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For health insurance startup Oscar, it’s get bought—or go bust

September 9, 2015, 3:37 PM UTC
Oscar health insurance box gif
Oscar health insurance box
Courtesy: Oscar

“Oscar has hundreds of millions in funding,” screams a September 3 article in Bloomberg Businessweek. “Now it needs customers.”

In this Age of Unicorns—that is, this age of privately-held technology companies valued at more than $1 billion—you could probably replace “Oscar” with the name of virtually any billion-dollar startup and get the same result.

23andMe has hundreds of millions in funding. Now it needs [paying] customers.”

Lyft has millions in funding. Now it needs customers.”

Tinder has millions in funding. Now it needs customers.”

OK, maybe not that last one. But you get the drift. In today’s frothy market, it’s often easier to obtain venture capital than it is customers—let alone enough revenue from them to turn a profit. And that’s the case for many companies on Fortune’s Unicorn List.

Oscar, the two-year-old New York health insurance company, is quite clear that it’s trying to shake up a staid market. Its ads, for a time plastered across New York City’s public transit system, were illustrated and adorable and very much the last thing you’d expect from an insurance company. The message was clear: We’re different. What’s not clear is whether the business it’s in will allow it to be different enough to, well, make a difference.

The Businessweek article outlines why, right at the outset. The health insurance industry is highly regulated. It’s extremely competitive. Financial success requires scale—on the insured side, enough healthy people to support the fundamental insurance business model; on the provider side, enough hospitals and doctors willing to provide favorable prices.

With the 2010 Affordable Care Act at its back, Oscar is pushing its technology as a differentiator. It says its system connects doctors and patients faster than the rest of the pack and its consumer-facing products—mobile app, website, bills—are easier to use and understand, too. Behind the scenes, data collection from those health visits refines the physician search.

But it’s unclear whether those forward-thinking features will help it win in a market so strongly dominated by size. Can Oscar’s agility help it outmaneuver increasingly large competitors as it continues to lose tens of millions of dollars per year? In almost a single month this summer, Anthem and Cigna hooked up for nearly $48 billion; Aetna and Humana did the same for $37 billion; and Centene and Health Net recited vows to the tune of $6.8 billion. To the best of my knowledge, the only “billion” found in Oscar’s financials is its valuation. (It has raised about $300 million from investors.)

Moreover, the road so far hasn’t all been roses. From Fortune’s December 2014 report on the company:

[CEO Mario] Schlosser admits Oscar failed to properly communicate how deductibles and healthcare plans work to its members. “The healthcare system is astoundingly complex,” he says. Oscar customers can avoid unexpected payments by keeping in close contact with the company while receiving care. “There are uncontrollable traps in the healthcare system,” he says. “The complexity of this system is astounding and the immediate thing we can do to make sure none of this happens is have you come through us.”

The company has managed to become a serious competitor in New York (No. 4 U.S. state by population) and New Jersey, and it has serious plans to expand to Texas (No. 2) and California (No. 1) this fall. Recipe for disaster or risk worth taking? We’ll soon find out.

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