Oscar Health's narrow-network strategy yields first-ever quarterly profit

Health insurance startup Oscar Health posted a profit in the first quarter of 2018 after expanding its footprint and growing membership in the individual insurance market.

The quarterly profit—the first Oscar has reported since launching five years ago—signals that the health insurer's strategy of creating narrow networks through partnerships with major brand-name hospital systems may be a winner.

Oscar this year serves members in six states and partners with heavy hitters like Cleveland Clinic in Ohio; Tenet Healthcare Corp. in Dallas; and Mount Sinai Health System and Montefiore Health System, both in New York. It enrolled 252,000 individual members in 2018, and 240,000 paid their premiums. That's up from about 100,000 members in 2017, when it operated in three states.

Oscar, which describes itself as consumer-facing plan with an emphasis on technology and virtual care, has struggled with high administrative costs and inefficient processes. For instance, Oscar outsourced claims processing until February 2017, when it started paying claims in-house.

Administrative costs came down a lot in the past year. In the first quarter of 2018, Oscar reported a medical loss ratio of 70%, a major improvement over the 95% loss ratio recorded for the full-year 2017 and 120% in 2016. The medical loss ratio represents the percentage of premiums spent on medical care and quality improvement activities. The lower the figure, the better for the insurer.

Oscar previously has blamed its historically high medical loss ratio on individual market instability and the failure of the federal government to pay health plans the funds owed them under the ACA's risk-corridor program. Oscar CEO Mario Schlosser has said that his goal is to maintain a 2018 medical loss ratio somewhere in the 80s, which would be more in line with industry peers.

Oscar recorded a net profit of $7.4 million in the first quarter and premium revenue of $312 million, more than three times the amount of premium revenue it reported during the same time a year ago. The insurer said it is on track to generate $1 billion in premium revenue for the year.

"These results strengthen our confidence in the Oscar business model—using technology and engagement to guide members towards high-value care in selective, efficient networks—and give Oscar the momentum to expand again into new individual and small group markets in 2019," Schlosser said in a statement.

The insurer is still finalizing its plans for expansion in 2019, but Schlosser told Modern Healthcare in a previous interview this year that it will move into four or five new cities per year. According to Bloomberg, Oscar has filed to sell individual plans in Arizona in 2019. This year, it sells coverage in cities in California, Ohio, New Jersey, New York, Tennessee and Texas.

An edited version of this story can also be found in Modern Healthcare's May 21 print edition.