Welcome to Branded. I'm chatting with Mark Bertolini, CEO of Oscar Health. In your business, you have one really important customer and that's the federal government. So, as CEO, how do you create the conditions to take care of your customer?
I would start by our clientele are people who otherwise couldn't afford health insurance. So, these are people that were largely uninsured. And in the United States, we had 42 million people back in 2010 that didn't have insurance coverage. And that was close to 12% of the US population. Today, we have less than 7% of the US population because the Affordable Care Act passed by the Obama administration now has 24.2 million people in one risk pool. It's now the largest insurance risk pool in the United States. And so we are able to provide low-cost coverage through both a larger risk pool where you can spread risk and get lower costs and the government subsidized people who are at certain levels of the federal poverty level that brings more people in and the most recent enrollment increased the overall pool to 24.2 million people. So those are the people we take care of.
We do it uniquely in that we are the first platform end-to-end health insurance platform that has been built since 1972. Everybody else uses the old one. It's called Health Edge in their own version of it. And we are a cloud-native digitally oriented firm. So we have a lot of digital connections to all of our members. We're easier to do business with. Our brokers that sell the product, they are digitally connected. Our providers are digitally connected. We use extensively large language models and artificial intelligence to run the business more efficiently. And since I arrived in April, we've taken 1,400 basis points out of the operating infrastructure of the firm by deploying large language models.
Why do we do that? How can we do that? Well, again, we're a single throughput platform, cloud native, but secondly, we have one version of the truth in our data set. And as you may well know, AI entirely relates to the data you're using to drive the insights. And so with one version of the truth, less bias, as a result, we are able to produce more results with large language models and AI. All of that gives us an NPS, a net promoter score of 66 in an industry with an average of zero, which gives us the advantage of growing. So, we've been growing very fast. We have grown by over a million members since I joined. We have higher retention because we're easier to do business with. People like what we do and we also offer products which are counterintuitive to the insurance industry and we offer products to diabetics. We encourage diabetics to join us, people with chronic obstructive pulmonary disease, people with asthma because we know how to get them engaged in the health care system quicker and more digitally which allows them to get better quicker.
How do you sort of reconcile, I mean you have a startup originally and a prominent startup that was well known that was in many ways, when you and I have chatted before you've said like the goal was to almost not have people with a lot of health insurance experience because you know we value innovation, we value disruption, we want to do things differently, our whole reason for existence is doing things differently. But they bring you on and I think you came on board in was it 2021?
Oh, April 2023. Okay. Reason number three. April of 23 to bring some experience and you were the former CEO of Aetna. And so they're doing the opposite. So how did you kind of come on board? What was that like? Was it culture shock on both sides where we believe in, you know, disruption and you believe in no this is how you run a health insurance company? How did that play out? What was your first week like?
So, six years ago they asked me to come on the board and the reason they asked me to come on the board is that I had done a speech in 2014 to a large group of people on transformative healthcare. How do we change healthcare in the future that they played in this company to say this is exactly what we want to do what this guy's saying. And so when I retired, they said, 'Could you come on board and join our board?' And I hate boards of directors. It's Death by PowerPoint. It's, you know, stifling. I'm only on two boards now. Oscar and Verizon Communications are the only two I have left. I got rid of most my other board appointments. A because I needed to be here, but B, I just found it to be stifling to have to work on boards and do all these PowerPoints over and over and over again for hours and have people talk at you. So, as a result, I said no to their board proposal. They said, 'Well, would you meet with us every once in a while?' I said, 'Sure.' So, we would meet every once in a while and have a, you know, dinner and a drink and we talk about, you know, where do we think this is going? How do we think about this? And when the stock got close to $2.50 from 39, they said, 'Could we meet with you for an hour every week?' Okay, we need to get $37 back in that price. Okay, sure. So, and that's actually how they structure my comp. Get the stock back to that price and you're a winner. And so the idea was and they gave me some shares of the company and we met an hour a week and we did a deep dive and as much as the CEO Mario and the largest shareholder Josh could talk about we talked about the business and I gave them some insights like one was the CVS contract. I said you know when's the last time you negotiated that? They said well we've got another year left on our five-year contract. I said, 'Oh my god, no, you got to do this every month. You go and talk to them about their discounts. There's money every month you can get from them.' And so they started doing that.
Which of course you were a director of CVS before after they acquired Aetna. So this is good advice.
Yes. And I used to negotiate with CVS before they bought Aetna because, you know, I used to negotiate the contract. So when I first started with the firm, Brian Lee used to say to me, 'I need more earnings this quarter.' And I used to go talk to CVS about the maximum allowable cost list and get discounts and find anywhere from 30 to $50 million every quarter. So it was like you know that's the sort of thing you do. And then we talked about how the provider relationships work, how the contracts work. We just started taking apart the business. So while I was talking to them about how to think about it, I was learning about them and the firm and how they thought about it because I said to them and at that time I was working at Bridgewater with Ray Dalio. I was helping him move on and I was chairman first and then I was co-chief executive officer when the CEO left to run for Senate for reasons I'll never understand. And so you know I was just finishing bringing the new CEO along. I worked with Near Barda for a year and a half and I was going to go back on the board. They said hey could you come and run the company and by that time I knew enough about the company. I knew enough about them. I had the feeling because when they redid the CVS contract, that was a massive amount of money. But also when I talked to them about fraud, waste, and abuse, which can be anywhere from 5 to 7% in the state of Florida alone, which is where almost half of our business is, and they were only getting 1%, they said, 'You guys got to do a better job on this stuff.' They said, 'Well, you know, we're trying to be innovative. We want more.' I said, 'If you can't make money to reinvest in the business, to grow it, to reinvest in our member experience, we're not going to last long.' So, they asked me to come on board. They offered me founder shares to fix it. And they accrued to me with some vesting accrued to me at certain price points and I put those price points a dollar more than the employees exercise option price. So the employees would be able to benefit as you're benefiting as the employees won first. And then I would get paid. Because I mean this is not about the money for me anymore. I'll be 69 in June. So, it's not like, you know, I need to put more money in the bank to keep the lights on at the house or put food in the refrigerator or feed my dog. I just, you know, this was sort of a passion for me in a way that the CVS deal didn't work the way I thought it could work. I wasn't there to make it work. So, you know, I don't know exactly why it did. I have my assumptions. But when the last moment came along and I was convinced Mario was okay with it because I was going to be taking his seat, I asked the question, why are you guys in this? Why do you want to fix it? Is it just to flip it? Because if it's just to flip it, I don't want to waste my time. If it's to change the industry and really take this platform to where we think we can go, I'm your guy and I'll build a team and we'll create succession and we'll make this company the kind of company that could put all the others to shame. And that's why I joined.
In this type of industry, I mean, are you an operations expert and you go by critical function? I mean, the same way that you know, Tim Cook at Apple came from operations. He knows the inner workings of his business as well. Is that your sort of special sauce, your expertise? Is it operations and health insurance?
No, I know how to do operations. I know how to do it really well. I get bored by it. So, my secret powers are fixing broken things and building new things. I hate making trains run on time. I can find people who can do it, but I hate making trains run on time. And because it's boring to me, I want to fix it. I want to make it better. I want to drive a Zamboni machine on the ice. I played hockey, a goalie all the way through college. I want to drive a Zamboni machine on the ice because that can't be the only pattern that works. But it's not about the pattern for the Zamboni machine. It's about the hockey game. And so you don't want me running a Zamboni machine. So I come in and I figure out what's wrong. I put together the plans to figure out how to grow them. And the very first thing we did as soon as we had that all put in place, the first pillar of our strategy was run a great insurance company. The second pillar was create the best member experience in the industry. So people want to come to us instead of us having to sell them, they want to buy us. They want to buy what we have. The third was extend our lines of business, which is what we're in the process of doing so that we're going to help more people in the individual market. And the fourth was extend our platform to others in the industry so they can take advantage of the capabilities we've created.
What do you do when you come on board to accomplish two things? One, make sure that you know your ladder is up against the right wall and so that maybe looking at things from the outside isn't the same as being on the inside. And two, what do you do to make sure that there is buy-in from everyone else for these kind of changes? Because just you could come in here and like Mark says this, Mark says that and the team say, 'Hey, we've been here longer than he doesn't understand what's going on. No, this is the way we do it.' How do you get through all of that for creating change?
Yeah, we're disruptors. What do we need that 68-year-old guy here for? In my first company, we ran out of money in three years. They brought in a guy that was the chairman of the company we had bought, one of the companies we had bought, growing it, and he was 62 years old. His name was Cal Lepit. Great guy. He comes walking through the halls as acting CEO for a while. I was the head of sales and marketing. And as he walked through the hall, everybody's going, 'What the hell is Cal Lepit doing here? He doesn't know anything about where we're headed. He's not disruptive. He's gonna do everything like he did before.' And when I walked into Bridgewater and when I walked in here, it was like, I know I'm Cal Lepit. Oh my god, I'm Cal Lepit. So but it's not only putting the ladder against the wall. You got to know where people are. If you're going to create change, having the answer and saying this is the answer, go do it isn't going to work. What you have to do is sit with them, hear what they have to say, how do they think about it? You ask more questions. Well, did you think about this? Did you think about that? Because most people underperform for three reasons. One, they're a sociopath and they mean harm. We can spot those people. We're pretty good at that. Number two is they don't know how to do it. And number three is they're not suited to do it. And until you can figure out those last two, you don't have any business jumping to what the answer is until you hear it. And that's why I did 10 weeks of deep dives across the organization, met everybody, heard where they were coming from, the list of all the things that could be fixed and said, 'Okay, now how do we go about making this group do it?' Because people coming from large organizations like me have a tendency to work for their people. They had people. I always had people. I had people around me all the time. If I thought of something, a whole organization would spring up to go look at it. At Aetna in this company you got to do your own work. So bringing in people that had people before often fail. You have to take a totally different view and you have to get down at the ground level again and you have to do the work and that's why I was doing it for 10 weeks.
Well, and do you feel like I mean it's a different definition of CEO that has emerged recently that I think you know usually the normal definition of sort of CEO is like you kind of like you sort of point the organization it's like the direction we need to head you do it and then lots of other people move in that direction but you've got to your singular job is to make sure that we're pointed in the right direction or that we need to shift that. I mean that's one definition. I sort of hear now just to finish and I'd love your thoughts. Elon because of Elon Musk's style and he's become obviously very prominent. He sort of has this alternate thing which he's like the chief problem fixer in his companies where he's like you know he has a lot of companies. So each day a week is one company. What's the biggest problem you face this week? I'm gonna solve it in this day and he's like a lot sort of sits with him to be this sort of fixer as opposed to I'm sure he has people too but it's emanating from that. So is that a new model that is sort of unusual?
No one thought that was scalable for what is the job of the CEO? We see so the first person you described was George Washington standing on the bow of the boat crossing the Delaware River, right? Okay. Like in the painting, right? You're saying okay. Yes. I divide the world into two kinds. There are two kinds of CEOs. There's a Platonist and there's an Aristotelian. And the Platonist, having thought the great idea and communicated it, considers their work done. And the Aristotelian translates Plato for the mass so they can get the work done. And so I like Aristotelians. I like people who not only can see what needs to happen, but also is willing to get in and do the work to make it happen because that's where strategies become successful. This idea of applied science to commercialization and scaling is where most organizations fail. And so unless you can sit there and say, 'Okay, here's what I'm thinking. How can we imagine getting there and what are the steps to get there?' And have that conversation and then sit with the people and monitor its results and shift as you go. All the greatest companies, most of them never what they started with was not what they ultimately became very successful for like the original Macs. Now it's iPads and iPhones and all these other sorts of things. So somebody had to see the vision and Steve Jobs vision was I want an anthropomorphic relationship between the human and the device to be so amazing everybody has to have one. And he did that with Johnny Ive in the beginning with the Mac, the big Macs, the original Macs, the color Macs. Open it up, found the transistors just sort of glued to the shell. He goes, 'Why is this like this?' Said, 'Nobody's going to see it.' He goes, 'I see it. Line them up in this order.' All of them. When he did his store in New York, the marble floor 80% waste. George Blankenship, who I've worked with, who was his guy that built the Apple stores, brought two pieces of marble in. He goes, 'Which one do you like, Steve?' He goes, 'Which one did I pick?' He goes, 'No, which one do you like?' He goes, 'Which one did I pick?' And finally goes, 'George, can you come outside with me for a minute?' I want the one I picked. He goes, 'But that's got 80% waste. This other one's got 20% waste. You can't tell the difference.' He said, 'Buy the effing quarry if you have to. I want that marble.' So you have to have this view. You have to have this view forward that you stick to and hold to but you have to bring people along otherwise it won't happen. So Aristotelian is more than nature and that's what Elon Musk is. He gets in there and he does the work and I do too.
You've mentioned to me before, you know, you're 10 weeks in, you sort of listen for 10 weeks, but people get a little bit antsy and you had a certain conversation. You have some prominent investors and founders in Oscar Health. Jared, Josh Kushner is one of them. People get antsy when like you're supposed to like fix what's broken here. What do you sort of when do you know to listen and when do you know it's time to get to work when you're having those kind of conversations and investors are knocking on your door saying, 'Hey, what's going on here?' A guy coming in from a health insurance company which they don't like anyway and older who's, you know, beyond his retirement years and has made all his money. Why do I want to listen to him? What does he know?
So, it's in the conversation you have in the deep dives when you're asking the questions and you see the light bulbs going on. So if it's a person who doesn't understand and you teach them something, they come back having done the work. If it's a person who's not suited to do it is they don't like working that way, they're in the wrong job. And you have to start sorting people out like that. And that's what that 10 weeks was about.
I see. So, so you're actually not just asking questions to get answers or perspectives, but you're trying to do this sorting process to understand who you have on the basis of that.
And how do I get it done? Because I can't do it all myself.
So, this was 2023. We're at the beginning of 2025. Now, where is the business now on this journey to go? The stock price is higher. I think I saw it around, you know, 16. It probably fluctuates, but 16 bucks a share. You got a market cap of about $4 billion. How far along are you on your journey now?
We're through in 2025. Our objective is to have so we made money in 24 for the first time. We made adjusted EBITDA in 23 which is what we told the street but in 24 we actually made EBIT. We made real money money you can count right instead of funny money. And so that kicked it off. This next year, we've promised 2 and a half percent margins to the street in our earnings through the year and you know growth of you know up to 11 billion in premium. And why those two numbers matter is that 11 billion at 2.5% margins in the insurance industry generates a $5.5 billion market cap. We're at 4 point something right now. four point low, right? So that's one piece. At 5% margins, you get a 1x of revenue. And so by 27, what we committed to the street is we're going to have 5% margins, real margins, not EBIT, and we're going to have 14 billion in revenue. That makes the stock price of the company somewhere between 45 and $55 a share depending on the PE multiple from where we are today.
You've talked about, you know, what you've shared with the street. As a public company, you have to do this, of course. But would you run it any differently if this was a privately held company? Would it be the same or what would be what's the difference?
When you're running a public company, you have to show a progression. You have to show growth and the right metrics that lead to that ultimate number. In a privately held company, you may hold back on the earnings part, but on some of the other things so you can make the right investments to get there quicker. So sometimes taking it private, which some companies do, is a way to really sort of get things accelerated internally so that you come out with a stronger set of numbers or the same set of numbers earlier.
You're saying, I'm going to paraphrase here, but correct me if I'm wrong, but like the public, a lot of what public markets do is they value trust. And trust is based on you say what you're going to do and then you do it. So, they don't want to be surprised by we got this great opportunity and we're just jumping in head first. Whoa, you didn't tell me about that last quarterly call. Where'd this come from? How come I'm surprised? I don't like that. So, you're saying that creates a different dynamic?
