And welcome everyone to another Smart Money Circle episode. I'm Adam Saran. With me today is Mark Bertolini, who's the CEO of Oscar Health, ticker symbol is OSCR. Mark, thank you so much for taking the time and welcome to the Smart Money Circle.
Great to be here, thanks Adam.
So Mark, I always like to begin. Can you please tell us your story and how you got to where you are today?
I grew up as a kid in Detroit, public school educated. Went to Wayne State University undergrad. It took me eight years to get through undergrad because I was working full-time. And of course, you work full-time and then you go to school full-time and then you party full-time and something has to give. So it took me a little longer than I thought. But I got through, went to Cornell for my MBA in finance, and was looking at Wall Street when a friend of mine called me and said, 'Hey, do you want to start an HMO?' And I said, 'What the heck's an HMO?' And he sent me the red herring from the US Healthcare public offering. And so we went and started a company in Detroit called SelectCare, which we ran for 10 years. Almost ran out of money a couple of times, typical startup. And learned a lot about leadership, the things they never teach you in graduate school, about people. We learn all these techniques and skills, but I've never once used a weighted average probability net present value calculation in my career. But anyway, I learned it. And so then I went on, I retired after we sold the company. And New York Life came after me, a guy named Sy Sternberg who ultimately was the CEO at the time, he was running the group division, to come and help rationalize the group division of New York Life. And so we took it all apart, created NYL Health Plans, ran that for five years. Aetna came along, bought it. I retired again. And then Cigna came along and said, 'Hey, do you want to come and work with us?' And I worked with them for a while. And my son got sick, and he got sick with a cancer that was incurable. And I quit my job, I moved into his hospital room with him for a year and a half. And today he's 39 years old, he's got two daughters, he's married, and he's a quant guy. His journey through madness actually made him a savant in math, which was kind of interesting to watch, because he couldn't get it before. I used to spend hours with him on his homework. And then when he got well, I was looking for somebody to come and help turn the company around. I had been part of what created the problem when they bought my company. And then I started the journey with Ron Williams and Jack Rowe. I was at Aetna from 2002 to 2018, so 16 years, CEO the last nine, chairman and CEO the last nine. And we did the CVS deal. And then I was at home and Ray Dalio called me and said, 'Hey, I'm looking for a way out. I need to have a better board governance process, management process. Could you come and join the board?' So I joined the board, we built out the whole board structure, we created a deal with Ray, moved him to where he wanted to be. I started running the company, I went back to the board. And Oscar called, and I had been talking to Josh and Mario for probably five years. They wanted me to come on their board, and I think boards are death by PowerPoint and spreadsheet. So I said no, but I ultimately gave them an hour a week. We would get together and talk about major issues. And as I was going back on the Bridgewater board, they turned to me and said, 'Hey, you're not working as CEO anymore. How about coming and running Oscar?' And I joined the team on April 3rd of 2023, and the stock was at four and a half bucks. And we've had a pretty good ride since then. Company wasn't profitable the first 10 years, it's now profitable. And so we're on our way to what I think is a really bright future.
I love it. What a remarkable story. So it's almost like The Godfather where they pull you back in every time you kind of get out. It's one of my favorite lines, 'Just when I thought I was out, they pulled me back in.'
Love it. All right Mark, let's talk. I'm going to ask you some questions later on about some of those timeless lessons you've learned, but for now let's talk about Oscar. Please let us know what the company does and some of your competitive advantages.
Sure. We take care of currently 1.65 million people, all in the Affordable Care Act. So we take care of people who otherwise couldn't afford insurance. We provide a set of products for them. We're in 18 states and 150 markets around the country. We provide unique products. We have the first health insurance platform that is new since 1972. So we have a brand new platform we built on our own. We have one single database with one version of the truth. And so we're able to use large language models and artificial intelligence on the back end of our business to great effect, creating efficiencies, etc. We offer bespoke products to specific populations, like a diabetes program for people with diabetes is one of our most successful benefits. We have a program for people who have COPD and asthma, it's called BreEasy, again with great success. We have a product called Buena Salud for the Hispanic population, but we have variations depending on the specific Spanish they speak, so that they can choose the kind of language they want to interact with us, the service people that they work with, etc. And that is one of our most popular products. It has an 89% net promoter score. People just love it. And the overall company has a net promoter score of 66, with an industry that has an average of zero. So we have a distinct advantage. We have high retention as a company. People like to stay with us. They stay with us longer than they otherwise would in other competitors, which are in the low 60s and low 70s. And we continue to grow. So last year we grew by 600,000 lives. As we got the company straightened out, we took a year off in '23 to get the company straightened out. And now we're off to building more and different kinds of individual products, not just ACA. So individual consumer health reimbursement accounts, gig economy workers. We're looking at a version of Medicare Advantage that's run by health systems versus insurance companies, closer to the customer. So we're building out all this new product capability to create a larger individual market in the United States. And we believe that the best product for every American is a product they buy that's unique and important to them, not something an employer buys on average.
Okay, gotcha. So from a growth standpoint, I know your company was losing money like you said. Now you guys are projected to be profitable and revenues are expected to grow very nicely going forward. So can you speak to that a little bit so we understand the growth potential? I know retention you said seems to be very high. Where are those markets and let's go.
Well, first and foremost, you need to run an effective insurance company. And that was one of the issues I found. I spent my first 10 weeks at Oscar just doing deep dives and looking at all parts of the business and kept a list. And there are just certain things, and health insurance companies are really banks. We take in money, we invest it, we pay it out, and we keep the rest. And so in that version of the world, you have to do things like fraud, waste, and abuse, and you have to have good systems to take care of customers. We implemented large language models last year across the back end of our business for service and claims processing that yielded an 800 basis point reduction on our operating cost. So once we got the company running right, and that's the first pillar of our strategic plan, is let's run a great company. That moved us to profitability. Now, once you get to profitability, the expectations of the street, they stop asking you, 'Are you going to still be in business next year?' And when are you going to grow and how much more money you're going to make? As you know, that's the way the street works. And so we created our first strategic plan last year. We met with the street in June and showed them a trajectory of five-plus percent margins by 2027, a revenue flow that approaches $16 billion, and that all bodes well for a company like ours and being able to develop internally generated capital. So we had to learn the term, we internally generate our capital so that we can grow. We don't distribute our earnings to our shareholders. And so that internally generated capital needs to be then invested in the right places. So what's next? What's going to be important to Americans? How do we best think about healthcare? And one of our memes that the team always gives me a hard time about, what I think is fun, is we're a pirate filled with cannons among Spanish galleons filled with gold. All we have to do is compete effectively and take the business.
I love it. Okay, so let's shift the conversation now and talk about some timeless lessons. You have an amazing career, you've learned a lot, you've done a lot, you've been very successful, you've overcome personal challenges and also professional challenges, and you're here today. So the first question for you is risk management. How do you handle risk and what are some mistakes you see people make with respect to risk management?
I think a lot of people first and foremost try to avoid risk, and you can't. I mean, that's in the insurance business, that's all we do is risk. So how do we assess risk? How do we assess it in a way so that we can create the plans to be able to handle that risk effectively no matter how it turns out? And you can never predict it accurately. The world happens around you. And so one of the things I tell my hedge fund investors is, you guys get paid a fortune to lie awake at night hoping that what I told you is true. I build operating plans and strategic plans that give me multiple pathways because I know the world's going to change as I move forward. And so a strategic plan is not a point in time that we shoot for. It is what is the next best step today based on what's happening in the market, based on what we know our company's capabilities are, and how do we win. And so it's not what does the spreadsheet tell us is true, it's what do we need to believe about the inherent risks in that spreadsheet, the variables that move the most. What do we need to believe as a team that says we can assume these risks and win? And what do we need to do is in a management process, which is really the most important part. The management process looks at it every day. We get the whole team together every month for a week and we sit and we go through all the numbers and we say, okay, where are we? Where should we be? How do we think we ought to change? So that's the way to actively manage risk. You actively, you got to sort of hug it and you got to embrace it and understand it deeply. You have to be intimate with the risk in order to win.
And managing the risk, that is so powerful. Like you said, most people avoid it, almost like it's a painful subject and people don't want to do that one thing. But if they do that one thing, from Ray Dalio talks about this, right? Find one thing and just lean into it and then do it. Okay, that's a great answer by the way, thank you. Let's talk about timeless lessons you've learned along the way that you'd like to share with the audience, and go in any direction, personal, professional, anywhere you want to go.
On the personal front, I've never had a goal in my life.
I'm going to give you a standing ovation on that one. Please expand.
That's the only way to disappoint yourself. And I believe that we ought to play to our strengths and not necessarily our weaknesses. So my strengths are I fix broken things and build new things. I don't really handle making the trains run on time really well because I'm going to tinker with it. You know, my kids always say to me, 'Dad, what do you want for your birthday?' I want to drive a Zamboni machine. I was a goalie playing hockey in school and I always watch that machine going around and that can't be the only pattern. Well, the Zamboni is not for you to figure out new patterns on the ice, right? It's to play hockey. So you don't want me running the Zamboni machine because we'll never get done. And so that's sort of the way I understand myself. And instead of trying to be a great operator, I look for great operators and help me be a winner. And I love those people and I take very good care of them. I understand the questions, I know how to do the work, but I'm not patient enough to let it run the way it should run. I want to always tinker and make it better. So that's why I don't do operations. And so that's one thing. So this whole idea of, 'Geez, I want to be this by then,' and all these, I view all of it as luck. Luck defined by Mark Twain was a prepared mind at a moment of serendipity. And so what you have to do is you have to be assessing everything going on in your world and saying, where can I win? How can I do this? And I think that is far more effective. You don't disappoint yourself because you didn't hit some number you thought you should have by some certain time. And secondly, it's a joyful journey. And if you learn along the way, there are two things I look for in executives: curiosity and courage. I think experts are has-beens and spurts who drip under pressure. I want people with curiosity and courage. I want people that are curious about why things work the way they were and the courage to act on how we could make them better. Those are the winners in the world.
Yeah, I absolutely love that. So I know, I don't know, I tell people I'm lucky if I can tie my shoes right. So the whole point of the show is to get timeless advice from the smart money. There's the courage to act and ask the questions and learn, because I got one job in life, it's just learn. So I love that curious mind and I love what you said about knowing your strengths. Like I'm very good at big picture stuff but I'm not good at the micro detail. So find somebody who's good at that, which is brilliant. So okay, next question for you, the other side of that, timeless mistakes. What are some timeless mistakes either you've made or you've seen people make and how do you avoid them or learn from them?
The leading cause of failure is success.
And it's when you get comfortable and you think everything's going well, you got the management process down and you're looking at the metrics and all the metrics are right, and underneath those metrics the world changes and you're not going deep enough. As the world gets more sophisticated and complex, like medical care, at Aetna for every 50 basis points of change in trend, it was $980 million of underwriting margin.
