So, who is even incentivized to bring down costs?
Nobody. We need to pull every American into one pool. And we need to give them visibility into what it costs. And we need to give them optionality on how to spend their money. And if you do that and it's my money, if I change my job, the person that fills up my bucket changes, I can keep my plan.
Mark, it's such a pleasure to meet with you today. Um, I have closely followed you for um, more than a decade now and it's it's just fascinating to see your career trajectory and then and then now to be I don't know if you can call Oscar a startup but I think amongst health insurance companies it it probably is.
Just last night, you wouldn't believe I I was having a retreat at my house for about 40 people who were all what's called fractional. And what I what I ended up saying is the fractional people aren't taking the risk these days. It's actually just as much of a risk to have an employer because just a few weeks ago, my husband works for a big company that laid off 10% of its staff by email and that was how 10% of the company was let go. Two others did did similar things in that in that same week. And then you look at the Department of um labor statistics and you see that people just move around jobs these days. they're there every every four years. So the concept of of loyalty that we talked about just it just doesn't exist. It's a it's a fabrication of a prior moment where one could feasibly have a job at General Electric right after college and then retire and get a pension and you could have a good life that way. So can you speak to that because I think health insurance is is so relevant. It's we still are stuck in the model of that the boomers created and yet work has changed so substantially.
So health insurance started 80 over 80 years ago post World War II in World War II soldiers returning from the war concerns about inflation and you couldn't just pay people a higher wage. So what could you do? You couldn't. You have to give them benefits. And so healthcare was one of the ones that they did. And so when you couple a set of benefits that in the beginning were fairly rich, not as rich as they would get in the 60s and 70s, and you couple that with a capacity system that's growing leaps and bounds as a result of the ability to provide medicine and health care, you can't help but have a massive inflationary cycle. I mean, it was built to do that. and then and probably more importantly the economic models of the actors in the system are all different. So physicians operate on a cash basis. Have I pulled enough cash to keep the business going to keep my personal lifestyle going largely? And then you have hospitals who are on a revenue basis. And when I was working for one year in the hospital system and I did the strategic plan, we didn't do anything about cost in the strategic plan. It was how can we grow the revenue? They work on a revenue model. So as my revenue grows, I can cover my costs. And then you have all these other actors like PBMs and health and health insurance companies and durable medical equipment companies and you know all of these you know businesses that have become for-profits over the years and they work on a margin model. So you have 760,000 cash basis economic models with 6,500 revenue-based economic models and probably close to 5,000 marginbased businesses and you push it all together and you expect it to work.
So who who in the system is even incentivized to bring down costs?
Nobody. the patient. Maybe one could argue, but even they are, you know, there's somewhat of a shielding from from those costs with the system that we've created.
One of my common questions is if you had to pay 20% of your automobile costs and you had $100,000, what kind of car would you buy? A $500,000 car.
Right. But then if everybody buys $500,000 cars, you know, what's the net outcome?
I had this come to Jesus moment that you'll appreciate at CNBC. I used to work there on as a healthcare correspondent. And there was one year that I got a raise and this is a very big deal cuz I I had not historically made very much. I was saving nothing. And I remember sitting down with my own spreadsheet thinking about this raise. And then I looked at how much cash was actually coming into my bank account and I was like, wait, something here is not adding up. Um, it should be more than this. And I'm thinking, okay, it's taxes, but it's also it's also healthcare. And at the time, I was very friendly with the head of benefits at at Comcast that owned CNBC. His name was Shan Levit. And I said to him, can I have my $23,000 back that is being spent on healthcare? And he said, "I've never been asked that question." And no. [laughter] And I but I said, "Well, Sean, you know, all this money's coming out, but I I'm 25 26 years old. What healthcare am I even using? Why can't I just go and pay cash? Take the money and go and pay cash." And we had a long conversation about why that wasn't possible. But to me, this was like the first moment where I had this concept that the employer sponsored model was broken because I was getting lumped in with people that were far more expensive and that I was being given this very broad network and paying for this broad network that I did not need as a 25year-old. But of course, there's there's nothing you can do about it because that's that's the system that we have. But
yeah, curious if you how you would react to that. No, I I so so on top of all these economic different economic models, we have a system that is conflated financing and investment. We actually start with financing. You pay a premium, you get a warranty card. If you get broken, you present it to a dealership and you get fixed. Think about that. If you buy a car in Detroit, you never went into a dealership and said, "I can afford $350 a month. What kind of car can I have? They will cheat you. What you have to say is, I want this kind of vehicle with these kind of features and all of these sorts of issues related to maintenance and safety and all those other sorts of things. How much does that cost? And they'll say, well, how are you going to pay for it? You should say, I'm never going to tell you how I'm going to pay for it until you tell me how much that car costs. they have visibility and they have the ability to shop. So hold that thought. So So what we've done is we conflate a financing investment and and and the person who's paying for it isn't necessarily the patient or the or the the the insured. It's their employer. They have no visibility on what it actually costs until after it's done. So, this is a thing where who $350 a month car and you're paying $350 a month for something you had no option to make it. They hand you the car. And this is what happens in healthcare. You get handed your service. You don't get an ability to shop. You have no insight into into pricing. So, there is it's not a system. It's not an economic model.
You know, it's like giving a minivan to a 25-year-old with no kids. Everybody's getting handed the same thing regardless of whether or not it's the right thing for them.
So then you look at the employer sponsored insurance market and there are three versions of that. There is the smaller group market where they don't have enough employees where they have to pay an insurance premium into a larger pool of small group employees that allows them to spread the risk of their employees over the population the total population. That's the small group market and they're usually rated by area or by industry class. And what the problem with that is is that one pregnancy in a group of 50 people can create a double-digit rate increase next year. And for the most part, small groups have received double digit rate increases nearing 20%. 15 to 20% for the last decade. And it's wonder why they can't pay for it anymore. Then you have what we call the middle market which are what we call reinsured. What happen in those markets is they usually blow up eventually and what happens is they go back to the fully insured market and they have to pay more to get back in. And then you have large group market over a thousand employees and they're largely self-funded protected by Orisa. And because the employer has so many employees everywhere, they have to have these massive networks where they have literally no leverage against those providers to get a better fee. And so the whole idea is in these employer groups, these large employer groups that they have enough n a number of employees to get the best rate possible. And that is a complete fallacy. That is a complete fallacy.
So what needs to happen is we need to pull every American into one pool and we need to give them visibility into what it costs and we need to give them optionality on how to spend their money and we need to create a bucket. We need to separate the financing from the investment decision. We need to create a Roth IRA like account where whatever organization is funding them. The money goes into that bucket and it's their money. So it could be Medicaid, it could be Medicare, it could be their employer, it could be the ACA, it could be themselves. [snorts] And that money is their money to spend. And then we need to give them the tools to understand their current station in life and where they're at. We need to give them tools to find the network that works for them, which is going to be smaller than the network the employer offers. As much of a 20% difference in cost by just picking my network for me and my family versus going to an employer based network. I think another um problem that that could solve and I think it's a huge one. I I call it the the churn problem. So imagine you you're a big fan of preventative care and um wellness and you've become a convert to to yoga and you really value good nutrition and these are all things that in the long run will keep somebody healthier. But if I am somebody who is changing jobs every 3 years, what incentive is there for that insurance company that's only going to be my insurance company for that three-year period before I jump to the new employer and switch my health plan? Theoretically, like what incentive do they have to say we are going to cover things that in 20, 30, 40 years time will help Christina avoid a chronic and expensive chronic condition down the line. Aren't they just, you know, doing a huge favor for the for the direct competitor?
So, here's the problem that most employers have when they think about this issue, and it's called the employment lock, right? I'm stuck with my insurance because I need my network [snorts] is that if we have everybody in the ACA on the same platform, an acro platform and I get my employer to give me the money into my fund. It's my bucket. I go buy my network and I go buy the plan design that works for me and other services that I think I believe we need to pay for out of pocket. Most employees pay 15% of the premium equivalent into their employer. They then have to pay their out of pocket costs. They have no money for that. Last year, two out of five Americans borrowed 74.9 billion from banks to [snorts] pay their out of pocket costs. The average cost for the American family for health care, family of four, is $36,000 a year with an average household income of just over 100,000. It's now bigger than their mortgage. It's now bigger than transportation. It's now bigger than food. It's now bigger than education. So, if it's my money, I'm going to decide how to spend it. Do I buy a high deductible plan? Wait, let me find my network. And because carriers in the ACA are on our product called ICRA X, they the employee can shop any one of them. We don't care if they come to Oscar or not. Pick your network. find your network. It's going to save you 20%. So, they can find their network, they can pick their plan, they spend their money out of pocket for whatever they want to spend it for, my deductibles, vision, dental, life insurance, or, you know, I can just use it to save it until I need something more important like a critical illness. And if you do that and it's my money, if I change my job, the person that fills up my bucket changes, I can keep my plan
and keeping the plan means suddenly lifetime value, lifetime value and everything. Lifetime value in the member, lifetime investment by the health plan in the member seeing through their whole journeys through life. So, can you list off maybe five things in the prevention space that immediately become obvious from an ROI perspective when you have a lifetime member?
GOP1s. I mean, the whole idea of a lifetime member is to what we call square out the morbidity curve. And there's a article written by James Fry. He was a physician in 1972. We almost got drumed out of the AMA, but he made the supposition that the best way for our health care system to approve its value is to make the person maximally capable, productive, sentient, and available until their dying day. And he happened to just pick 85 baked in back in 72 based on current medical science. He said, 'But wouldn't it be great if you woke up on your 85th birthday, completely sent again, capable, engaged in life, physically, mentally, working, doing what you want to do, and volunteering in the community, fit as a fiddle, have your breakfast, dead by noon, in the ground by 5 versus a steady dam over 20 years to death. The system has failed people who are morbid and dying that way. We have not provided them with the right education. So what if we create lifestyle products? So this year at Oscar, we created a product called Hello Menow. It's for women going through menopause. We're going to do bone density scans. We're going to do hormone replacement therapy. We're going to do counseling. We had women signing up with us directly because they don't get that today. So what if we created lifestyle products that started with the young immortals and then went to newlywetss and then went to starting a family and then went to young children and then went to adolescent children, college children, empty nesters. Could you see a world in this in this vision of lifetime value where you know the gym is subsidized, yoga is subsidized, healthy food is subsidized,
you can pay you can pay for yoga and you can pay for a gym in your in your HSA today. Most people don't know that. Most people are told save the money in your HSA. No, use it.
So let's let's um double click on what Ikra is and where it came from. I've heard people in the industry describe it as a new 401k, but growth is has been slow, but the idea seems to have some bipartisan support behind it. So, um, can you share a little bit about why Oscar is betting on RA?
So, it's the individual consumer health reimbursement account. So in most major health reform initiatives, we've not only passed legislation, we passed regulation that creates rules on how it works. We just passed an enabling legislation. So when you pass enabling legislation and you leave it up to everybody to figure out, not much happens quite frankly. And that's what we've got. We've got enabling legislation that says you can do defined contribution in healthcare. So as an employer set up a tax advantaged account, right? People put money in it, people use it to pay for healthare, but the plans not necessarily any good. We don't have a great way to even pay premiums. On top of it, the tax effects are not right yet, right? And for the employee, it's not t they don't get the same tax effect. So we need enabling legislation to allow for the individual tax. And we've done that in in some states already. We have actually an ICRA model bill that's been approved by the NIC, National Association of Insurance Commissioners. We're going state by state because actually Republican governors want this more than anybody else. Interestingly enough. You know, governors are like CEOs. They have to run a business. And between Medicaid and ACA, it's killing them. They need to figure this out. and their small employers who are the bread and butter of their economies, half their economies, they need to figure out a solution for these people. And then I would argue that there's one more step for consumers before it actually make makes a difference. They need to be able to shop not just for their health plan, but for their out-of- pocket costs. So at Oscar, we've created the Lucy Health Marketplace. All of our competitors are on it, but so is All State Health for critical illness and supplemental coverage. So is Athle. So is USAA. So is Hi Supermarkets. So are entrepreneurs. But we need our tools. And so we're working on a tool now. It's not fully launched yet called Oswell at Oscar. It's an agentic AI bot. And what it does is it allows you to work with your physician to create a care plan. And as you create that care plan, you see what you need to get authorized. Here are the criteria to authorize it in plain English. And when you're done, we're going to price it out to you. Show your out-of- pocket costs. If you have out-of- pocket costs that you have to pay for yourself, here's the Lucy Health marketplace where you can shop for all these things that people offer at different prices. We're now doing it with drugs. If we see somebody in struggling to make their refill, pay there for their refill, we now say to them, let's go to another site. Let's show you all theies in your area and what that drug costs. [snorts] Let's show you coupons that you can get from the drug company themselves to help you support it. And let's show you what the generic alternative would be. You make a choice about how much you want to spend.
that's what we need. Curated pricing.
