Oscar Health Co-founder Mario Schlosser

So fun to be here. Thanks for having me on, Hite. Really great to be here reconnecting and talking.

Yeah, that was Josh, co-founder, and my bonding moment early on. We had a coffee after our previous startup more or less ended, at least for us, and we thought, what are some good ideas we should try to cover? And Josh said we should do a health insurance company, and it was a very spur-of-the-moment remark because he had been in the ER with a sprained ankle after playing basketball, and then I was going through pregnancy with my wife for the first time. Our son was born in August 2012, and so that was right the time we started thinking about Oscar seriously.

Yeah. And with not a lot of visibility as to what actually would happen there — which how many ultrasounds are going to be authorized by the insurance company. This was a time when all these new cell-free DNA tests came out and you could test kids early on for trisomy 18, 21, things like that. Was that going to be covered or not? Nobody could tell us, really. And so the insurance company just seemed incredibly useless in any of these processes and mostly to exist to somehow after the fact make life a little harder for you. And therefore we thought entirely from a user experience point of view, somebody really ought to build a more tech-driven, member-friendly insurance company. And only then we realized, oh, the Affordable Care Act is coming and there would be potentially a market segment that would value these kind of things. And that was exciting to us.

The basic tension was always how much of Oscar should be built around basic health insurance competencies and how much should we build around ignorance of those basic competencies. That was always the basic tension. The first couple of hires after Josh and myself were health insurance people. We had a whole crew of semi-retired and retired guys, mostly guys really, who used to work for Emblem, a health insurance company in New York which insures the local firefighters and policemen and so on. And we brought them in right away because we're like, I don't know, what does an insurance company even do? And I had a chart after talking to these folks, but also other folks in the industry, where I mapped out all the various components you'd need to run an insurance company. Somebody has to do prior authorization, you have to have a claims system, you have to have a network management system, these kind of things. But we hadn't really ever stood these things up or even looked at vendors that would do this with us. And so we knew we needed to import those basic competencies, but then we also knew if we just go and do whatever folks tell us in this space, it's going to end up being like a small shitty version of Aetna, which is not going to be exciting either. And so I'm not sure I would tell myself anything differently about how to turn that dial. But I would certainly tell my younger self where the areas are where you just need to import the competencies and where the areas are where you should just not believe what others are telling you.

Certainly one of the very simple things is we started in New York City, and New York State is the worst place to have an ACA healthcare plan for all kinds of regulatory and economic reasons and so on. And everybody told us at the beginning, like, why are you starting in New York? Start in Texas or start in Tennessee or whatever, or Florida for that matter, the biggest market today for Oscar. But that was a simple one and kind of still shows how little we knew about healthcare at the time. There's a famous story early on where Josh and I talked to a luminary in healthcare, and in fact, actually, I think I can say this, the Oxford founder. Oxford was sort of like the previous Oscar, if you will, a health insurance startup in the tri-state area in New York and Connecticut. And we talked to the former CEO and founder there, and Josh would have his favorite line at the time, which was, you know, we think it's a great asset that we don't know that much about health insurance. And people used to like, oh my god, that's such a clever thing to say. And then Steve Wiggins said, "Josh, the road to success in healthcare is littered with the bloody corpses of people who said what you just said." And so Josh stopped using that line. And that is still a question to this day for Oscar. Where is that dial between importing competencies in health insurance and where do we have to reinvent things? And it's a very difficult line to still draw.

Yeah. Exactly. And I think the other thing that is very easy to miss is that most of the healthcare system does not have the same requirements on that that startups in healthcare have. Most insurers don't grow, you know, 50% every year. Most insurers don't expand into new states every year. Most provider systems don't expand all the time and develop new products all the time. And that is very easily missable because the kind of processes and the kind of technology that the incumbents can rely on, which is often just tons of hundreds of people sitting in a room somewhere following stone-age-old processes, that does not work if you put it up against these kind of requirements. That's an easy way to blow yourself up in healthcare.

The ACA is, I think, an incredibly good market for good consumer products because people really do make their own decisions and they can change their decision once a year. You just go to a different health plan, and if you don't like the value for money you're getting from Oscar, you can go elsewhere. And same with other health plans. And one of the numbers I always like to look at is if you go and index the cost of health insurance back to 2018 or something like that, some year in the past, and you look at then how the lowest silver plan in the ACA across the country has evolved since then, since 2018 or so, it's that cost up maybe 10%, something like that. If you do that same thing for the large employer markets, that costs up like 50% or something like that. So you really have much more competition of value for money in the ACA than in the large employer markets. Again, everything else being equal, you know, just comparing against itself, in the ACA the deductibles haven't changed or anything like that. It's not that somehow this is a redistribution from the premium to the cost sharing or something. It really is all other things being equal. And it's not surprising because everything's transparent. The prices are on the websites, even the government websites. You know, you can go to Stride Health, whatever, I see you're there as well, and insurers, we have to grapple with pricing, with competition and so on.

So what typically drives our growth is a combination of pricing and of member experience and of network, those three things. And in the states we perform best, we've been in there for a while, people know us, there's a real word of mouth. Often even when the brokers, which sell a lot of the ACA plans, the brokers say, yeah, go to Oscar, they're going to solve your problem. They know I don't have to call them, they're going to figure this out for you, they're really, really good to work with, and they pay me on time, the brokers on time as well. So that's an important aspect, the member experience really. The second one is then network. Do we have the right providers in the system? Insurers run a two-sided marketplace, if you will. You have to have providers and members and align all of that. And the third one is pricing. We do know that if we are not within, I'd say, $10 to $15 of the lowest price in a market, we have to have a lot of other special sauce in that market to continue to perform and continue to outcompete others. There are some markets where they're price sensitive, $30, $40, $50 PMPM per month higher than the lowest in the markets, and we can still grow nicely, but those are the markets where we really have fantastic word of mouth and things like that. And so you kind of want that. I mean, that's really what's great about the ACA, and you don't have to be everything to everybody.

We tend to have like a 15% market share or so in the states we are in, and that's also fine because part of being an individual insurance company means don't build a network for everybody. Don't build a product for absolutely everybody. It's okay for the insurers to occupy different positionings in the marketplace.