchange opens on Oct 1. There are about 1.2 million potential customers in the company’s initial coverage area, says Nazemi, and Oscar has set aside $26 million of its funding for reserves against losses. That’s enough to cover between 50,000 and 100,000 customers, he says.
The pessimist’s take on state-sponsored insurance exchanges created by the Affordable Care Act goes something like this: Beginning in October, health insurers won’t be able to deny coverage to Americans with preexisting conditions; to offset the cost of carrying the sick and aged, insurers will need to convince young, healthy people to buy insurance. The Affordable Care Act takes a stick-and-carrot approach to getting Americans into the system, but neither premium subsidies nor tax penalties may be enough to convince healthy people to buy insurance. Rates rise for everyone.
Of course, there’s a rosier view of the individual mandate: Some 32 million (PDF) Americans are expected to join the health-care system in coming years, and many of them will buy health insurance on exchanges. Insurers competing for new customers, meanwhile, will have incentive to do a better job serving individuals. Is it possible to create an insurance plan with greater consumer appeal?
“We understand technology, data, and design,” says Kushner, who has invested in Instagram (FB), MakerBot, and Warby Parker, during an interview at Oscar’s New York City offices. For medical expertise, the company recruited Charlie Baker, former chief executive officer of Harvard Pilgrim Health Care, which sold individual plans on the Massachusetts exchange, as an investor and board member. The company also hired senior medical executives from EmblemHealth, which claims the mantle of the largest insurer in New York State.
Kushner says the initial inspiration for Oscar wasn’t health reform, but his experience of opening his insurance bill and realizing he couldn’t make any sense of it. He shared the idea with Mario Schlosser—previously at hedge fund Bridgewater Associates—and Kevin Nazemi, a former Microsoft (MSFT) exec, and the trio set to work building a health-care company they would want to use. That was 18 months ago. The New York-based company has since hired health-care executives, built a network of doctors, and won approval to operate as an insurer from New York State.
Starting from scratch has some advantages, Nazemi says, as does building an insurance company expressly for the individual market. “If you’re doing group plans, 99 percent of your focus is on the needs of human resources and brokers,” he says, because that’s how you sell the plans.
Oscar, he says, is aimed at improving the policyholder’s user experience. To make the company’s website pleasant to use, Oscar hired Tumblr’s (YHOO) former chief technology officer, Fredrik Nylander, and designed the site to make access to information quick and easy. To help answer medical questions, the company has doctors on call to chat online or over the telephone with customers. Oscar also lets customers check prices for procedures ahead of time and offers three free in-person doctor visits and free generic drugs. Industry incumbents have tried to include some of these options on their websites, Nazemi says, but the result usually “feels like you’re using an old, clunky ATM.”
Oscar, which has 28 employees, plans to expand staff when it starts selling insurance to residents of New York City, Long Island, and Westchester when the state’s exchange opens on Oct 1. There are about 1.2 million potential customers in the company’s initial coverage area, says Nazemi, and Oscar has set aside $26 million of its funding for reserves against losses. That’s enough to cover between 50,000 and 100,000 customers, he says.
Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.
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