Right. And welcome in. Thanks for joining me, Mark Bertolini.
Thank you, Travis, for inviting me.
Mark, I want to get a really high-level overview of Oscar first. Some of us don't live in states where Oscar operates, get insurance through employer plans and things like that. So, I get a lot of questions about, you know, 'Hey, Oscar's a perfect stock. You should be covering this in Asymmetric Investing.' It's hard for me for companies that I don't can't fully understand and actually use. So, let me give you an idea. What do you guys do, and what's different from kind of the traditional insurance that we think about?
So, first and foremost, we're a company that works solely in the ACA marketplace. So, we have just about 3 million lives that we cover in the ACA. We're in 21 states, multiple markets in each state. Our largest market is Florida, where we have a pretty big presence. Texas, you know, Ohio, Georgia, states like that. North Carolina, South Carolina. So, as we both probably know, what's unique about us is that we are a tech-first insurance company. We're digitally native. We have one platform. It's the first new platform in health insurance since 1972. We have one data set, so one version of the truth. So, for us implementing AI is a very simple thing. We have over 40 large language models on the back end of our business. And we have now three agentic AI bots on the front where we interact with our members. And our operating platform is very efficient, very effective, high quality. And that has allowed us to price our product at a pretty comparable and affordable rate for consumers. It's a solid market.
I want to get to that tech side in just a second, but the ACA market in particular, you know, I haven't been in the ACA market for a while, but I was early in the ACA days buying, you know, on the exchange. And it seemed like a place where insurance companies would come and go. Like they weren't successful. I assume that's why they would leave. So, what is it about that market that has become attractive to you? And then I want to tie in ICHRA. I want to get the acronym correct. Individual Coverage Health Reimbursement Arrangements. Because that's one of those concepts that makes a lot of sense to me. So, I want to kind of pull out where that's going. But you know, why ACA and then how's it different?
So, you know, Aetna, the company I was at, well, I left Aetna in 2018 when we sold it to CVS. I went to work at Bridgewater. I was chairman and co-CEO there for a while, Bridgewater Associates, the world's largest hedge fund, and then I came here to Oscar. I'm also the chairman of Horizon. So, what's interesting about this market different than the big company I used to run is that back in the day when we all started, we used our traditional commercial insurance model. So, we had big networks, you know, we had our old technology systems and we weren't as efficient being big players with big markets and a lot of market share. And then probably the most unique thing is that we had the B or the C team on the ACA market, not the A team who was working on Medicare and the commercial markets and all the big markets we had, right? So, at Aetna, we serviced 54 million individuals through different products. In the ACA, we had a million lives. So, it sort of got last call on capital, you know, that sort of stuff. You know, and they got the B team. So, here at Oscar, we got the A team. This is all we do. We now understand that narrow networks, smaller networks, make the day work. And that we don't underwrite the members anymore because the risk adjustment model for the whole market, at the end of the year, we all put our claims in. CMS does an evaluation, and for those plans that have higher risk than others, the plans with lower risk have to pay the plans with higher risk. So, we equalize the risk across all the companies at the end of the year. And when you do that, there's no reason to underwrite the members anymore. You actually underwrite the networks you create.
So, that incentive that I, because I remember that early on, right? Like, they wanted the younger people because the people, you know, the lower risk, lower cost people to kind of offset the costs of... But then that raised costs for me, you know, I think I was in my 20s or early 30s at that time. That raised costs for me, then which then sort of gives me an incentive to leave the market. So, you're saying some of those adjustments have kind of fixed some of that.
So, we have fixed that all through various product lines. So, we now offer products specific to individuals that they're interested in, like we have a product for diabetics. Now, whoever heard of an insurance company actually recruiting diabetics? But, we get paid for that risk if we take it, and if we get them better, and invest in them, they actually are cheaper to take care of. So, that's sort of counterintuitive in the old insurance model. And so, I think a lot of the large carriers have never been able to make the pivot. What it takes to compete in this market versus the way the old market has worked.
Sort of a classic disruption story. What about the ICHRA changes? Because that's one of the things that sort of peaks my interest and goes, okay, now we're maybe bringing a little bit of this individual choice into it. You're selling to an individual instead of a company. But how does that work and what's sort of the dynamics behind it? Because it seems like it not only makes sense, but it's also complicated behind the scenes.
So I'll use a rather old example. Remember when we went from defined benefit to defined contribution for pensions? I was in that transition. Even before you were around. Even before you even joined a beach. And what we're doing now with health insurance is doing the same thing. Going from a defined benefit model to a defined contribution where the employer gives the money to the employee and says go buy your insurance.
Is that going to be something that's a, you know, the transition from pensions to defined, you know, 401(k)s took a long time. Is that going to be a similar transition where maybe today the ICHRA is very small, but in 20 years it's going to be almost everybody and it's going to be, you know, nobody covered with...
I think it happens faster and for two reasons. One is back when we did defined contribution for pensions we said to employees, you have three accounts you can invest in. You've got a money market, you've got an average market and you've got an aggressive market. And everybody put in the middle. Because it was in the middle. And so they got no help. There was no financial advice. There was no sort of hey Mark, you should go in the aggressive one. You're young and you know, the compounding, you know, the value of compounding over time you'll do better. Which I didn't do. I put it in the middle one. And so as you think about that, you can't do that in health insurance. There's too much risk to the individual's health to make that happen. So, what we need to do is we need to get the employers to make the transition. And then we need to create the tools and the technology and the people through brokers to help them pick the right plan. And there are three reasons why that matters. One is that the employer needs to have a stable defined contribution. So, what you want is you want people in the right level of risk plan. Healthier people in plans with a little less intensity, but with sicker people in plans that take better care of them. Because what we have found in insurance over time, particularly with Medicare Advantage, is that if you actually take care of the really sick people, they actually become easier to take care of. So, you know, it's like Italians have left Warheads. You know, wow, we figured it out. And so, that's number one. Number two. Currently today, when people pay for their health insurance, they pay a piece of the premium. And they go into a plan designed that their employer designs, which meets the average of the employee population with a network that's very large because they need to cover all their employees. And so, nobody really gets what they need. They get the average.
Yeah. And you know, like they say in Lake Wobegon, nobody's average here. Everybody's above average. And so, nobody wants to be in the average plan.
And so, what happens... Because almost 80% of all providers are in the ACA, my narrow network for me is going to be somewhere. So, when I buy my product, I don't care what Travis needs, I care what my family needs. If my network is in there, I'm going to buy that network. And that network is at a smaller network rate versus the broader rate that big employers have to pay to have more providers in their network, because we're pushing share through that provider.
You kind of got into the cost piece of it, because I think this is one of the things that's always... I've struggled with healthcare and health insurance in particular with it seems like especially after the ACA, and I thought things would play out differently, but the incentive for everybody up and down that stack is for cost to go up. You know, if your profits are capped out at a percentage of your revenue, the only real way to increase your bottom line is to increase your top line. There's only so many people, so therefore cost just continue to go up. And we see all these strange incentives, you know, where if you go in and you pay cash for something, it's a quarter of the cost of if you pay for it with insurance. How does Oscar break that? And it seems like a company that's on the offensive in this industry may actually have an opportunity to say, 'Okay, we need to think about this differently and do things differently.' And you know, like you're saying, you're technology first and all of this kind of stuff and sort of break that incentive structure that's ingrained in this corporate...
No, so we believe at Oscar that we're a pirate ship among Spanish galleons filled with gold. And all we have to do is take their business. And the way we take their business is we provide a product that meets individual needs. So, we believe every American should be able to buy an individual policy. I can buy my network. And as my life changes, I can buy a plan design that works for me in that stage of life. So, young single, newly married, starting a family, teenagers in the home, empty nesters, aging gracefully. All those sorts of things we should be building a lifestyle approach. And if I can pick my network, and I can use my bucket of money from my employer or from the government, wherever it comes from, I can keep my network for life. It goes all the way back to one of the original promises of the ACA, you can keep your doctor. You can keep your hospital. And secondly, when you have a lifetime relationship with that network and that insurance company, the investment horizon is fundamentally longer, the lifetime value of the member is fundamentally higher, and the investment protocol is going to change because I want to keep that person healthy over their lifetime. So, one of the products we offer is we offer a product called Hello Meno here at Oscar. It's for women going through menopause. It has bone density scans. It has hormone replacement therapy. It has counseling. And so, we want to build those products. Our diabetic product is around diabetics. Product for people with COPD or asthma. And we're all looking at these lifestyle products and getting ready for a company that at some point when people buy what they want and what they need, they actually get what matters to them and they keep it.
