But New York also is among the most competitive markets in the country. At least seven companies are selling products through New York State of Health in each of the nine counties where Oscar participates. That competition includes a couple of other startups.
Northshore-LIJ, a major provider in the New York metropolitan area, entered the insurance business for the first time last year. Health Republic Insurance of New York—one of the nation's 23 new not-for-profit plans in the Consumer Operated and Oriented Plans Program (CO-OP)—has also gotten government loans to begin operating in N.Y.
Nationwide, there are about 80 new competitors in the individual and small-group markets, according to a report by McKinsey & Co. But roughly three-quarters of these new entrants fall into two categories: CO-OPs and companies that previously had only Medicaid enrollees. In terms of the number of plans sold through the exchanges, CO-OPs and Medicaid providers are offering 85% of the products available from new entrants.
The startups face well-financed, entrenched incumbents in most markets, and there is some preliminary evidence that they are struggling to gain traction. An analysis of October enrollments in the California exchange found that 96% of individuals selected plans from four carriers that already sold products in the individual and small-group markets.
“The established plans have important brands,” Newell pointed out. “If you say Blue Cross, people know what that means.”
Connolly points to another advantage that legacy carriers have: experience setting actuarially sound premiums. “They know how to package risk and sell insurance,” she said.
Oscar is trying to overcome those hurdles with creative marketing efforts. The company is running ads on sites such as Pandora, the Internet radio station, and Facebook. Its irreverent videos, which include one with a grizzly bear that escapes from the zoo, have attracted about 200,000 views on YouTube.
But there is also an old-fashioned, shoe-leather element to Oscar's marketing efforts. Company staffers are attending outreach events at churches in the Bronx, meeting with immigrant taxicab and limousine drivers and attending gatherings of students at General Assembly, a technology-focused educational institution.
Oscar's key staffing hires show it is clearly focused on technology and social media to give it a competitive edge. In addition to the three founders, they have brought on board Fredrik Nylander, a former executive at Tumblr, to serve as chief technology officer, and Naveen Selvadurai, a co-founder of Foursquare, to lead the company's mobile operations.
But what those individuals lack is any experience in the healthcare or insurance industries. Starting an insurance company requires setting premiums that will allow the firm to compete in the marketplace without taking on excessive financial risk and assembling a viable network of care providers. Those are skills that no amount of social-media savvy can provide.
Oscar has sought to address that with some other key hires. Dave Henderson, who has more than two decades of experience working for a variety of insurance companies, including Cigna Corp. and EmblemHealth, is Oscar's president of insurance. Steven Kessler came over from EmblemHealth to serve as chief financial officer. Oscar's board includes Charlie Baker, former CEO of Harvard Pilgrim Health Care, Wellesley, Mass.