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Can health insurance unicorn Oscar live up to its hype? Google thinks so.

There’s cold brew on tap and 20-somethings milling about the office popping artisanal chocolates and scribbling on whiteboards. Looks like a typical Friday afternoon at most startup offices. If it weren’t for plasma screens mounted on the walls -- with a tick-by-tick countdown to open enrollment -- Oscar Health would be indistinguishable from its fellow New York City startups.

The Affordable Care Act, now in its third year, has carved out a unique opportunity for Oscar, which launched in 2013. Consumers who don’t get insurance through an employer, or work as independent freelancers, can shop for plans online and get subsidies depending on income and family size. Open enrollment -- the yearly period when you can sign up or switch health insurance plans -- begins Nov. 1.

Health insurance is so painfully confusing to most people, and Oscar’s on a mission to change that. Yet none of its three co-founders have insurance experience; they come from tech and finance backgrounds.

We spoke with Oscar co-founder and CEO Mario Schlosser, who most recently co-founded the financial services company Sofin and previously was an associate at hedge fund Bridgewater (co-founder Josh Kushner’s Thrive Capital is an investor in Oscar).

“Many people who have operated in this industry before don’t come with a fresh set of eyes or a different kind of background,” Schlosser says. “The three goals we have are to bring costs down, get quality up of care and make members happy.”

Oscar: A snapshot

With just under 400 employees, Oscar currently offers coverage to 40,000 members in New York and New Jersey, a 167% increase from the 15,000 members it had in 2013. The company wouldn’t say how many new customers it’s expecting to enroll this season.

Oscar brands itself as a different kind of health insurance company. It touts an easy, user-friendly web interface, a simple app, and jargon-free medical bills. Consumers can purchase Oscar insurance directly through the New York and New Jersey marketplaces, and users in California and Texas can sign up starting Nov. 1 as the company expands to those states.

So what’s Oscar’s appeal? It’s a health insurance company available for individuals, couples and families. Oscar doesn’t offer group plans, though Schlosser says it intends to in the next 12 months. The company says it offers a unique set of benefits like price transparency, free wellness check-ups, no-cost generic prescriptions and free, and unlimited telemedicine services. (Several insurance companies like UnitedHealth, Cigna and Anthem do offer telemedicine, but at a cost. UnitedHealth, for example, charges about $50 per virtual physician visit.)

“Philosophically speaking, health insurance should be sold to individuals...You as an individual generally have no idea what your employer is paying for your health insurance. If you knew it, you’d probably go in the barricades and demand a better system,” says Schlosser.

He described the need to attract individuals as a challenge that he’s taking head on. “We like the fact a lot that we have to pitch directly to individuals and convince them that Oscar is the best insurance to buy. It forces a discipline in us saying, ‘people have to like us.’”

And people -- with money -- have taken notice. Last month Google Capital, the tech giant’s growth equity investment fund, announced a $32.5 million investment in Oscar, which values the company at $1.75 billion. Oscar is one of 19 companies that Google Capital has invested in -- joining the likes of SurveyMonkey, Glassdoor and FanDuel. The company says it has $350 million in total funding.

David Lawee, a partner at Google Capital, told Yahoo Finance, “It is obvious that data science can be used to lower healthcare costs in the U.S.. We think Oscar is very well positioned to do that. We were really impressed by the engagement they've built with users and we're thrilled to support them.”

Taking on the giants

The tech crowd may like Oscar but others are more skeptical that an upstart can get a real footing in the entrenched insurance space.

Tal Gross, assistant professor of health policy and management at Columbia University’s Mailman School of Health, says: “The real challenge and test is whether Oscar can expand, have older consumers who are higher risk and still be surviving in the industry.”

The industry is currently dominated by the big five, which are consolidating into three powerhouses. This summer the nation’s second-largest health insurer Anthem bought Cigna; together becoming the country’s biggest health insurer with 53 million members. Also this year Aetna bought Humana for a combined 33 million members. UnitedHealth Group will be the second-largest with 45 million members.

“The major five have even consolidated in order to gain cost advantage -- otherwise you’ll be in a tough situation,” says Vishnu Lekraj, senior analyst at Morningstar.

Size matters in this industry. “Insurance companies have to negotiate rates with hospitals. You have to be big to negotiate good rates, and if you’re starting out and you’re small, that’s difficult to do. You’ll end up being offensive because you have to dole out large amounts,” Gross says.

Indeed, comparing Oscar’s membership numbers to those of the major players makes it obvious that Oscar is facing monumental competition from established behemoths. And Schlosser acknowledges the challenges of tackling such a monopolized sector: “Insurance companies are only valuable when they’re around for decades at a time. It’s a commitment to a multi-decade story, maybe even longer and nothing less than that.”

A virally growing insurance company

Schlosser says the No. 1 way Oscar is attracting customers is word of mouth. The second is with ads peppered throughout the New York subway system, many of which play on the kind of confusion health insurance generally elicits (e.g., “Health insurance that won’t make your brain explode. And if it does, you’re covered,” “We didn’t start this company because we love health insurance. Quite the opposite, in fact.”)

Source: Oscar Health
Source: Oscar Health

This year, Oscar says it will continue its subway marketing campaign, and has plans to advertise on buses, trains, billboards and TV in its two new markets, California and Texas. Oscar currently offers 12 different plans (for New York and New Jersey customers) through the federal health care marketplace and state exchanges.

Though Oscar is admittedly green in the insurance game, it says it offers “high-quality care at affordable prices,” with greater cost transparency.

Schlosser says that for those over 30, who don’t generally have chronic medical issues, plans can “go as low as $350 a month, unsubsidized.” For people 20 to 30, Oscar’s catastrophic plan (which covers the basics, including three free primary care doctor visits annually and a $400 annual gym reimbursement), costs around $130 a month. No doubt, such a plan would come with a hefty deductible and higher out-of-pocket costs.

To put those figures in context we compared health plans using GoHealth, a site that lets consumers comparison shop for plans. For a single, relatively healthy 24-year-old woman living in New York making $70,000 a year, 150 plans were available, ranked by affordability. The first option listed was Fidelis Care’s catastrophic plan, which has a $177 monthly premium and $6,600 deductible. The second was Oscar’s “secure catastrophic” plan, with a $180 monthly premium and a $6,600 deductible. The third was UnitedHealthcare’s Bronze plan, with a $188 monthly premium with a $3,000 deductible. At least in this unscientific survey, for a low-risk young adult, Oscar’s coverage isn’t the cheapest but it is competitive. (The 2015 average monthly premium for the lowest-cost bronze plan is $209 -- for a 40-year-old nonsmoker, before a tax credit -- according to Kaiser Family Foundation data.)

Sarah Doody, a 34-year-old web designer who lives in New York City, is on Oscar’s standard bronze plan and pays around $350 a month. An avid athlete, Doody is currently training for the New York City marathon next month and considers herself very healthy. She says she was attracted to Oscar’s technology-focused services and being able to get in touch with a doctor at anytime.

Doody put Oscar to the test this past summer when she got surgery on her leg. “I had to max out my yearly out of pocket -- $6,350. It could have been mountains of bills and paperwork, but it was a transparent process and I wasn’t left with an insane bill.” Doody noted that she found the payment process straightforward and would recommend Oscar to her parents and grandparents.

Limited scope

Others have not been as satisfied with their Oscar experience -- it has a 2 ½-star overall rating on Yelp. And in September, Farhan Malik, 48, an independent musicologist living in Manhattan, posted a critical review of Oscar on the site.

Malik is currently on the silver couples plan, for which he and his wife pay $870 a month. He said he was shocked when, after getting a routine physical in June, his wife got charged $61.54 for items like urinalysis and routine blood collection, which he thought were baked into the free cost of an annual checkup.

He wrote: “Don't be fooled by the slick advertising about Oscar being different in a good way.  I've used many insurances over the years and the only way I've found Oscar being different is that they pay the least of any insurance we've ever had. Insurance has always been expensive, but the one thing you could at least count on was a free physical exam. Not so anymore, thanks to Oscar.”

An Oscar rep responded to his post saying that yearly physicals are covered in full, as are recommended lab tests, but that other lab work is “considered diagnostic and is subject to cost-sharing.”

“I’m used to paying outrageously high premiums and high deductibles. One thing you got was one free visit to the doctor, but now you can’t even get that,” Malik told Yahoo Finance.

Another issue Malik had with Oscar is the network. He was drawn to the fact that Oscar partnered with MagnaCare -- a healthcare network in New York and New Jersey that his doctor was part of. But Oscar members only have access to certain providers within MagnaCare; several MagnaCare doctors Malik had used didn’t accept Oscar.

Do perks matter?

Unlike Doody, Malik said technological features like the app or 24-7 televisits didn’t factor into his decision to sign up with Oscar. He was ultimately hunting for the lowest price and largest network.

Oscar provides members with free Misfit wearable fitness devices and they can receive up to $240 a year through Amazon gift cards for reaching specific daily walking goals.

For members like Doody, these benefits add further incentive for her to carry on with her already active lifestyle. Malik, on the other hand, says he hasn’t used the televisit feature once during his two years with Oscar.

Gross says, “These gimmicks might show that you’re just attracting the kind of people who would paying for these benefits in the first place.”

Ambitious aspirations

It’s no surprise that Oscar attracts younger, lower-risk individuals. Its sleek marketing and tech-focused approach seems a natural fit for millennial freelancers. But according to Schlosser, the two most popular plans are the bronze and platinum packages, the latter of which has the lowest out-of-pocket costs of Obamacare plans but the highest premiums, suggesting Oscar appeals to both 20-somethings and those with more complex insurance needs.

Oscar is not the only intrepid startup in the healthcare space. Clover, founded in 2014, is a San Francisco-based company that only operates in six counties in New Jersey. But, unlike Oscar, it’s trying to carve out a niche corner of the sector -- the Medicare Advantage market.

Schlosser remains ever optimistic about Oscar’s future: “Acquisition is the last thing on our minds. [We want to be] in all 50 states, but at a pace that makes sense. We’re hoping to get to a few million members in the next couple of years.”