- Health insurers Oscar, Clover and Bright have set out to disrupt the health insurance industry.
- High barriers to entry and operational missteps prevented them from upsetting anything.
- Americans are left with an expensive and complex system run by dominant insurers that are only getting bigger.
About ten years ago, a new type of health insurer began to emerge. Armed with billions in venture capital, these upstarts are betting they could use modern technology to make healthcare better, cheaper and easier to navigate.
Oscar Health created buzz with eye-catching New York City subway ads and a co-founder named Kushner. The famous Reddit Clover Health won the seal of approval from investor Chamath Palihapitiya. In Brilliant Health In this case, its founders’ ties to UnitedHealthcare, the largest and wealthiest US health insurer, gave it some credibility.
The hype has swelled around these companies, and they massive valuations before each is released to the public in 2021.
Today, they are mostly the standard bearers of the difficulty of breaking into the insurance sector. No longer new enough to be called startups, they continue to face setbacks and their losses get worse. While their CEOs talk about finally breaking even sooncompanies have to slow down their growth when they have barely taken off.
Any disruption has been limited, to say the least.
“I don’t think they had much of an impact,” said Lawton Robert Burns, a professor of healthcare management at the Wharton School at the University of Pennsylvania.
The inability of insurers to disrupt the industry raises a key question: is it possible for a startup to supplant – or even compete with – established giants such as UnitedHealthcare and Humana? As the prospects for repairing the costly and complicated system dim, the consequences could be severe.
“We have an expensive healthcare system that is going to get more and more expensive,” Burns said.
Oscar, founded in 2012, and Bright, in 2015, set out to sell health plans to people buying coverage through the Affordable Care Act Marketplace.
Oscar bet he could use a sleek, in-house developed app and personalized data to guide members to lower-cost care and entice them to get health checkups. Bright wanted to work closely with doctors and arm them with data they could use to better care for patients.
Clover, founded in 2014, set its sights on the private health plan market for seniors called Medicare Advantage. He ditched traditional insurance tools like limiting which doctors members could see and bet his Clover Assistant software would cut healthcare costs. Oscar and Bright also later expanded to Medicare Advantage.
Great Obstacles, Flawed Strategies
In some ways, the upstart insurers seemed doomed. The industry is heavily regulated and requires a ton of capital, and margins can be tight. Operational errors and flawed business strategies have compounded insurers’ problems, according to industry analysts and consultants.
They failed to master basic tasks such as charging their plans enough to cover costs or building profitable networks of doctors and hospitals, said Stephens analyst Scott Fidel.
Bright, for example, has attracted members with low premiums who did not cover the cost of their medical care. He couldn’t handle the influx of new customers.
oscar too loaded too little in its early years, although the company has since increased premiums. Investments in technology, customer experience and marketing were costly – and some experts wonder if they were worth itas customers tend to choose health plans based on price.
Jackie Kahn, Oscar’s director of communications, said in an email that Oscar’s investments in areas such as member experience have helped the company grow to a scale that lowers administrative costs.
“You can’t expect new entrants to build profitable networks from the start — you have to scale to realize those efficiencies, which we’re doing now,” Kahn said. “Scaling, operating and driving industry change takes time, but we have shown that our business is sustainable, and we believe our impact over the next decade will be lasting.”
As for Clover, its rich benefits and wide open provider network have made it difficult for the insurer to control costs, said Whit Mayo, senior managing director at SVB Securities.
Clover and Bright declined to comment.
These problems resulted in heavy losses. Bright posted a net loss of $691 million for the first 9 months of 2022, while Oscar lost $383 million and Clover lost $255 million. Their shares have fallen more than 90% since their IPO.
The break-in becomes more and more difficult as the mainstream health insurers increase. UnitedHealthcare has 51.7 million members, making it the largest. Elevance Health, parent company of Anthem health plans, is No. 2, with 47.5 million members, and that’s fair reached an agreement buy a large Louisiana insurer.
“Holder is one of the biggest challenges anyone will have in disrupting this industry. Humana, United – the big one just keeps getting bigger. Nobody knows who Clover is,” Mayo said.
UnitedHealthcare grown up its membership by more than 1.2 million people in the United States in 2022 alone. This eclipses the entire limbs of each of the upstarts.
Oscar, Clover and Bright aren’t the only Medicare upstarts trying to break in. And some other young insurers seem to get by financially.
Alignment Healthcare, which went public in 2021, is not profitable overall but has not lost as much money as others. Devoted Health is still private, but the limited financial information available on this shows its insurance plans made money in the first half of 2022. Still, the companies are small, and the jury is out on whether they can make their mark.
Nor is it certain that any of these companies offer better insurance or facilitate better care than their predecessors. Clover and Bright scored below the national average on Medicare Advantage star ratingone of the few available measures of health plan quality and customer experience.
Alignment and Devoted received higher quality ratings. But even Alignment’s high score isn’t enough to “move the big guys,” Alignment CEO John Kao said in an interview.
“The difference between what we do is not yet differentiated enough to be the disruptive influence we want,” he said, adding that Alignment was working hard to make it happen.
Stuck with the status quo
Oscar, Bright and Clover could still survive and possibly turn a profit. But they are far from changing the status quo.
Health insurance remains too complex and incredibly frustrating. It can be almost impossible to find out what you will pay before seeking treatment. Obsolete directories can make it harder to find a doctor your insurer will pay for, but patients are penalized if they go outside the network. Obstacles to prior authorization can lead to delays in care.
Established health insurers have been unable to stem rising health care costs, which are mainly driven by prices for medical care. In the United States, premiums for employment-based coverage are more than 40% higher than they were in 2012, the Kaiser Family Foundation found. And many Americans struggle to afford their medical bills.
The United States needs more competition among insurers, but pumping money into newcomers with flawed business models isn’t the solution, said Craig Garthwaite, a strategy professor at Northwestern University. And their struggles could scare off other new entrants and investors, he said.
“There’s no right answer to that from a societal perspective. How you bring competition into those markets is difficult,” he said.
Some upstarts influenced established insurers
Some experts claim that even though start-ups are not yet successful as individual businesses, they have still influenced the entire industry to improve in a way that benefits customers.
For example, UnitedHealth followed Oscar’s lead by redesigning its user experience and purchasing Rally Health, a digital health startup that encouraged people to make better choices about their health, Bob Kocher, a partner at venture capital firm Venrock that invested in insurance startup Devoted, said.
Kaveh Safavi, chief executive of consulting firm Accenture, said start-up health insurers that focus on customer experience are spurring established insurers to invest millions in this area. They revamped their apps and improved their call centers.
“This digital customer experience strategy, I would say, has become ubiquitous with large health insurers,” Safavi said.